AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997
REGISTRATION STATEMENT NO. 333-15967
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 4 TO
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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
SLAV STEIN, PRESIDENT
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1810 N.E. 144TH STREET 1810 N.E. 144TH STREET
NORTH MIAMI, FLORIDA 33181 NORTH MIAMI, FLORIDA 33181
(305) 944-7710 (305) 944-7710
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
----------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
PHILIP B. SCHWARTZ, ESQ. LESLIE J. CROLAND, ESQ. ROBERT ALTENBACH, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A. LUCIO, MANDLER, CROLAND, BRONSTEIN, JOHNSON & MONTGOMERY
ONE S.E. 3RD AVENUE GARBETT, STIPHANY & MARTINEZ, P.A. 3060 PEACHTREE ROAD, N.W.
28TH FLOOR 701 BRICKELL AVENUE, SUITE 2000 SUITE 400
MIAMI, FLORIDA 33131-1704 MIAMI, FLORIDA 33131 ATLANTA, GEORGIA
(305) 374-5600 (305) 579-0012 (404) 262-1000
</TABLE>
----------
APPROXIMATE DATE OF PROPOSED SALE TO THE 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]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
PROPOSED
AMOUNT MAXIMUM PROPOSED
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001(2) 920,000 $6.50 $ 5,980,000 $ 1,812.12
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants(3) 920,000 $.125 $ 115,000 $ 34.85
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001(4) 920,000 $7.475 $ 6,877,000 $ 2,083.94
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001(5) 80,000 $8.45 $ 676,000 $ 204.85
- ---------------------------------------------------------------------------------------------------------------------------
Underwriters' Common Stock
Purchase Warrants(5) 80,000 $.1625 $ 13,000 (6)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001(7) 80,000 $7.475 $ 598,000 $ 181.21
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 4,316.97
- ---------------------------------------------------------------------------------------------------------------------------
Total paid with prior filings $ 4,047.14
- ---------------------------------------------------------------------------------------------------------------------------
Total paid with this filing $ 269.83
===========================================================================================================================
</TABLE>
(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) Includes Common Stock Purchase Warrants issuable in connection with the
exercise of the Underwriters' over-allotment warrants.
(4) Issuable upon exercise of the Common Stock Purchase Warrants.
(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.
(6) No fee due pursuant to Rule 457(g).
(7) Issuable upon the exercise of the Warrants underlying 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.
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
ITEM NUMBER AND CAPTION IN FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
- ------------------------------------ ---------------------------------
<S> <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
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>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 1997
PROSPECTUS
800,000 SHARES OF COMMON STOCK AND
800,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
----------
Advanced Electronic Support Products, Inc. (the "Company") hereby offers
800,000 shares of Common Stock, par value $.001 per share (the "Common Stock")
and 800,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The
shares of Common Stock and the Warrants will be purchased separately. Each
Warrant is transferable immediately upon issuance and entitles the holder
thereof to purchase one share of Common Stock at a price per share equal to 115%
of the initial public offering price of the Common Stock during the four year
period commencing on the first anniversary of the effective date of this
Offering (the "First Exercise Date"). The Warrants are redeemable by the Company
at $.01 per Warrant upon 30 days' prior written notice to the holders thereof,
if the average closing price of the Common Stock equals or exceeds 175% of the
initial public offering price of the Common Stock for the 20 consecutive trading
days ending not more than three days prior to the date of the notice of
redemption. See "Description of Securities."
Prior to this offering (the "Offering"), there has not been a public market
for the Common Stock or the Warrants and there can be no assurance that any such
market will develop. It is currently estimated that the initial public offering
price of the Common Stock will be between $5.50 and $6.50 per share and for the
Warrants will be $.125 per Warrant. 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 and Warrants on the
Nasdaq SmallCap Market under the symbols "AESP" and "AESPW" and on the Chicago
Stock Exchange (the "CSE") under the proposed symbols "ASP" and "ASPW", although
no assurance can be given that such applications will be successful.
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, INCLUDING WITHOUT LIMITATION A RISK THAT THIS
PROSPECTUS MAY NOT BE CURRENT DURING THE EXERCISE PERIOD OF THE WARRANTS.
The Company's principal shareholders, Slav Stein and Roman Briskin, own
812,500 shares of the Company's outstanding Common Stock, constituting 50.4% of
the shares to be outstanding upon completion of the Offering (assuming no
exercise of the underwriters' over-allotment option or the Warrants).
Immediately prior to the Offering, the Company will issue to Messrs. Stein and
Briskin subordinated promissory notes (the "Principal Shareholders' Notes") to
reimburse them for lost tax benefits which would otherwise be available to them
based upon the conversion of the Company from an S-corporation for federal
income tax purposes to a C-corporation. The Principal Shareholders' Notes would
have aggregated $1,612,043 at September 30, 1996 and will be convertible into
Common Stock at a conversion price of $4.00 per share. After accounting for a
$200,000 payment on these notes (which will be made to Messrs. Stein and Briskin
from the proceeds of the Offering), the Principal Shareholders' Notes would be
convertible into 353,010 shares of Common Stock. In addition, Messrs. Stein and
Briskin hold options to purchase an aggregate of 560,500 shares of Common Stock,
of which 200,000 are currently exercisable. If Messrs. Stein and Briskin were to
immediately convert their notes and currently exercisable options (of which
there can be no assurance), they would own 1,365,510 shares of Common Stock,
constituting 63.1% (59.7% if the underwriters' over-allotment option referenced
below is fully exercised) of shares to be outstanding upon completion of the
Offering (assuming no exercise of the Warrants). For a complete description of
the terms of the Principal Shareholders' Notes, see "Risk Factors--Control By
Insiders," "Certain Transactions" and "Principal Shareholders."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) THE COMPANY(2)
- -------------------------------------------------------------------------------
Per Share of Common Stock $ $ $
- -------------------------------------------------------------------------------
Per Warrant $ $ $
- -------------------------------------------------------------------------------
Total(3) $ $ $
===============================================================================
(FOOTNOTES ON NEXT PAGE)
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 and
the Warrants to the Underwriters is expected to be made at ______________, on or
about February __, 1997.
CORPORATE SECURITIES GROUP, INC. ARGENT SECURITIES, INC.
The date of this Prospectus is , 1997
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
[Photos]
The Company's headquarters and warehouse facility located in North Miami,
Florida
[Photos]
The Company sells computer connectivity and networking products, examples of
which are illustrated to the right.
<PAGE>
- ----------
(FOOTNOTES FROM PREVIOUS PAGE)
(1) Does not include compensation to Corporate Securities Group, Inc. and
Argent Securities, Inc., as the co-managing underwriters (the
"Representatives") among the companies underwriting this Offering (the
"Underwriters") in the form of (i) a 3% non-accountable expense allowance,
(ii) warrants to purchase up to 80,000 shares of Common Stock and 80,000
Warrants exercisable at 130% of the Price to Public (the "Underwriters'
Warrants") 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 $47,000, 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 $508,964, 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 120,000 additional shares of Common Stock and 120,000
additional Warrants 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."
* * * * *
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.
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 OR THE WARRANTS. 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 works with
various manufacturers that 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 maintain competitive
pricing for its products due to comparatively lower labor-related costs of
production in the Far East. 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
products which connect computers with peripheral products, such as printers,
and networking products which allow customers to network computers, for
example, with other computers. 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 shares 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>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities Offered by the Company ........800,000 shares of Common Stock and 800,000 Warrants.
See "Description of Securities."(1)
Warrants...................................Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price per share equal to
115% of the initial public offering price of the Common
Stock during the four year anniversary commencing on the
first anniversary of the effective date of this Offering
(the "First Exercise Date"). The Warrants are each
redeemable by the Company at a redemption price of $.01
per Warrant, at any time after the First Exercise Date,
upon 30 days' prior written notice to the holders thereof,
if the average closing price of the Common Stock equals or
exceeds 175% of the initial public offering price of the
Common Stock for the 20 consecutive trading days ending
three days prior to the date of the notice of redemption.
See "Description of Securities."
Securities Outstanding after the Offering..1,612,500 shares of Common Stock and 800,000 Warrants(1)(2)
Proposed Nasdaq SmallCap Market symbols...."AESP" and "AESPW"
Proposed CSE Symbols......................."ASP" and "ASPW"
</TABLE>
- ----------
(1) Excludes up to 120,000 shares of Common Stock and 120,000 Warrants
issuable upon the exercise of the Underwriters' over-allotment option.
See "Underwriting."
(2) Excludes (i) currently outstanding options to purchase 623,500 shares of
Common Stock, (ii) 265,000 shares of Common Stock reserved for issuance
under the Company's Stock Option Plan, of which options to purchase 3,000
shares are presently outstanding, and (iii) shares of Common Stock (353,010
at September 30, 1996, after the completion of the Offering and the use of
the proceeds therefrom in the manner set forth herein) issuable upon the
conversion of the Principal Shareholders' Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation--Financial Condition, Liquidity and Capital Resources,"
"Management," "Principal Shareholders" and "Certain Transactions."
USE OF PROCEEDS
The Company intends to use the net proceeds from this Offering (i) to repay
all or a substantial portion of its $2.5 million revolving line of credit,
($1,325,000 outstanding at September 30, 1996), (ii) to make a $200,000 (or 5.4%
of the net proceeds from this Offering) 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 notes), (iii) to open new
sales offices, (iv) to increase the design and development of its products, (v)
to increase inventory to support customer requirements, (vi) to increase the
sales force, (vii) to implement international manufacturing standard "ISO 9000"
(see "Business-Quality Control"), (viii) for advertising and marketing, and (ix)
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 nine month periods ended September 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>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------------
1994 1995 1995 1996
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales ...................................... $8,797,001 $13,721,014 $8,859,018 $9,713,478
Gross profit ................................... 3,891,858 5,213,494 3,450,521 3,889,395
Income from operations ......................... 898,158 1,261,563 920,635 833,620
Other income (expenses), net ................... 88,201 73,911 (102,217) (95,492)
------------- -------------- ------------- -------------
Income before pro forma income taxes ........... 986,359 1,335,474 818,418 738,128(2)
Pro forma income taxes(1) ...................... 347,534 483,680 311,184 267,057
------------- -------------- ------------- -------------
Pro forma net income(1) ........................ $ 638,825 $ 851,794 $ 507,234 $ 471,071
============= ============== ============= =============
PER SHARE DATA(1):
Pro forma net income per share ................. $ .52 $ .70 $ .41 $ .39
============= ============== ============= =============
Weighted average shares outstanding(3) ........ 1,223,178 1,223,178 1,223,178 1,223,178
============= ============== ============= =============
Supplemental pro forma net income per share(4) $ .64 $ .36
============== =============
</TABLE>
SEPTEMBER 30, 1996
---------------------------------------------
ACTUAL PRO-FORMA AS ADJUSTED(5)
------------- ------------- ---------------
BALANCE SHEET DATA:
Accounts receivable ....... $2,585,929 $2,585,929 $2,585,929
Inventories ............... 3,218,287 3,218,287 3,218,287
Working capital ........... 3,360,185 3,360,185 7,061,221
Total assets .............. 6,565,486 6,565,486 8,941,522
Total current liabilities 2,778,434 2,778,434 1,453,434
Long-term debt ............ -- 1,612,043 1,412,043
Shareholders' equity ..... 3,787,052 2,175,009 6,076,045
- ----------
(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 $267,000 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 nine months ended September 30,
1996 and additional amounts required to pay taxes attributable to the
Company's income between October 1, 1996 and the Effective Date.
(2) Net of approximately $125,000 in expenses relating to a proposed merger
which did not occur. Had such expenses not been incurred, income before
pro forma income taxes would have been approximately $863,000 for the
nine months ended September 30, 1996.
(3) Assumes conversion of the Principal Shareholders' Notes and the exercise
of 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 nine months ended September 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 Shareholders' Notes, of $1,175,000 at
December 31, 1995 (195,833 shares) and $1,525,000 at September 30, 1996
(254,167 shares), respectively. The computation gives effect to
elimination of interest costs associated with the borrowings, net of pro
forma income taxes.
(5) 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
5
<PAGE>
of $1,612,043 (plus additional amounts equal to 39% of the Company's
undistributed net pre-tax income for periods after September 30, 1996),
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 800,000 shares of Common Stock and 800,000 Warrants at
the Public Offering Price (at an assumed offering price of $6.00 per
share of Common Stock and $.125 per Warrant) 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, including, without limitation, the
convertibility of the notes into an aggregate of 353,010 shares of Common
Stock (assuming the aggregate principal amount of the notes as of
September 30, 1996 and the proposed application of $200,000 of the
proceeds of the Offering towards the payment of these notes).
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.
REDEMPTION OF REDEEMABLE WARRANTS. The Warrants are subject to redemption
by the Company, at any time after the First Exercise Date at a price of $.01
per Warrant at any time after the First Exercise Date, upon thirty days'
prior written notice to the holders thereof, if the average closing bid price
for the Common Stock equals or exceeds 175% of the initial public offering
price of the Common Stock for the twenty consecutive trading days ending on the
third day prior to the date of notice of redemption. In the event that the
Warrants are called for redemption by the Company, Warrant holders will have
thirty days during which they may exercise their rights to purchase shares of
Common Stock. In the event a current prospectus is not available, the Warrants
may not be exercised and the Company will be precluded from redeeming the
Warrants. If holders of the Warrants elect not to exercise them upon notice of
redemption thereof, and the Warrants are subsequently redeemed prior to
exercise, the holders thereof would lose the benefit of the difference between
the market price of the underlying Common Stock as of such date and the exercise
price of such Warrants, as well as any possible future price appreciation in the
Common Stock. As a result of an exercise of the Warrants, existing shareholders
would be diluted and the market price of the Common Stock may be adversely
affected. If a Warrant holder fails to exercise his rights under the Warrants
prior to the date set for redemption, then the Warrant holder will be entitled
to receive only the redemption price, $.01 per Warrant. See "Description of
Securities--Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH THE
EXERCISE OF THE WARRANTS. The Company will be able to issue shares of its
Common Stock upon the exercise of the Warrants only if (i) there is a current
prospectus relating to the Common Stock issuable upon exercise of the
Warrants under an effective registration statement filed with the Commission,
and (ii) such Common Stock is then qualified for sale or exempt therefrom
under applicable state securities laws of the jurisdiction in which the
various holders of Warrants reside. Although the Company has undertaken to
use its best efforts to maintain the effectiveness of a current prospectus
covering the Common Stock subject to the Warrants offered hereby, there can
be no assurance that the Company will be successful in doing so. After a
registration statement becomes effective, it may require continuous updating
by the filing of post-effective amendments. A post-effective amendment is
required (i) when, for a prospectus that is used more than 9 months after the
effective date of the registration statement, the information contained
therein (including the certified financial statements) is as of a date more
than 16 months prior to the use of the prospectus, (ii) when facts or events
have occurred which represent a fundamental change in the information
contained in the registration statement, or (iii) when any material change
occurs in the information relating to the plan of distribution of the
securities registered by such registration statement. The Company anticipates
that this Registration Statement will remain effective for at least nine
months following the date of this Prospectus, assuming a post-effective
amendment is not filed by the Company. The Company intends to qualify the
sale of the securities in a limited number of states, although certain
exemptions under certain state securities laws may permit the Warrants to be
transferred to purchasers in states other than those in which the Warrants
were initially qualified. The Company will be prevented, however, from
issuing Common Stock upon exercise of the Warrants in those states where
exemptions are unavailable and the Company has failed to qualify the Common
Stock issuable upon exercise of the Warrants. The Company may decide not to
seek, or may not be able to obtain qualification of the issuance of such
Common Stock in all of the states in which the ultimate purchasers of the
Warrants reside. In such a case, the Warrants of those purchasers will expire
and have no value if such Warrants cannot be exercised or sold. Accordingly,
the market for the Warrants may be limited because of the foregoing
requirements. See "Description of Securities."
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 types of computers and computer devices.
Specifically, the universal interfaces would allow many different devices
(such as, monitors, keyboards, modems and printers) and computer types which
are currently connected by different connectors, to be connected using one
universal interface for each connection. It is possible that the different
connectors currently in use 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
currently not bound by contract other than by individual purchase orders to
supply the Company with
6
<PAGE>
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 terms. One manufacturer located in Hong Kong
(which manufacturer is also not bound by a supply contract other than a
purchase order), supplies products which constitute approximately 10 percent
of the Company's net sales. No other manufacturer accounts for more than 10
percent of the Company's net sales. 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."
FLUCTUATION IN EXCHANGE RATES. The majority of the Company's suppliers of
components, manufacturers, and assemblers are foreign, and although all price
quotations and payments with those entities are made in U.S. dollars,
fluctuations in exchange rates could alter the price charged by these foreign
suppliers, manufacturers and assemblers, and depending on the level of such
exchange rate fluctuations, such price fluctuations could adversely affect
the Company's performance. Although the majority of the Company's sales are
made to customers in the United States and although all price quotations and
payments from customers are made in U.S. dollars, the same risks of adverse
exchange rate fluctuations which are present with suppliers, manufacturers
and assemblers (as set forth above) are also present in transactions with
customers. The Company does not have a formal exchange risk management
program nor does the Company engage in hedging activities with respect to
exchange rate fluctuations because all price quotations and payments are made
in U.S. dollars, which the Company believes helps reduce but does not
eliminate the risk attendant to fluctuations in exchange rates.
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,
Boca Research and Cyquest (which are OEM customers), accounted for
approximately 16.5 percent and 12 percent, respectively, of the Company's net
sales for the year ended 1995 and one of those customers, Boca Research,
accounted for approximately 14 percent of the Company's net sales for the
nine months
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<PAGE>
ended September 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 59 percent of the
Company's net sales for the year ended 1995 and approximately 44 percent of
the Company's net sales for the nine months ended September 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. For example, as
of the second quarter of 1996, one of the Company's largest customers (due to
its own business situation) nearly ceased all purchases of products from the
Company. The loss of this customer materially adversely affected the
Company's sales and gross profit as reflected herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
Nonetheless, by the end of the third quarter of 1996 sales from this customer
began to increase and the Company continues to diversify its customer base by
obtaining new customers. 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 does not
provide allowances for anticipated product returns. Although the Company
endeavors to reduce product returns through its quality control program, and
although historically product returns have been relatively insubstantial,
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 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. One 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
8
<PAGE>
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." Although
the Company does not presently plan to use any of the proceeds from this
Offering for acquisitions, the Company does reserve the right to reallocate
such proceeds for use in an acquisition if such acquisition is advantageous
to the Company. Other than as required by the Company's Articles of
Incorporation, By-Laws, and applicable law, shareholders of the Company
generally will not be entitled to vote upon such acquisitions. See "Use of
Proceeds."
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 December 31, 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 Company intends to apply a portion
of the proceeds from this Offering to pre-pay all or substantially all of the
outstanding debt under the credit facility ($1,325,000 at September 30,
1996), and then borrow against the credit facility as the needs of the
Company so require. See "Use of Proceeds." The Company intends to renew the
revolving line of credit agreement which expires on July 26, 1997, although
no assurance can be given that such renewal can be obtained, or if obtained,
upon terms favorable to the Company. The credit facility along with proceeds
from this Offering may be used by the Company for, among other purposes,
acquisitions of other companies and/or inventories assisting in the potential
growth of the Company. See "--Growth Strategy and Risks Relating to Future
Acquisitions" and "Business--Strategy." 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's future growth could be adversely impacted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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."
CONTROL BY PRINCIPAL SHAREHOLDERS. After the consummation of this Offering,
and assuming no exercise of the Warrants, Messrs. Stein and Briskin will own
812,500 shares of the Common Stock of the Company, representing approximately
50.4 percent of the outstanding Common Stock (or 47 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
560,500 shares of Common Stock issuable to Messrs. Stein and Briskin upon the
exercise of outstanding stock options (the "Principal Shareholders' Options").
See "Principal Shareholders" and "Certain Transactions." Assuming Messrs. Stein
and Briskin were to convert their Principal Shareholders' Notes (after the
$200,000 pre-payment to be made with the proceeds of this Offering, said
$200,000 representing 5.4% of the net proceeds from this Offering), an aggregate
of 353,010 shares of Common Stock (based upon the principal amount of the notes
at September 30, 1996) would be issuable to them, increasing their ownership of
the outstanding Common Stock to 59.3% (55.9% if the Underwriters' over allotment
9
<PAGE>
option is exercised in full). Since the Company's Articles of Incorporation
and Bylaws do not 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 entire
Board of Directors.
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchase price of the Common Stock
substantially exceeds the tangible book value of the Common Stock. Purchasers
of the Common Stock will therefore experience an immediate substantial
dilution in the net tangible book value per share of the Common Stock after
this Offering in the amount of $2.23 per share. In addition, investors in
this Offering will contribute approximately 99% of the Company's paid in
capital for only 48% of the outstanding shares. See "Dilution."
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 80,000 shares of Common
Stock and 80,000 Warrants. 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 130% of the public offering price. The terms of
the Warrants underlying the Underwriters' Warrants shall be the same as those
Warrants offered to the public, except such Warrants are not subject to
redemption. 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 Common Stock, the Warrants and
the underlying Common Stock subject to 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 "Principal Shareholders" and "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 or the Warrants.
The offering price per share of the Common Stock and the Warrants will be
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 and on the Chicago
Stock Exchange (the "CSE"). However, there can be no assurance that an active
trading market for the Common Stock or the Warrants will develop or be sustained
after this Offering or that the shares of Common Stock or Warrants will be able
to be resold at or above the public offering price. The market price of the
Common Stock and the Warrants 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."
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POSSIBLE DELISTING OF SECURITIES FROM NASDAQ AND RISKS OF COMMON STOCK TRADING
BELOW U.S.$5.00 PER SHARE. Upon consummation of this Offering, the Common Stock
is expected to be listed on the NASDAQ SmallCap Market and the CSE. Under the
current rules of NASDAQ, in order to qualify for continued listing on the
SmallCap Market, the Company, among other things, must have total assets of at
least U.S. $2 million, capital and surplus of at least U.S. $1 million, a market
value of public float of at least U.S. $200,000, at least two market makers and
a minimum bid price of U.S. $1.00 per share. NASDAQ recently approved changes to
the standards for companies to remain listed on the SmallCap Market, including,
without limitation, new corporate governance standards, a new requirement that
the Company have net tangible assets of U.S. $2,000,000, market capitalization
of U.S. $35,000,000 or net income of U.S. $500,000 and other qualitative
requirements. If the Company is unable to satisfy the requirements for continued
quotation on NASDAQ as well as the CSE, trading in the Common Stock offered
hereby would be conducted in the over-the-counter market in what are commonly
referred to as the "pink sheets" or on the NASD Electronic Bulletin Board. As a
result, an investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the Common Stock offered hereby. In addition, if
the Common Stock is suspended or terminated from NASDAQ and at such time have a
market price of less than U.S. $5.00 per share, then the sale of such securities
would become subject to certain regulations adopted by the Commission which
imposes sales practice requirements on broker-dealers. For example,
broker-dealers selling such securities must, prior to effecting the transaction,
provide their customers with a document which discloses the risks of investing
in the Common Stock. Furthermore, if the person purchasing the securities is
someone other than an accredited investor or an established customer of the
broker-dealer, the broker-dealer must also approve the potential customer's
account by obtaining information concerning the customer's financial situation,
investment experience and investment objectives. The broker-dealer must also
make a determination whether the transaction is suitable for the customer and
whether the customer has sufficient knowledge and experience in financial
matters to be reasonably expected to be capable of evaluating the risk of
transactions in the security. Accordingly, if the Common Stock is suspended or
terminated from NASDAQ and are trading for less than U.S. $5.00 per share, the
Commission's rules may limit the number of potential purchasers of the
securities.
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
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.
ADJUSTMENTS TO WARRANT EXERCISE PRICE AND EXERCISE DATE. The Company, in
its sole discretion, and in accordance with the terms of the Warrant
Agreement with the Warrant Agent, may reduce the exercise price of the
Warrants and/or extend the time within which the Warrants may be exercised,
depending on such things as the current market conditions, the price of the
Common Stock and the Company's need for additional capital. Further, in the
event that the Company issues certain securities or makes certain
distributions to the holders of its Common Stock, the exercise price of the
Warrants may be reduced. Any such price reductions (assuming exercise of the
Warrants) will provide less money for the Company and possibly adversely
affect the market price of the Company's securities.
IMPACT OF WARRANT EXERCISE ON MARKET. In the event of the exercise of a
substantial number of Warrants within a reasonably short period of time after
the right to exercise commences, the resulting
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<PAGE>
increase in the amount of Common Stock of the Company in the trading market
could substantially affect the market price of the Common Stock. See
"Description of Securities--Warrants."
CONTINUING RELATIONSHIP WITH UNDERWRITERS; POTENTIAL INFLUENCE. In
connection with this Offering, the Company will have certain continuing
relationships with the Representatives, some of which may adversely affect
the Company's results of operations. The Company has agreed with the
Representatives that (i) it will sell to the Underwriters the Underwriters'
Warrant (including the grant of "piggyback" and demand registration rights),
(ii) it will pay, under certain conditions, to the Underwriters a warrant
solicitation fee equal to 5% of the exercise price of the Warrants exercised,
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(iii) it will use its best efforts to cause the election to its Board of
Directors one designee of the Representatives and (iv) it will enter into a
consulting agreement with the Representatives for consulting services for a two
year period for aggregate fees payable to the Representatives of $47,000. Any of
the foregoing relationships may adversely impact the Company's business,
operating results or financial condition, or its ability to raise additional
capital for its business should the need arise during the term of the above
agreements. See "Risk Factors--Underwriters' Warrants" and "Underwriting."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. The Company believes that
this Prospectus, of which this Registration Statement forms a part, contains
forward-looking statements, including statements regarding, among other
items, the Company's future plans and growth strategies and anticipated
trends in the industry in which the Company operates. These forward-looking
statements are based largely on the Company's expectations and are subject to
a number of risks and uncertainties, many of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described herein, including, among
others, regulatory or economic influences. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Prospectus will in fact transpire or prove to be accurate.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of 800,000 shares of Common
Stock and 800,000 Warrants (at an assumed offering price of $6.00 per share
of the Common Stock and $.125 per Warrant) in the Offering are estimated to
be approximately $3.9 million (after deducting underwriting discounts and
commissions and estimated offering expenses), or approximately $4.5 million
if the Underwriters' over-allotment option is exercised in full. The Company
intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS(1) DOLLAR AMOUNT DOLLAR AMOUNT
- -------------------------- ------------- -------------
<S> <C> <C>
Repayment of indebtedness to bank(2) .......................... $1,325,000 34.0%
Repayment of indebtedness to principal shareholders (3)........ 200,000 5.1
Open new sales offices(4) ..................................... 500,000 12.8
Product development and design(5) ............................. 200,000 5.1
Increase inventory to support customer requirements .......... 700,000 17.9
Increase sales force .......................................... 250,000 6.4
Implement international manufacturing standard "ISO 9000"(6) . 50,000 1.3
Advertising and marketing ..................................... 100,000 2.6
Working capital and general corporate purposes(7).............. 576,000 14.8
---------- -----
$3,901,000 100.0%
========== =====
</TABLE>
- ----------
(1) Proceeds received upon the exercise of the Underwriters' over-allotment
option will be used for purposes set forth above.
(2) The Company intends to repay all or a substantial portion of its current
borrowings under a $2.5 million revolving line of credit ($1,325,000
outstanding at September 30, 1996). After repayment of the Company's current
borrowings as set forth above, the Company intends to borrow again from its
available revolving line of credit depending on its on-going financial
needs. See "Risk Factors - Credit Facility Restrictions; Future
Availability" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Financial Condition, Liquidity and
Capital Resources."
(3) The Company intends 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' Notes).
(4) Markets have not yet been selected.
(5) The Company intends to increase the design and development of its
connectivity and networking products. At the date of this Prospectus, no
specific products have been identified for development. See
"Business--Products and Services".
(6) See "Business--Quality Control."
(7) Working capital includes, but is not limited to, carrying additional
receivables associated with increased sales, costs for establishing
additional warehouses, personnel costs for the expansion of the Company's
existing products and expenses for distribution, acquisitions, and other
general and administrative expenses.
As noted above, upon completion of the Offering, the Company intends to
temporarily utilize a portion of the proceeds to repay revolving debt due to
a financial institution. Funds may 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 ($1,325,000 of which was outstanding at September
30, 1996) accrue interest at the prime rate plus 1/2 % per annum. 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 the
amounts to be 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.
14
<PAGE>
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."
15
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
$2,175,009, or $2.68 per share, after giving effect to the $1,612,043
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 800,000 shares
of Common Stock in this Offering (at an assumed offering price of $6.00 per
share) and 800,000 Redeemable Common Stock Purchase Warrants (at an assumed
offering price of $.125 per warrant) and receipt of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as
of September 30, 1996 would have been $6,076,045 or $3.77 per share,
representing an immediate increase in net tangible book value of $1.09 per
share to existing shareholders and an immediate dilution in net tangible book
value of $2.23 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:
<TABLE>
<S> <C> <C>
Public offering price per share .............................................. $6.00
Net tangible book value per share before offering .......................... $2.68
Increase per share attributable to new investors ........................... 1.09
--------
Pro forma net tangible book value per share after offering ................... 3.77
--------
Dilution of net tangible book value per share to new investors attributable
to purchase of Common Stock by new investors ................................. $2.23
========
</TABLE>
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 assumed public
offering price of $6.00 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 50% $ 46,714 1% $ .06
New Investors ............... 800,000(3) 50% $4,800,000 99% $6.00
--------- --- ---------- ---
Total ....................... 1,612,500 100% $4,846,714 100%
========= === ========== ===
</TABLE>
- ----------
(1) Excludes shares issuable upon (i) the conversion (at $4.00 per share) of
the Principal Shareholders' Notes, (ii) the exercise (at the public
offering price) of stock options to purchase an aggregate 450,000 shares
presently owned by the Company's principal shareholders (the "Principal
Shareholders' Options"), (iii) the exercise (at $4.00 and $6.00) of options
to purchase an aggregate 63,000 shares held by Timothy E. Mahoney and (iv)
the exercise (at the public offering price) of options to purchase 3,000
shares presently owned by a non-employee director of the Company. 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 in
connection with the formation of the Company in 1983.
(3) If the Underwriters' over-allotment option is exercised in full, the
number of shares of Common Stock held by new investors will be 920,000.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, pro forma, and as adjusted at that date to give effect to
(i) the issuance to Messrs. Briskin and Stein immediately prior to the
Effective Date of the Principal Shareholders' Notes, and (ii) the sale of
800,000 shares (at an assumed offering price of $6.00 per share of Common
Stock) and 800,000 Redeemable Common Stock Purchase Warrants (at an assumed
offering price of $.125 per warrant) in the Offering and the application of
the net proceeds therefrom (assuming no exercise of the Warrants, the
Underwriters' Warrants or the Underwriters' over-allotment option). 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>
SEPTEMBER 30, 1996
---------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(6)
------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Notes Payable(2) ....................................... $1,457,755 $1,457,755 $ 132,755
Principal Shareholders' Notes(3) ....................... -- 1,612,043 1,412,043
---------- ---------- ----------
Total debt ............................................ 1,457,755 3,069,798 1,544,798
---------- ---------- ----------
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; 1,612,500
shares outstanding, as adjusted(4) ................... 813 813 1,613
Additional paid-in capital ............................. 45,901 2,162,019 6,062,255
Retained earnings ...................................... 3,728,161 -- --
Cumulative foreign currency translation adjustment .... 12,177 12,177 12,177
---------- ---------- ----------
Total shareholders' equity(5) ......................... 3,787,052 2,175,009 6,076,045
---------- ---------- ----------
Total capitalization .................................. $5,244,807 $5,244,807 $7,620,843
========== ========== ==========
</TABLE>
- ----------
(1) Reflects that, immediately prior to the Effective Date, the Company will
issue the Principal Shareholders' Notes as a future dividend distribution
($1,612,043 at September 30, 1996) and cumulative undistributed earnings
applicable to the Company's S corporation status are reclassified to
additional paid-in capital ($2,116,118 at September 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 450,000 shares of Common Stock
issuable to Messrs. Stein and Briskin upon the exercise of outstanding
stock options, (iii) 262,000 shares reserved for issuance under the
Company's Stock Option Plan, (iv) shares of Common Stock issuable
upon the conversion of the Principal Shareholders' Notes which are
presently owned by a non-employee director and (v) the exercise (at the
public offering price) of options to purchase 3,000 shares of the Company's
Common Stock which were granted under the Company's Stock Option Plan. See
"Management--Stock Option Plan," "Management--Consulting Agreement with
Timothy Mahoney," "Principal Shareholders" and "Certain Transactions." Also
excludes shares of Common Stock issuable upon the exercise of the Warrants
and the Underwriters' Warrants (and shares of Common Stock issuable upon the
exercise of the Warrants contained in the Underwriters' Warrants). See
"Underwriting."
(5) Excludes the effect of (i) an anticipated distribution of $267,000 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 nine months ended September 30, 1996, and (ii) additional amounts
required to pay taxes attributable to the Company's income between
October 1, 1996 and the Effective Date.
(6) Includes 800,000 shares of Common Stock issued in this Offering (at an
assumed public offering price of $6.00 per share) and 800,000 Redeemable
Common Stock Purchase Warrants (at an assumed offering price of $.125 per
warrant), net of proceeds of $2,676,000 (after $1,525,000 repayment of
debt).
17
<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
nine-month periods ended September 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
nine-month periods ended September 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------------
1994 1995 1995 1996
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .................................... $8,797,001 $13,721,014 $8,859,018 $9,713,478
Cost of sales ................................ 4,905,143 8,507,520 5,408,497 5,824,083
Gross profit ................................. 3,891,858 5,213,494 3,450,521 3,889,395
Selling, general and administrative expenses 2,993,700 3,951,931 2,529,886 3,055,775
Income from operations ....................... 898,158 1,261,563 920,635 833,620
Other income (expenses), net ................. 88,201 73,911 (102,217) (95,492)
Income before income taxes ................... 986,359 1,335,474 818,418 738,128
Provision for income taxes ................... 11,534 44,680 18,184 10,057
---------- ----------- ---------- ----------
Net income ................................... $ 974,825 $ 1,290,794 $ 800,234 $ 728,071
========== =========== ========== ==========
PRO FORMA NET INCOME:
Income before income taxes ................... $ 986,359 $ 1,335,474 $ 818,418 $ 738,128
Provision for income taxes(1) ................ 347,534 483,680 311,184 267,057
---------- ----------- ---------- ----------
Pro forma net income ......................... $ 638,825 $ 851,794 $ 507,234 $ 471,071
========== =========== ========== ==========
Pro forma net income per share ............... $ .52 $ .70 $ .41 $ .39
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital .............................. $2,336,135 $ 3,024,704 $2,741,025 $3,360,185
Accounts receivable, net of allowance for
doubtful accounts .......................... 1,579,693 3,015,018 2,374,686 2,585,929
Inventory .................................... 1,871,697 3,197,950 2,600,350 3,218,287
Property and equipment (net) ................. 78,056 380,667 218,231 426,867
Total assets ................................. 3,915,114 6,903,030 5,371,988 6,565,486
Notes payable ................................ 403,083 1,117,302 879,074 1,457,755
Total current liabilities .................... 1,500,923 3,497,659 2,412,732 2,778,434
Total shareholders' equity ................... 2,408,788 3,405,371 2,959,256 3,787,052
</TABLE>
- ----------
(1) Reflects pro forma adjustments as if the Company had been taxed as a C
corporation since the beginning of the applicable periods.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
GENERAL
Net Sales 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.
Net Sales and gross profits depend in part on the volume and mix of OEM
and retail sales, as well as the cost and mix of components and finished
products contained in the Company's inventory from time to time to supply
those sales. The Company believes that it must continue to manage the mix
between OEM sales and 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 operating expenses (including overhead) to achieve a
comparably higher gross profit margin. The overall mix of OEM and retail will
help determine the gross profit margin of the Company's sales. 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. During the third and fourth quarter of
1996, no single new customer is expected to replace the sales to that
customer which was the Company's largest source of sales for the
corresponding periods in 1995. As of the date of this Prospectus, 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 net sales and net income for the 1996 fiscal year to be lower
than they were for the 1995 fiscal year.
During the first nine months of 1996, the Company incurred approximately
$125,000 of costs associated with a potential merger of the Company with
another entity. The proposed merger was later abandoned and the Company
expensed the costs associated with such merger during the 1996 nine month
period. No comparable expense was incurred during the nine months ended
September 30, 1995.
The results described herein reflect the consolidated operations of AESP,
AESP Sweden and AESP Germany.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Net sales for the nine months ended September 30, 1996 increased by 9.6%
to $9,713,478, up $854,460 from net sales of $8,859,018 for the nine months
ended September 30, 1995. This increase in sales primarily reflects the
Company's increased sales in retail markets. During both the 1995 and 1996
nine month periods, domestic sales were approximately 79% of net sales and
international sales were approximately 21% of net sales. The Company believes
that it will continue to achieve growth in net sales in both its domestic and
international markets during future periods.
Gross profits as a percentage of gross sales (i.e., total sales) increased
one percent from period to period to 40 % in 1996. The Company believes that
this level of gross margin is high for the computer
19
<PAGE>
networking and connectivity industry, and that as the Company grows and
increases its sales volume, margins will drop somewhat due to the lower
profit margins often associated with larger sales accounts.
Selling, general and administrative ("SG&A") expenses increased from
period to period, both in absolute dollars and as a percentage of net sales.
SG&A for the nine months ended September 30, 1996 includes approximately
$125,000 in expenses relating to the Company's proposed merger with The
Americas Growth Fund, Inc. ("AGF"). There was no comparable expense during
1995. Additionally, SG&A for the 1996 nine month period reflects increased
costs associated with the expansion of the Company's operations in
anticipation of future sales growth. In that regard, during 1996, the Company
added additional sales personnel and expanded its advertising and marketing
efforts. As a result of these factors, SG&A expenses for the 1996 period were
$3,055,775 (31.5% of net sales), compared with $2,529,886 (28.6% of net
sales) for the same period in 1995. Had the AGF merger expenses not been
incurred, the Company's SG&A, as a percentage of net sales, would have been
30.2% for 1996, compared to 28.6% in 1995.
As a result of the factors set forth above, income from operations for the
1996 nine month period was $833,620, compared to income from operations of
$920,635 for the same period in 1995, a decreased of 9.5%. Had the AGF merger
expenses not been incurred, income from operations for the nine months ended
September 30, 1996 would have been $958,620, an increase of 4.1% over net
income for operations for the first nine months of 1995.
Other income (expenses), net decreased during the 1996 nine month period,
from ($102,217) to ($95,492). This 6.6% decrease primarily results from
increased interest costs relating to increased borrowings during 1996 to
continue the Company's growth, offset by a decrease in foreign exchange
losses. The Company expects that once the Offering is completed, and the
proceeds are utilized, in part, to repay the Company's outstanding
borrowings, that interest costs will drop substantially until such time as
the Company is required to again borrow funds from its lender to continue its
growth. See "Use of Proceeds."
Net income for the nine months ended September 30, 1996 was $728,071,
compared to $800,234 for the nine months ended September 30, 1995. Had the
AGF merger expenses not been incurred, net income for the nine months ended
September 30, 1996 would have been $853,071.
Pro forma net income, which reflects the Company's net income had the
Company been taxed as a C corporation during the 1995 and 1996 periods, was
$471,071 for the nine months ended September 30, 1996, compared to $507,234
for the same period in 1995. Had the AGF merger expenses not been incurred,
pro forma net income for the nine months ended September 30, 1996 would have
been $553,571.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased by 56.0% 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." During 1995
and 1994, domestic sales and foreign sales, as a percentage of net sales,
were nearly unchanged, at 83% and 81%, respectively, and 17% and 19%,
respectively.
Gross profits as a percentage of net sales were 38.0% in 1995 compared
with 44.2% 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.
SG&A expenses as percentage of net sales were 28.8% in 1995 compared with
34.0% in 1994. The improvement in 1995 reflects the economies of scale
associated with increased sales generally and with
20
<PAGE>
increased OEM sales as a percentage 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% 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% 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% 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% of total sales, while during
1994, the Company's OEM sales were approximately $2.9 million, which
represents approximately 32% 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% 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
Historically, the Company has financed its operations primarily with cash
flow from operations and with the proceeds from its available credit lines.
Cash flows from operating activities for the year ended December 31, 1994
aggregated $304,875, while cash required by operating activities for the year
ended December 31, 1995 aggregated $87,283. For the nine months ended
September 30, 1995 cash required by operating activities was $182,636; for
the nine months ended September 30, 1996 cash flows from operating activities
were $100,983. The negative cash flows for the year ended December 31, 1995
and for the nine months ended September 30, 1995 were primarily due to
significant increased sales in 1995 and increased inventory levels to meet
anticipated customer demand.
Cash required by investing activities, which was solely related to
additions to property and equipment, for the years ended December 31, 1994
and 1995 aggregated $39,303 and $362,102, respectively. For the nine months
ended September 30, 1995 and 1996, cash required by investing activities was
$158,111 and $84,360, respectively. The significantly higher additions to
property and equipment during the nine months ended September 30, 1995 and
the year ended December 31, 1995 coincided with the Company's move into its
current premises.
Cash required by financing activities for the year ended December 31, 1994
was $274,041; for the year ended December 31, 1995, cash flows from financing
activities were $384,627. For the nine months ended September 30, 1995, cash
flows from financing activities were $221,151, while cash required by
financing activities for the nine months ended September 30, 1996 was $5,006.
Net borrowings by the Company under its line of credit provided $647,049,
$483,573 and $340,453 for the year ended December 31, 1995 and for the nine
months ended September 30, 1995 and 1996, respectively; for the year ended
December 31, 1994, net cash repayments under the Company's line of credit
aggregated $154,286. During 1994 and 1995, the Company borrowed, in the
aggregate, $120,000 from an entity controlled by the shareholders of the
Company. Dividends, representing distributions of S-Corporation earnings,
aggregated $193,495, $308,682 and $345,459 in 1994, 1995 and 1996,
respectively.
Working capital was $3,360,185 at September 30, 1996, compared to
$3,024,704 at December 31, 1995 and $2,336,135 at December 31, 1994. Accounts
receivable were $2,585,929 at September 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 September 30, 1996, compared to December
31, 1995 reflects
21
<PAGE>
decreased sales to a large customer which had operational and financial
problems during early 1996. The customer has since recovered and has begun to
again 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 $3,218,287 at
September 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 material terms of which are set forth below.
Borrowings under this line of credit bear interest at the rate of prime plus .5%
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 December 31, 1996, approximately $1,450,000
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 its 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 during the
term of the agreement. As of December 31, 1996, the Company was in compliance
with all financial ratios under this Agreement and the Company believes that
it is currently in compliance with all other covenants of this agreement.
The Company intends to reborrow funds from its credit facility to fund its
future growth after utilizing the net funds of this Offering. See "Use of
Proceeds" and "Business--Strategy." There can be no assurance that the
Company will be in a position to borrow funds under its credit line at such
time as they are required. Additionally, the credit facility will mature on
July 26, 1997. While the Company expects that it will be able to renew the
facility, there can be no assurance that the credit facility will be renewed
or even if renewed that it can be renewed on its current terms.
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 $806,021.50 (plus additional amounts equal to 39% of the
Company's undistributed net pretax income for periods after September 30,
1996) in favor of Messrs. Stein and Briskin. 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
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approximately $125,000, in connection with the proposed merger which was
expensed by the Company during the nine months ended September 30, 1996.
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% per annum. As of December 31, 1996, $120,000 remained
outstanding under the loan with $15,007 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 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.
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<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
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<PAGE>
more than $1-3 million in annual net sales. These small distributors
predominate the computer connectivity industry, and are largely fragmented
throughout the different sectors of the computer connectivity industry. Some
of these distributors have greater 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 categories: 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. Audio/video products
connect audio and video output to homes and businesses. Accessories include
tools, testers, and surge protectors. 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 categories. By diversifying among these
four product categories, the Company has expanded its product lines as well
as the total number of its products offered within those lines allowing it to
enter new markets and increase gross sales. Another 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 customer 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.
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 and design support (where the customer receives advise from the
Company on which product or design specification is appropriate for a
particular situation); assembly support (where customers rely on the Company
to assemble the component parts the customer traditionally had done itself);
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
25
<PAGE>
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 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 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 PVC 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 (Kaicap Investments,
Ltd. located in Hong Kong) supplied approximately 10 percent of the Company's
net sales during 1995. No other source of supply accounted for more than 10
percent of the Company's net sales, and other than purchase orders, the Company
does not enter into supply or requirements contracts with its suppliers. The
Company believes that purchase orders, as opposed to supply or requirement
agreements, provide the Company with more flexibility in responding to customer
demand.
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 function properly. 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
26
<PAGE>
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.
CUSTOMER BASE
The Company's customer base is divided into two categories: 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. Two of the Company's largest customers, Boca Research and
Cyquest (who are both OEM customers), accounted for approximately 16.5
percent and 12 percent, respectively, of the Company's net sales for the year
ended 1995 and one of those customers, Boca Research, accounted for
approximately 14 percent of the Company's net sales for the nine months ended
September 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 59 percent of the Company's net
sales for the year ended 1995 and approximately 44 percent of the Company's
net sales for the nine months ended September 30, 1996. The reduction in net
sales attributable to the Company's top ten customers reflects the Company's
attempts to diversify its customer base and reduce dependence on any one set
of customers. This effort to diversify goes hand in hand with the Company's
efforts to increase sales.
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.
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<PAGE>
STRATEGY
The Company's goals are to continue the growth which it has experienced since
January 1990, and to become a leader and achieve brand recognition 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 the Company will continue to implement the international
manufacturing standard ISO 9000 throughout the manufacturing and assembly
process of its products. See "--Quality Control." The acquisitions of
companies and/or inventories as set forth above are expected to be funded in
part by borrowings under the Company's revolving credit facility and from the
proceeds of this Offering. See "Use of Proceeds."
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 groups), 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 December 31, 1996, the Company employed 62 people at the following
locations: Miami office--45; AESP Sweden--seven; and AESP Germany--ten.
Company wide--11 employees work in
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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 is 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."
APPROXIMATE
FACILITY DESCRIPTION LOCATION SQUARE FOOTAGE
- -------------------- -------- --------------
Corporate Headquarters, Product Assembly
and Central Warehouse ................. North Miami, FL 10,000
Warehouse ............................... North Miami, FL 20,000
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
LEGAL PROCEEDINGS
As of the Effective Date, there are no material legal proceedings to which
the Company is a party.
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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
Terrence R. Daidone 37 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."
Mr. Daidone has served as Director of the Company since January 1997.
Since 1996, Mr. Daidone has served as Vice President of Sales and Marketing
with Fugate and Associates, Inc./ERS Imaging Supplies, Inc., a Pennsylvania
corporation. From 1993 to 1996, Mr. Daidone served as Director of Mass
Merchant Operations with Nashua Corporation, a Delaware corporation. Prior to
that, Mr. Daidone served as President of Nashua Cartridge Products, Inc., a
Delaware corporation and a subsidiary of Nashua Corporation.
KEY EMPLOYEES
Kevin Brin has served as the Company's Audio/Video Marketing Manager since
June 1996. Prior to joining the Company, Mr. Brin worked as the National
Sales Manager for Viewsonics Corporation in Boca Raton, Florida for a year
and a half, and previously was President of EECO Electronics, Ltd. in New
York for more than eight years.
Daniel Cohen has served as the Company's Purchasing Manager since early
1996. Prior to joining the Company, Mr. Cohen worked as Director of
Operations for Arrow Industries, Inc. in Miami, Florida for several years.
Tom Collentine has served as OEM Sales Manager since November 1996. Mr.
Collentine worked with America II Electronics, Inc. in St. Petersburg,
Florida for four years prior to joining the Company.
Don Lacertosa, who is the Company's Marketing Manager, has been with the
Company since early 1994. Prior to joining the Company, Mr. Lacertosa was
Product Manager for two years for a computer-related firm in New Jersey.
Steven Meistle has served as the Company's Controller since May 1993.
Prior to joining the Company, Mr. Meistle was a consultant on accounting
matters for several years.
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Donald Oldag has served as the Company's Retail and Sales Manager since
early 1995. Prior to joining the Company, Mr. Oldag was National Sales
Manager for Mico Connectors Co. in California. Adrian Peschl has served as
the Company's Director of Operations since mid-1994. Prior to joining the
Company, Mr. Peschl was Engineering Manager for Casi Rusco, Inc. in Boca
Raton, Florida.
ADDITIONAL DIRECTORS
The Company intends to add several additional members to its Board of
Directors at least two of whom (including Mr. Daidone) are expected to be
independent of 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 achieving 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.
DIRECTOR COMPENSATION
Two of the three 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 third director is a non-employee director and will initially receive for his
services as a director options to purchase (at the public offering price) 3,000
shares of Common Stock. These options have been granted under the Company's 1996
Stock Option Plan. The Company anticipates that non-employee directors will
generally be paid fees for attending Board meetings and may receive grants of
stock options.
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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
SALARY BONUS STOCK OPTION/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) AWARDS SARS(#) PAYMENTS COMPENSATION(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 -- -- -- -- --
</TABLE>
- ----------
(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.
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 Principal Shareholders' Options, allowing them each to purchase
280,250 shares of Common Stock (560,500 shares in the aggregate) at the
initial public offering price of the Common Stock. The Principal Shareholders
options have a ten year term, are intended to qualify as incentive stock
options under the Internal Revenue Code (the "Code") and have certain piggy
back and demand registration rights.
The holders of the Principal Shareholders' Options have agreed to a
lock-up of the sale of any of their shares in the open market without the
consent of the Underwriters for a two year period. See"Underwriting." Subject
to this lockup, the Principal Shareholders' Options are divided into two
categories (i) options to purchase 100,000 shares of Common Stock held by
each of Messrs Stein and Briskin (200,000 options in the aggregate) are
exercisable at any time without any conditions and (ii) options to purchase
180,250 shares of Common Stock (the "Contingent Options") held by each of
Messrs. Stein and Briskin (360,500 options in the aggregate) are exercisable
only upon the satisfaction of certain contingencies.
The Contingent Options enable Messrs. Stein and Briskin to acquire up to an
aggregate of 360,500 shares of Common Stock subject to certain performance
contingencies set forth below. Nonetheless, regardless of the Company's
performance, all of the Contingent Options will vest and become fully
exercisable seven years after their date of grant, with provisions for earlier
vesting. Earlier vesting of the exercise of the Contingent Options is contingent
upon the Company achieving either a specified earnings per share level or a
specified stock price level (the "Performance Threshold"), for the corresponding
fiscal year-end. Commencing with fiscal year-ended December 31, 1997, and at
each of the four fiscal year ends thereafter, 72,100 of such options will become
exercisable (i) if the Company achieves earnings per share of $.50, $.60, $.72,
$.86 and $1.04 for the fiscal years ended December 31, 1997, 1998, 1999, 2000
and 2001, respectively (or cumulative earnings per share of $.50, $1.10, $1.82,
$2.68 and $3.72, respectively) (ii) if the closing bid price of the Company's
Common on any 20 consecutive trading days during such fiscal year is $7.20,
$8.64, $10.37, $12.44 and $14.93, respectively or (iii) the Company has net
income of $1.0 million, $1.2 million, $1.440 million, $1.728 million and $2.074
million, respectively (or cumulative net income of $1.0 million, $2.2 million,
$3.64 million, $5.368 million and $7.442 million, respectively). For any fiscal
year after January 31, 1997 in which the Company attains the foregoing earnings
per share, stock price or cumulative net income targets, any options eligible
for vesting in prior years which were not vested and exercisable because the
targets for such fiscal years were not achieved, shall become exercisable. In
addition, for any fiscal year in which the Company attains the earnings per
share, stock price or
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<PAGE>
cumulative net income targets applicable to a subsequent fiscal year, all
options eligible for vesting in such subsequent fiscal year shall vest and
become exercisable. If any of the Warrants are exercised, the options shall
vest and become exercisable pro rata (based on the number of Warrants
exercised) to the extent not already vested in accordance with the foregoing.
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 $150,000 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. 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 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 directors, executive officers, employees
(including employees who are directors), independent contractors and
consultants of the Company. Options to purchase 3,000 shares have been granted
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
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<PAGE>
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. Notwithstanding the foregoing,
the Company may not grant options in excess of 15% of the outstanding Common
Stock for a period of 1 year from the Effective Date.
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.
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 one year, effective January 1, 1997. 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
$16,300 per month 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 $6.00 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
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<PAGE>
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.
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 two Principal Shareholders' Notes, each in the
amount of $806,021.50 (plus additional amounts equal to 39 percent of the
Company's net pretax income for periods after September 30, 1996). 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 nine months ended
September 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 December 31, 1996, $120,000 remains
outstanding; $15,007 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.
The Company believes that all the foregoing related-party transactions
were on terms no less favorable to the Company than could reasonably be
obtained from unaffiliated third parties. All future transactions with
affiliates will be approved by a majority of disinterested directors of the
Company and on terms no less favorable to Company than those that are
generally available from unaffiliated third parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock (including 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 SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------ ---------------------
NAME OF BENEFICIAL OWNER(2) SHARES PERCENT SHARES PERCENT
- --------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Slav Stein .......................... 682,755 49.89% 682,755 31.5%
Roman Briskin........................ 682,755 49.89% 682,755 31.5%
Terry Daidone(3)..................... 3,000 .22% 3,000 .1%
All directors and executive officers
as a group (2 persons) ............ 1,368,510 100% 1,368,510 63.1%
</TABLE>
(1) Includes (i) 353,010 shares of Common Stock issuable upon the conversion
of the Principal Shareholders' Notes (at September 30, 1996 and after the
prepayment thereof to be made from the proceeds of this Offering), and
(ii) 200,000 shares of Common Stock issuable upon the exercise of that
portion of the Principal Shareholders' Options which is already
exercisable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Financial Condition, Liquidity and
Capital Resources" and "Certain Transactions." Excludes 360,500 shares of
Common Stock issuable upon the exercise of the Contingent Options, which
options are not presently vested.
(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 c/o the Company.
(3) Presently exercisable stock options.
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<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
(1,612,500 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.
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price equal to 115% of the initial public offering price of the
Common Stock for a period of four years commencing on the first anniversary of
the effective date of this Offering (the "First Exercise Date"). Each Warrant is
redeemable by the Company at a redemption price of $0.01 per Warrant, at any
time after the First Exercise Date, upon thirty days' prior written notice to
the holders thereof, if the average closing bid price of the Common Stock, as
reported on the principal exchange on which the Common Stock is traded, equals
or exceeds 175% of the initial public offering price of the Common Stock per
share for twenty consecutive trading days ending three days prior to the date of
the notice of redemption. Pursuant to applicable federal and state securities
laws, in the event a current prospectus is not available, the Warrants may not
be exercised by the holders thereof and the Company will be precluded from
redeeming the Warrants. There can be no assurances that the Company will not be
prevented by financial or other considerations from maintaining a current
prospectus. Any Warrant holder who does not exercise prior to the redemption
date, as set forth in the Company's notice of redemption, will forfeit the right
to purchase the Common Stock underlying the Warrants, and after the redemption
date or upon conclusion of the exercise period any outstanding Warrants will
become void and be of no further force or effect, unless extended by the Board
of Directors of the Company. See "Underwriting."
The number of shares of Common Stock that may be purchased is subject to
adjustment upon the occurrence of certain events including a dividend
distribution to the Company's shareholders, or a subdivision, combination or
reclassification of the outstanding shares of Common Stock.
The Company may at any time, and from time to time, extend the exercise
period of the Warrants, provided that written notice of such extension is
given to the Warrant holders prior to the expiration of the date then in
effect. Also, the Company may reduce the exercise price of the Warrants for
limited periods or through the end of the exercise period in accordance with
the terms of the Company's warrant agreement with the Transfer Agent if
deemed appropriate by the Board of Directors. Any
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<PAGE>
extension of the term and/or reduction of the exercise price of the Warrants
may be subject to compliance with Rule 13e-4 under the Exchange Act including
the filing of a Schedule 13E-4. Notice of any extension of the exercise
period and/or reduction of the exercise price will be given to the Warrant
holders. The Company does not presently contemplate any extension of the
exercise period nor does it contemplate any reduction in the exercise price
of the Warrants. Factors which the Board of Directors may consider in taking
such action include the current market conditions, the price of the Common
Stock and the Company's need for additional capital.
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 560,500 shares of Common Stock held by the Company's principal
shareholders; (iii) options to purchase 3,000 shares of Common Stock held by a
non-employee director of the Company, and (iv) an aggregate of 353,010 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 September 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."
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 issuance of Preferred Stock with voting or
conversion rights may adversely affect the voting rights of the holders of
Common Stock. 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.
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<PAGE>
MEETINGS OF SHAREHOLDERS. The Bylaws provide that a special meeting of
shareholders may be called 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 willful
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.
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,
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<PAGE>
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 1,612,500 shares
of Common Stock outstanding (1,732,500 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 Argent
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 626,500 shares of Common Stock issuable upon the exercise of
outstanding options, nor the 353,010 shares of Common Stock (based upon the
principal amount of the notes at September 30, 1996 and prepayment of
$200,000 from the proceeds of this Offering) issuable upon the conversion of
the Principal Shareholders' Notes. There are also 262,000 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 the
Warrants and the Underwriters' Warrants. The Company has agreed to register
these shares of Common Stock in the Registration Statement of which 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 AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is Continental Stock Transfer & Trust Co., New York, New York.
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UNDERWRITING
The underwriters named below (the "Underwriters") for whom Corporate
Securities Group, Inc. and Argent Securities, 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 and Warrants set forth opposite their names below:
NUMBER OF NUMBER OF
UNDERWRITERS SHARES WARRANTS
- ------------ --------- ---------
Corporate Securities Group, Inc......
Argent Securities, Inc...............
------- -------
Total.............................. 800,000 800,000
======= =======
The Underwriters are committed to purchase and pay for all of the shares of
Common Stock and Warrants offered hereby if any shares of Common Stock and
Warrants are purchased. The shares of Common Stock and Warrants 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 and Warrants 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 $
per Warrant and such dealers may reallow a concession not in excess of $
per share of Common Stock and $ per Warrant 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 120,000
additional shares of Common Stock and 120,000 additional Warrants 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 Company has agreed with the Underwriters that the Company will pay to
the Underwriters a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 5% of the exercise price of the Warrants exercised beginning one
year after the Effective Date and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations to the Commission
(including NASD Notice to Members 81-38). Such Warrant Solicitation Fee will
be paid to the Underwriters if (a) the market price of the Common Stock on
the date that any Warrant is exercised is greater than the exercise price of
the Warrant; (b) the exercise of such Warrant was solicited by the
Underwriters; (c) prior specific written approval for exercise is received
from the customer if the Warrant is held in a discretionary account; (d)
disclosure of this compensation agreement is made prior to or upon the
exercise of such Warrant; (e) solicitation of the exercise is not a violation
of Rule 10b-6 of the Exchange Act; (f) the Underwriter provided bona fide
services in exchange for the Warrant Solicitation Fee; and (g) the
Underwriter has been specifically designated in writing by the holders of the
Warrants as the broker. In addition, unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Underwriters will be
prohibited from engaging in any market making activities or solicited
brokerage activities with respect to the Securities for the period from nine
business days prior to any solicitation of the exercise of any Warrant or
nine business days prior to the exercise of any Warrant based on a prior
solicitation until the later of the termination of such solicitation activity
or the
41
<PAGE>
termination (by waiver or otherwise) of any right the Underwriters may have
to receive such a fee for the exercise of the Warrants following such
solicitation. As a result, the Underwriters may be unable to continue to
provide a market for the securities during certain periods while the Warrants
are exercisable.
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 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 $80 ($.001 per warrant), non-callable warrants entitling the Representatives
to purchase from the Company 80,000 shares of Common Stock and 80,000 Warrants
(10 percent of the securities sold in the Offering) at an exercise price of 130%
of the public offering price. The Underwriters' 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 Underwriters'
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
Underwriters' 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 Underwriters' 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 Underwriters' Warrants. Any profit realized by the
Representatives on sale of the Underwriters' 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 Underwriters' Warrants, including additional
shares of Common Stock issuable in the event any of the anti-dilution provisions
set forth in the instruments evidencing such Underwriters' Warrants are
triggered. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriters'
Warrants, to register the Underwriters' 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 Underwriters' 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."
42
<PAGE>
All officers, directors and affiliates, as of the Effective Date, have agreed
with the Representatives in writing not to sell, assign, or transfer any of
their shares of the Company's securities without the Representatives' prior
written consent for a period of 24 months from the Effective Date.
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 an
aggregate fee of $47,000, 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. Such Finder's Fee shall be calculated as a percentage of the value
of the applicable transaction in accordance with the following schedule: 6% on
the first $5,000,000; 5% on the amount from $5,000,000 to $6,000,000; 4% on the
amount from $6,000,000 to $7,000,000; 3% on the amount from $7,000,000 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. 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 will each have the right, for a period of five years
following the completion of this Offering or until the Underwriters' Warrants
have been exercised in full, whichever comes first, to each 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 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 any of 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.
43
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Common Stock and Warrants offered
hereby will be passed upon for the Company by Akerman, Senterfitt & Eidson,
P.A., Miami, Florida. Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany &
Martinez, P.A., Miami, Florida, and Johnson & Montgomery, Atlanta, Georgia are
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.
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 and Warrants 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. The Commission maintains a Web site
that contains reports, proxies and information statements and other information
regarding issuers that file electronically with the Commission. The Commission's
Web site is http://www.sec.gov.
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.
44
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Certified Public Accountants........................ F-2
Consolidated Balance Sheets at September 30, 1996 and December 31, 1995.... F-4
Consolidated Statements of Income for the nine months ended
September 30, 1996 and 1995 and for Two Years Ended
December 31, 1995 and 1994................................................ F-5
Consolidated Statements of Shareholders' Equity at September 30, 1996,
at December 31, 1995 and 1994, and at January 1, 1994..................... F-6
Consolidated Statements of Cash Flows for the nine months ended
September 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>
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 Advanced Electronic Support Products
Computertillbehor i Sweden AB, 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 BDO Seidman, LLP
June 28, 1996, except for
Note 1 which is as
of February 13, 1997
F-2
<PAGE>
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
PROFORMA
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996
--------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 3)
CURRENT
Cash ........................................................ $ 203,804 $ 214,490 $ 214,490
Accounts receivable, net of allowance for doubtful accounts
of $66,000 and $72,000 in 1995 and 1996, respectively (Note
5) ........................................................ 3,015,018 2,585,929 2,585,929
Inventories ................................................. 3,197,950 3,218,287 3,218,287
Prepaid expenses and other current assets ................... 105,591 119,913 119,913
---------- ---------- ----------
Total current assets ......................................... 6,522,363 6,138,619 6,138,619
Property and equipment, net (Note 2) ......................... 380,667 426,867 426,867
---------- ---------- ----------
$6,903,030 $6,565,486 $6,565,486
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank overdraft .............................................. $ 74,889 $ -- $ --
Notes payable (Note 3) ...................................... 1,117,302 1,457,755 1,457,755
Accounts payable ............................................ 2,258,865 1,320,679 1,320,679
Income taxes payable ........................................ 46,603 -- --
---------- ---------- ----------
Total current liabilities .................................... 3,497,659 2,778,434 2,778,434
Convertible promissory note payable .......................... -- -- 1,612,043
---------- ---------- ----------
Total liabilities ............................................ 3,497,659 2,778,434 4,390,477
---------- ---------- ----------
Commitments (Notes 8, 9 and 12)
Shareholders' equity (Notes 1 and 12):
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 ...................................... 813 813 813
Paid-in capital ............................................. 45,901 45,901 45,901
Retained earnings ........................................... 3,345,549 3,728,161 2,116,118
Cumulative foreign currency translation adjustment ......... 13,108 12,177 12,177
---------- ---------- ----------
Total shareholders' equity ................................... 3,405,371 3,787,052 2,175,009
---------- ---------- ----------
$6,903,030 $6,565,486 $6,565,486
========== ========== ==========
</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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------------
1994 1995 1995 1996
------------- -------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (Notes 4, 5 and 6) ................. $8,797,001 $13,721,014 $8,859,018 $9,713,478
---------- ----------- ---------- ----------
OPERATING EXPENSES:
Cost of sales ............................... 4,905,143 8,507,520 5,408,497 5,824,083
Selling, general and administrative expenses 2,993,700 3,951,931 2,529,886 3,055,775
---------- ----------- ---------- ----------
Total operating expenses ..................... 7,898,843 12,459,451 7,938,383 8,879,858
---------- ----------- ---------- ----------
INCOME FROM OPERATIONS ....................... 898,158 1,261,563 920,635 833,620
Other income (expenses), net ................. 88,201 73,911 (102,217) (95,492)
---------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES ................... 986,359 1,335,474 818,418 738,128
Provision for income taxes (Note 10) ........ 11,534 44,680 18,184 10,057
---------- ----------- ---------- ----------
NET INCOME ................................... $ 974,825 $ 1,290,794 $ 800,234 $ 728,071
========== =========== ========== ==========
PRO FORMA AMOUNTS (NOTE 1):
Income before income taxes .................. 986,359 1,335,474 818,418 738,128
Provision for income taxes (Note 10) ....... 347,534 483,680 311,184 267,057
---------- ----------- ---------- ----------
PRO FORMA NET INCOME ......................... $ 638,825 $ 851,794 $ 507,234 $ 471,071
========== =========== ========== ==========
Pro forma net income per share ............... $ .52 $ .70 $ .41 $ .39
Weighted average number of shares of common
stock outstanding .......................... 1,223,178 1,223,178 1,223,178 1,223,178
========== =========== ========== ==========
Supplemental pro forma net income per share . $ .64 $ .36
=========== ==========
</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
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
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 September 30, 1996
(Unaudited):
Distributions ........................ -- -- (345,459) -- (345,459)
Net Income ........................... -- -- 728,071 -- 728,071
Cumulative foreign currency
translation adjustment ............. -- -- -- (931) (931)
---- ------- ----------- ------- -----------
Balance at September 30, 1996
(Unaudited) ........................ $813 $45,901 $ 3,728,161 $12,177 $ 3,787,052
==== ======= =========== ======= ===========
Proforma period ended
September 30, 1996 (Unaudited):
Balance at December 31, 1995 ......... $813 $45,901 $ 3,345,549 $13,108 $ 3,405,371
Distributions ........................ -- -- (1,957,502) -- (1,957,502)
Net income ........................... 728,071 -- 728,071
Cumulative foreign currency
translation adjustment ............. -- -- -- (931) (931)
---- ------- ----------- ------- -----------
Proforma balance at September 30,
1996 (Unaudited) ................... $813 $45,901 $ 2,116,118 $12,177 $ 2,175,009
==== ======= =========== ======= ===========
</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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------------
1994 1995 1995 1996
------------ -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ......................................... $ 974,825 $ 1,290,794 $ 800,234 $ 728,071
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 6,000
Depreciation and amortization ................... 38,177 62,548 17,936 38,160
Deferred income taxes ........................... (2,224) (5,679) -- --
(Increase) decrease in:
Accounts receivable ............................ (894,555) (1,414,312) (808,591) 423,089
Inventories .................................... (183,553) (1,277,611) (728,653) (20,337)
Prepaid expenses and other
current assets ............................... (62,858) 51,659 115,272 (14,322)
Increase (decrease) in:
Bank overdraft ................................. -- 74,889 -- (74,889)
Accounts payable and accrued expenses ......... 418,773 1,090,830 424,765 (938,186)
Income taxes payable ........................... 8,702 33,787 (17,197) (46,603)
--------- ----------- --------- ---------
Net cash provided by (used in) operating activities 304,875 (87,283) (182,636) 100,983
--------- ----------- --------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment ............... (39,303) (362,102) (158,111) (84,360)
--------- ----------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds (payments) on borrowings ............. (154,286) 647,049 483,573 340,453
Loan from (repayment to) affiliate ................ 73,740 46,260 46,260 --
Dividend distributions ............................ (193,495) (308,682) (308,682) (345,459)
--------- ----------- --------- ---------
Net cash provided by (used in) financing activities (274,041) 384,627 221,151 (5,006)
--------- ----------- --------- ---------
NET INCREASE (DECREASE) IN CASH .................... (8,469) (64,758) (119,596) 11,617
Effect of exchange rate changes in cash ............ (113,087) 31,284 27,921 (931)
CASH, AT BEGINNING OF YEAR ......................... 358,834 237,278 237,278 203,804
--------- ----------- --------- ---------
CASH, AT END OF PERIOD ............................. $ 237,278 $ 203,804 $ 145,603 $ 214,490
========= =========== ========= =========
SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest ......................................... $ 24,976 $ 65,416 $ 53,302 $ 98,457
Taxes ............................................ 2,832 13,468 4,861 56,660
</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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
DESCRIPTION OF BUSINESS
Advanced Electronic Support Products, Inc., (AESP) is 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 AND BASIS OF PRESENTATION
As the subsidiaries, Advanced Electronic Support Products
Computertillbehor i Sweden AB ("AESP Sweden") and AESP Computerzubehor GmbH
("AESP Germany"), are based and operating in Germany and Sweden, the
functional and reporting 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 $(20,613) and $(41,108), for the nine months ended
September 30, 1996 and 1995, respectively) are included in other income in
the accompanying consolidated statements of income.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements 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
subsidiaries. Inventory of AESP would be approximately the same had they used
the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. 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 RECOGNITION
Revenues are recognized at the time of shipment of the respective
merchandise.
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.
F-8
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The pro forma provisions for income taxes and net income assume that the
Company was subject to income tax.
AESP Germany and AESP Sweden are subject to taxation in Germany and
Sweden, respectively, 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 $33,000 at September 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 SHARE
Pro forma net income per share is based on the weighted average number of
shares of common stock outstanding during each period, after giving effect to
the stock split (described in Note 1), the assumed conversion of the notes to be
issued to the existing shareholders at $4.00 a share, and the exercise of the
options with respect to 23,000 shares as described in Note 12.
Supplemental pro forma net income per share for the year ended December
31, 1995 and for the nine months ended September 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 195,833 and 254,167
shares, calculated at an offering price of $6.00 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 $1,525,000 at September 30,
1996, respectively. The computation gives effect to elimination of interest
costs associated with the borrowings, net of pro forma income taxes.
FUTURE ACCOUNTING PRONOUNCEMENT
In October 1995, FASB issued SFAS No. 123, "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.
F-9
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended September 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 nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1. REORGANIZATION
The accompanying financial statements give effect to the recapitalization,
effected on February 12, 1997, 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 AESP Sweden and AESP Germany, whose shares of common
stock are owned by the shareholders of AESP. The contribution of shares will
be accounted for under the pooling of interest method as the transaction will
be treated as a combination of companies under common control.
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 EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- ----------------
<S> <C> <C>
Leasehold improvements ......................... $222,529 $295,282
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
-------- --------
479,265 563,625
Less: accumulated depreciation and amortization 98,598 136,758
-------- --------
$380,667 $426,867
======== ========
</TABLE>
F-11
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
--------------- ----------------
<S> <C> <C>
Prime + .75% (9.25% at 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 $ --
Prime plus .50% (9% at September 30, 1996) line of credit
with a financial institution in the amount of $2,500,000
payable July 26, 1997 (Guaranteed by shareholders) ..... -- 1,325,000
8.5% note payable to an entity owned by the Shareholders
of the Company, payable upon demand. ................... 120,000 120,000
Other .................................................... 22,302 12,755
---------- ----------
$1,117,302 $1,457,755
========== ==========
</TABLE>
4. FOREIGN OPERATIONS
Information about the Company's operations in different geographic areas
for the years ended December 31, 1995 and 1994 and the nine months ended
September 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-12
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
4. FOREIGN OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
SWEDEN
UNITED STATES AND GERMANY ELIMINATION CONSOLIDATED
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Nine months ended September 30, 1995:
Sales to unaffiliated customers .... $7,030,697 $1,828,321 $ -- $8,859,018
Transfers between geographic areas . 733,727 -- (733,727) --
---------- ---------- --------- ----------
Total ............................... $7,764,424 $1,828,321 $(733,727) $8,859,018
========== ========== ========= ==========
Operating Income .................... $ 801,057 $ 143,780 $ (24,202) $ 920,635
========== ========== ========= ==========
Identifiable assets ................. $4,778,797 $1,141,866 $(548,675) $5,371,988
========== ========== ========= ==========
Nine months ended September 30, 1996:
Sales to unaffiliated customers .... $7,698,278 $2,015,200 $ -- $9,713,478
========== ========== ========= ==========
Transfers between geographic areas . 804,081 -- (804,081) --
---------- ---------- --------- ----------
Total ............................... $8,502,359 $2,015,200 $(804,081) $9,713,478
========== ========== ========= ==========
Operating Income .................... $ 764,347 $ 63,106 $ 6,167 $ 833,620
========== ========== ========= ==========
Identifiable assets ................. $5,994,647 $1,180,326 $(609,487) $6,565,486
========== ========== ========= ==========
</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 nine months ended September 30,
1996 and 1995 approximated 23% and 18% of combine revenues, respectively.
5. RELATED PARTY TRANSACTIONS
The Company had sales of approximately $170,000 and $59,000 during the
years ended December 31, 1995 and 1994, respectively, and sales of
approximately $128,000 for the nine months ended September 30, 1995 to an
entity owned by the shareholders of the Company. There were no sales to such
entity for the nine months ended September 30, 1996. Accounts receivable at
December 31, 1995 include approximately $73,000, respectively, from such
entity. There was no receivable from such entity at September 30, 1996.
6. SIGNIFICANT CUSTOMERS
For 1995, two customers accounted for 16.5% and 12.0% of consolidated
revenues. For 1994, no customer accounted for 10% or more of consolidated
revenues. For the nine months ended September 30, 1996 and 1995, one customer
accounted for 14% and 18%, respectively, of consolidated revenues.
7. FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including accounts
receivable, accounts payable and short-term debt approximated fair value due
to the relatively short maturity.
F-13
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
8. COMMITMENTS
The Company rents office space under non-cancelable leases expiring in
1998. The minimum future rental commitment for leases in effect at September
30, 1996, including leases to related parties, approximates the following:
YEARS ENDING DECEMBER 31,
-------------------------
1996 ................. $ 41,800
1997 ................. 87,200
1998 ................. 45,200
1999 ................. 43,200
2000 ................. 43,200
Thereafter ........... 21,600
--------
$282,200
========
In July 1996, the Company entered into a five year lease to rent office
and warehouse space 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 September 30, 1996 and December 31, 1995
approximated $247,000 and $260,000, respectively.
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 nine months ended September 30, 1996 and 1995,
aggregated approximately $132,000 and $44,000, respectively, including
$36,000 and $32,400, respectively, 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 nine months ended
September 30, 1996 and 1995, approximately $11,000 and $18,000, respectively,
of royalties were paid.
9. DEFERRED COMPENSATION PLAN
In 1995, the Company adopted a defined contribution plan established
pursuant to Section 401(k) of the 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 nine months ended
September 30, 1996 amounted to $15,629. No contributions were made during the
nine months ended September 30, 1995.
F-14
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
10. INCOME TAXES
The following are the components of pro forma income tax expense:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------------
Current
Federal . $287,940 $357,568 $277,039 $219,257
State .... 49,055 62,985 16,124 36,957
Foreign . 13,758 50,359 18,184 10,057
-------- -------- -------- --------
350,753 470,912 311,347 266,271
-------- -------- -------- --------
Deferred
Federal . (940) 17,432 (154) 743
State .... (55) 1,015 (9) 43
Foreign . (2,224) (5,679) -- --
-------- -------- -------- --------
(3,219) 12,768 (163) 786
-------- -------- -------- --------
Total ..... $347,534 $483,680 $311,184 $267,057
======== ======== ======== ========
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 taxes.
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 NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Tax at the United States statutory rate ... $335,362 $454,062 $278,263 $250,964
States income taxes, net of federal benefit 32,675 42,466 28,409 24,855
Differences in effective income tax of
other countries .......................... (20,503) (12,848) 4,512 (8,762)
-------- -------- -------- --------
Total ...................................... $347,534 $483,680 $311,184 $267,057
======== ======== ======== ========
</TABLE>
F-15
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
10. INCOME TAXES--(CONTINUED)
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, SEPTEMBER 30,
---------------------- ---------------------
1994 1995 1995 1996
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Deferred tax liability:
Untaxed foreign reserves ....................... $ 5,679 $ -- $ -- $ --
Proforma Items:
Deferred tax assets
Allowance for doubtful account ................ 24,560 24,836 27,766 24,050
Deferred tax liabilities
Repatriation of income of foreign subsidiaries 14,278 33,000 23,000 33,000
------- ------- ------- -------
Net deferred tax asset/(liability) ............. $ 4,603 $(8,164) $ 4,766 $(8,950)
======= ======= ======= =======
</TABLE>
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. PROPOSED MERGER
Included in selling, general and administrative expenses for the nine
months ended September 30, 1996, is approximately $125,000 of costs and
expenses in connection with a proposed merger which was unsuccessful.
12. SUBSEQUENT EVENTS
The Company has signed a letter with an underwriter to raise
capital through an initial public offering of 800,000 shares of $.001 par
value per share common stock plus 800,000 redeemable common share purchase
warrants of the Company. The Company has also granted the underwriter an
over-allotment option to sell an additional 120,000 shares and warrants 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 $47,000.
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 $150,000 plus performance bonuses, (iii) issue
options, to each of its two shareholders, to purchase 280,250 shares of common
stock at the initial public offering price, of which 180,250 shares are
considered contingent options which vest and are exercisable seven years after
the date of grant, with provision for earlier vesting based upon future earnings
per share, net income or trading prices of the Company's common stock (all as
defined) and (iv) establish a stock option plan for its employees, initially
providing for 265,000 options, of which options to purchase 3,000 shares have
been granted.
F-16
<PAGE>
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
12. SUBSEQUENT EVENTS--(CONTINUED)
At September 30, 1996, the foregoing notes to shareholders would result in
a charge of $1,612,043 to retained earnings. The proforma balance sheet at
September 30, 1996 gives effect to such distribution.
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.
Effective January 1, 1997, the Company entered into a consulting agreement
for a period of two years in which the consultant will be paid $16,300 per
month. In addition , the Company has granted the consultant a seven year
option to purchase 63,000 shares of its common stock, at $4.00 a share with
respect to 23,000 shares and $6.00 a share with respect to 40,000 shares.
F-17
<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 .......... 14
DIVIDEND POLICY .......... 15
DILUTION ................. 16
CAPITALIZATION ........... 17
SELECTED FINANCIAL
INFORMATION ............ 18
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATION ........... 19
BUSINESS ................. 24
MANAGEMENT ............... 30
CERTAIN TRANSACTIONS .... 35
PRINCIPAL SHAREHOLDERS .. 36
DESCRIPTION OF
CAPITAL STOCK .......... 37
UNDERWRITING ............. 41
LEGAL MATTERS ............ 44
EXPERTS .................. 44
ADDITIONAL INFORMATION .. 44
INDEX TO FINANCIAL
STATEMENTS ............. F-1
UNTIL , 1997, 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.
===============================================================================
800,000 SHARES OF COMMON STOCK
AND
800,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
ADVANCED
ELECTRONIC
SUPPORT
PRODUCTS, INC.
COMMON STOCK
----------
PROSPECTUS
----------
CORPORATE SECURITIES
GROUP, INC.
ARGENT SECURITIES, INC.
, 1997
===============================================================================
<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
II-1
<PAGE>
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.
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 ............................... $ 4,317.00
NASD Filing Fee .................................... 972.00
NASDAQ Listing Fee ................................. 6,675.00
CSE Listing Fee..................................... 20,000.00
3% Non-Accountable Expenses ........................ 147,000.00
Printing Expenses .................................. 35,000.00
Accounting Fees and Expenses ....................... 80,000.00
Legal Fees and Expenses ............................ 125,000.00
Blue Sky Fees and Expenses ......................... 60,000.00
Transfer Agent and Registrar Fees and Expenses .... 20,000.00
Miscellaneous ...................................... 10,000.00
-----------
Total ............................................ $508,964.00
===========
- ----------
* 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.
II-2
<PAGE>
ITEM 27. EXHIBITS.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1 Underwriting Agreement between the Company and the Underwriters*
1.2 Selected Dealer Agreement*
3.1 Amended and Restated Articles of Incorporation of the Company***
3.2 Bylaws of the Company***
3.3 Articles of Amendment to Amended and Restated Articles of Incorporation***
3.4 Amended and Restated Bylaws of the Company***
4.1 Form of Common Stock Certificate***
4.2 Warrant Agreement and Warrant Certificate*
4.3 Form of Purchase Option Agreement***
4.4 Form of Underwriter's Warrant***
4.5 Form of Underwriter's Option Certificate***
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***
10.11 Form of Contingent Stock Option Agreement between the Company and Messrs. Stein and Briskin***
10.12 Form of Lock-Up 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)***
</TABLE>
- ----------
* Filed herewith.
** Identical to exhibit 10.5.
*** Previously filed.
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
II-3
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, 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 together, represent
a fundamental change in the information in the registration statement; and
notwitstanding the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 13th day of February, 1997.
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 February 13, 1997
Slav Stein (and for execution purposes in the
capacity as Chief Executive Officer)
/s/ ROMAN BRISKIN Vice President and Director February 13, 1997
Roman Briskin (and for execution purposes in the
capacity as Chief Financial and
Principal Accounting Officer)
/s/ TERRENCE R. DAIDONE Director February 13, 1997
Terrence R. Daidone
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Underwriting Agreement
1.2 Selected Dealer Agreement
3.4 Amended and Restated Bylaws of the Company
4.2 Warrant Agreement and Warrant Certificate
10.5 Form of Employment Agreement between the Company and Slav Stein
23.2 Consent of BDO Seidman, LLP
23.3 Consent of KPMG Bohlins AB
EXHIBIT 1.1
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
800,000 Shares of Common Stock
800,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
As of February 13, 1997
CORPORATE SECURITIES GROUP, INC.
980 North Federal Highway, Suite 210
Boca Raton, Florida 33432
ARGENT SECURITIES, INC.
3340 Peachtree Road, Suite 450
Atlanta, Georgia 30326
Gentlemen:
Advanced Electronic Support Products, Inc., a Florida corporation (the
"Company") confirms its agreement with Corporate Securities Group, Inc., a
Florida corporation, and Argent Securities, Inc., a Georgia 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 and the Warrants. Subject to the terms and conditions set
forth herein, the Company proposes to sell to you on a "firm commitment" basis,
an aggregate of 800,000 shares ("Shares") of the Company's authorized but
unissued common stock, par value $.001 per share (the "Common Stock") and
800,000 Redeemable Common Stock Purchase Warrants, (the "Warrants"), each
Warrant entitling the holder thereof to purchase one share of Common Stock at an
exercise price of per share pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and Continental Stock Transfer & Trust ("Warrant
Agent"). The Company also proposes to grant to you an option to purchase up to
an additional 120,000 shares of Common Stock and 120,000 Warrants for the sole
purpose of covering over-allotments, if any (the "Option Securities"). The
Shares and the Warrants are sometimes collectively referred to herein as the
"Firm Securities". The Firm Securities and the Option Securities are more fully
described in the Registration Statement and the Prospectus referred to herein
and are hereinafter sometimes collectively referred to as the "Securities."
2. Registration Statement and Prospectus. A registration statement on
Form SB- 2 (File No. 333-15967) together with exhibits and including a
preliminary form of prospectus for the registration of the Securities, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended, and all applicable instructions,
<PAGE>
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 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 Rule430A 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) Firm Securities. 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 Shares at a purchase price of $_____ per
Share and the Warrants at a purchase price of $____ per Warrant. This purchase
price of the Shares and the Warrants represents the public offering price of
such securities, less a discount, equaling ten percent (10%), that the Company
has agreed to allow the Underwriters. 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").
(b) Option Securities. The Company also grants you an
option to pur- chase, upon your written notice to the Company, the Option
Securities for the sole purpose of covering over-allotments, if any, at the
purchase price and on the same terms as set forth in the preceding paragraph.
The Option Securities 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
Securities 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 Securities, if any, to be purchased as
provided herein. Such over-allotment option shall not be exercised more than on
one occasion.
2
<PAGE>
(c) Underwriters' Purchase Option. 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, an option (the
"Underwriters' Purchase Option") pursuant to the Purchase Option Agreement for
the purchase of an aggregate of 80,000 shares of Common Stock (the
"Underwriters' Shares") and 80,000 Common Stock Purchase Warrants (the
"Underwriters' Warrants") for an aggregate purchase price of $80.00. The
Underwriters' Purchase Option shall be exercisable at any time during the four
year period commencing one-year after the effective date of the Registration
Statement (the "Term"), at a price of equal to 130% of the respective public
offering price of the Shares and the Warrants. For a period of one (1) year
after the effective date of the Registration Statement, the Underwriters'
Purchase Option (and the Purchase Option Securities, as hereinafter defined) may
not be sold, assigned, transferred, pledged or hypothecated except to officers
of the Underwriters or members of the selling group. Such transfers will only be
made if they do not violate the registration provisions of the Securities Act.
The Underwriters' Purchase Option and the Purchase Option Securities 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' Purchase Option may not be transferred
to a direct competitor of the Company without the Company's prior written
consent. Except as otherwise set forth in the Purchase Option Agreement, you may
designate that the Underwriters' Purchase Option 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. The Underwriters' Shares, the Underwriters' Warrants and the
shares of Common Stock underlying the Underwriters' Warrant (collectively
sometimes referred to herein as the "Purchase Option Securities") shall be
entitled to piggyback and demand registration rights acceptable to you and your
counsel and as set forth in the Purchase Option Agreement.
4 Delivery and Payment. Delivery of and payment for the Firm
Securities shall be made at 10:00 A.M., Miami Time, on February 19, 1997 (such
time and date are referred to herein as the "Closing Date") at the offices of
Akerman, Senterfitt & Eidson, P.A., SunTrust International Center, 28th Floor,
One Southeast 3rd Avenue, Miami, Florida 33131. The Closing Date and the time
and the place of delivery of and payment for the Firm Securities may be varied
by agreement between you and the Company.
If you elect to purchase and take delivery of any Option
Securities, delivery of and payment for such Option Securities 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 Securities. Such notice may be given
by you
3
<PAGE>
to the Company at any time within forty-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 Shares and the certificates for the Warrants (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 $_____. For the purpose of expediting the
checking and packaging of certificates for the Shares and the Warrants, 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 reasonably
object in writing within a reasonable time after being furnished copies thereof.
The Company will not allow the Registration Statement to be declared effective
by the Commission without your approval.
(b) Notice to Underwriters. The Company will advise you
promptly 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
4
<PAGE>
of the qualification of the Securities 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 regulatory authority of
any order suspending the qualification or the exemption from qualification of
the Securities 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 and the Warrants 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 and the Warrants 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 Securities on
the NASDAQ system. The Company shall, as required, prepare and file as promptly
as practicable a Report by Issuer of Securities Quoted on NASDAQ Interdealer
Quotation System on Form 10-C (or any successor form) with respect to the shares
of Common Stock and the Warrants.
(d) Post-Effective Amendment. Within the time during which a Final Prospectus
relating to the Securities 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 Securities
as contemplated by the provisions hereof and the Final Prospectus. If at any
time when a prospectus relating to the Securities 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.
5
<PAGE>
(e) Blue Sky Qualification. Prior to any public
offering of the Securities 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 Securities 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 so long as may be required for the
distribution of the Securities. 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 Securities (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.
All outstanding fees and expenses of the Underwriters' counsel solely with
respect to Blue Sky matters shall be paid by the Company on or prior to the
Closing Date.
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, no later than the 25 days after the Closing Date, to
engage the services of an investor relations firm (which firm shall also be
qualified to act and shall serve as the financial publicist of the Company)
reasonably acceptable to the Representatives and to maintain such services from
the date of engagement for two (2) years following the Closing Date. Further,
the Company shall use its best efforts to obtain for a period of two years
commencing sixty (60) days after the Closing Date at least three firms (one of
which shall be Argent Securities, Inc. and one of which shall be Standard &
Poor's Stock Reports Professional Edition) which are reasonably acceptable to
the Representatives to provide industry research and advice to the Company. Any
such research and advice provided by a Representative shall be at no fee
(exclusive of the Financial Advisory Agreement referred to in Section 5(p)
hereof) to the Company.
6
<PAGE>
(f) Information to the Underwriters. The Company will
deliver to you, for a period of at least five (5) years (or such earlier date if
the Underwriters' Purchase Option and the Underwriters' Warrant have been
exercised in full) 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 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); (iv) a copy of each "weekly position sheet" generated by the
Depository Trust Corporation pursuant to a subscription for such service that
the Company shall maintain at its expense; and (v) 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, any other
persons deemed to be
7
<PAGE>
"affiliates" as defined in Rule 144 under the Securities Act and Tim Mahoney
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 (including shares of Common Stock hereinafter
acquired through the exercise or conversion of derivative securities or
otherwise) 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, Warrants, Options or Notes 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, affiliates and Tim Mahoney 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) Issuance of Additional Securities. For a period of
five (5) years (or such earlier date if the Underwriters' Purchase Option and
the Underwriters' Warrants have been exercised in full) commencing on the
Closing Date, except with the written consent of the Underwriters, which consent
shall not be unreasonably withheld, the Company will not issue or sell, directly
or indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Underwriters' Purchase Option and the
Underwriters' Warrants, (iii) warrants and options of the Company heretofore
issued and described in the Prospectus, (iv) after two years (or such erlier
date if the Underwriters' Purchase Option nd the Underwriters' Warrants have
been exercised in full) from the closing date, at less than far market value;
and (v) the grant of options and the issuance of shares issued upon exercise of
options issued or to be issued under the Company's stock option plan which is
described in the Prospectus; except that, during such two year period, the
Company may issue securities without the underwriters' consent in connection
with an acquisition, merger or similar transaction, provided that such
securities are not publicly registered or issued pursuant to Regulation S of the
Act, and the acquirer of the securities is not granted registration rights with
respect thereto which are effective prior to 12 months after the Closing Date
and until the Underwriters' Purchase Option is exercised, and further provided
that the Representatives shall have granted their consen (which shall not be
unreasonably withheld) with respect to any acquisition, merger or similar
transaction in which securities of the Company are granted to or issued for less
than the then current fair market value of such securities or with respect to
any such transaction with a party that is related to or
8
<PAGE>
affiliated with the Company or any of its executive officers, directors or ten
percent or greater shareholders. Notwithstanding anything to the contrary set
forth in the prior sentence, the Company may not issue any class or series of
Preferred Stock for a period of 24 months from the Closing Date without the
unanimous vote or consent of all members of the Board of Directors of the
Company. Prior to the Closing Date, the Company will not issue any options or
warrants without the prior written consent of the Underwriters.
(j) 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 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.
(k) 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 Securities 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 Securities 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 Securities, 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 Securities may be issued, as many copies
as you reasonably request of the Prospectus and any amendment or supplement
thereto.
(l) 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
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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.
(m) 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 Securities,
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 and the Warrants, the costs and charges of
the Transfer Agent and Warrant 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
reasonable 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 ten weeks of the Closing Date) at the Company's
sole cost and expense up to seven (7) bound volumes of all the documents, papers
and exhibits, correspondence and records forming the materials included in the
public offering, and up to fifteen (15) 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.
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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. The Company further agrees to pay to the
Underwriters any reasonable costs or expenses, including attorneys' fees,
incurred or resulting from any demands or causes of actions brought by the
Underwriters or by third parties against the Underwriters for the Company's
failure to comply with any material provisions of this Underwriting Agreement,
provided that the Underwriters have not caused such non- compliance by the
Company. With respect to any demand or cause of action to be brought by the
Underwriters, the Underwriters shall give the Company written notice of and a
thirty (30) day period to cure any non-compliance by the Company before making a
demand or bringing a cause of action.
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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 in the course of your
due diligence examination of the Company facts which you determine, in your sole
discretion, could materially adversely affect the sale of the Securities, 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.
(n) 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.
(o) 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 Securities substantially in
accordance with the description set forth in the Prospectus.
(p) Financial Advisory Agreement. On the Closing Date,
the Company shall execute a Financial Advisory Agreement with the
Representatives for financial consulting services, which may include (i)
advising the Company in connection with possible acquisitions (ii) facilitating
shareholder communications and relations, 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 $23,500 per year which amount
shall be prepaid in full on the Closing Date. The Financial Advisory Agreement
shall further provide that if a Representative, directly or indirectly,
introduces the Company, during the term of such agreement, to any person or
entity that during the term thereof or within 18 months following the term
thereof, 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 such Representative a cash finder's fee. Each cash finder's fee payable
to a Representative under this Agreement shall be
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calculated as a percentage of the Transaction Value (as defined herein and
therein) in accordance with the following scale:
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.
"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 Representatives or by an
independent appraiser jointly selected by the Company and the Representatives.
(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 Securities 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. The Company will use its best
efforts to maintain its registration under the Exchange Act in effect for a
period of five (5) years from the Closing Date.
(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 of the Warrants as permitted by the Warrant
Agreement, or 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
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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 Representatives, which consent may be withheld for any reason. The
Representatives 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 Representatives receive written notice of the
proposed action. Failure by the Representatives to provide a response to within
such five (5) day period shall be deemed to be an approval of the redemption or
dividend.
(s) Designation of Directors and Attendance at Board Meetings.
Each Representative shall have the right, for the five (5) year period following
the Closing Date, to designate a nominee (the "Nominees") for election to the
Company's Board of Directors. The officers, directors, and principal
shareholders of the Company shall agree in writing at or prior to the Closing
Date to vote all shares of voting capital stock owned by them (or over which
they have the power to direct the vote) during such five-year period in favor of
the election of the Nominees designated by each of the Representatives. In the
alternative and at its option, each Representative shall have the right, during
such five-year period, to have a representative (the "Attendees") attend all
meetings of the Board of Directors of the Company, which meetings shall be held
at least quarterly. The aforementioned provision notwithstanding, the Company
shall not be obligated to designate Nominees after the Underwriters' Purchase
Option and the Underwriters' Warrants have been exercised in full. The Nominees
may be removed by the Board only for "cause" as such term is defined in the
Employment Agreement between the Company and Slav Stein. Any member of the Board
of Directors shall have the right to call a special meeting of the Board of
Directors on forty- eight (48) hours notice. The Company shall reimburse the
Underwriters' Nominees or Attendees for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings and a fee of $6,000 per year (for
all services as a director, including attendance at the board and committee
meetings). The Nominees shall each year be entitled to receive options to
purchase 12,000 shares of Common Stock at a price equal to the then fair market
value of the Common Stock. To the extent permitted by law, the Company agrees to
indemnify and hold the Nominees and the Representatives harmless against any and
all claims, actions, awards and judgments arising out of his or her service as a
director and in the event the Company maintains a liability insurance policy
affording coverage for the action of its officers and directors, to include such
Nominees as an insured under such policy.
(t) Amendments to Employment and Lock-Up Agreements.
The Company shall not amend or alter any term of any written employment
agreement or Lock-Up Agreement between the Company and any executive officer (or
director), during the term thereof, in a manner more favorable to such employee,
without the express written consent of the Representatives until such time as
the Underwriters' Purchase Option and Underwriters' Warrants have been exercised
in full.
(u) Warrant Solicitation. Commencing one (1) year from
the date hereof, upon the exercise of any Warrant, the exercise of which was
solicited by the Representatives
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in accordance with the applicable rules and regulations of the NASD prevailing
at the time of such solicitation, the Company shall pay to the soliciting
Representative a fee of 5% of the aggregate exercise price of such Warrant (the
"Warrant Solicitation Fee") within five (5) business days of such exercise, so
long as the Representatives provided bona fide services in exchange for the
Warrant Solicitation Fee and the Representatives have been specifically
designated in writing by the holders of the Warrants as the broker. The Company
further agrees that it will not solicit the exercise of any Warrant other than
through the Representatives, unless either: (i) the Representatives cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(ii) the Representatives decline, in writing, to solicit the exercise of the
Warrants within five (5) business days of such a written request by the Company;
or (iii) the Representatives consent to the solicitation of the exercise of the
Warrants by the Company or another entity.
(v) Internal Accounting Controls. The Company will
continue to maintain a system of internal accounting controls sufficient to
provide reasonable assurance that: (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences, and (v) all quarterly reports filed on Form 10-Q shall be reviewed
by the Company's accountant in accordance with SAS71.
(w) Corporate Governance. The Company, for a period of
twenty-four (24) months following the Effective Date (or such earlier date if
the Representative has exercised in full the Underwriters' Purchase Option and
the Underwriters' Warrants) shall adopt and implement all corporate governance
procedures required of companies listed on the NASDAQ National Market System,
including, without limitation, the NASDAQ Stock Markets' Non-Quantitative
Designation Criteria for Issuers. For the period commencing on the Effective
Date and terminating 90 days after the Company has hired a Chief Financial
Officer, the Company shall, on a monthly basis, promptly provide the Board with
a copy of the Company's internally prepared financial statements. Thereafter,
the Company agrees (for a period of twenty-four (24) months following the
Effective Date or such earlier date if the Representative has exercised in full
the Underwriters' Purchase Option and the Underwriters' Warrants) to, no later
than the 20th day of each month, provide the Board with unaudited financial
statements prepared in accordance with GAAP.
(x) Chief Financial Officer. At all times during the
period commencing 90 days after the effective date of the Registration Statement
and terminating upon the earlier of five years after the effective date of the
Registration Statement or such time as the Purchase Option Agreement and
Underwriters' Warrant have been exercised in full, the Company shall retain a
qualified Chief Financial Officer reasonably acceptable to the Representatives.
In the event that, at any time during such period, the Company's Chief
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Financial Officer resigns or is terminated by the Company, then the Company
shall be allotted 90 days to find a qualified replacement reasonably acceptable
to the Representatives. Notwithstanding anything herein to the contrary, for
each month (or portion thereof) during such period that the Company fails to
comply with this covenant and is not, during such month, diligently pursuing the
search and retention of a Chief Financial Officer or replacement Chief Financial
Officer, Slav Stein and Roman Briskin shall each forfeit $15,000 of compensation
(an aggregate of $30,000) under their respective employment agreement or
consulting agreements with the Company.
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.
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(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.
(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 material adverse 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 material
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, the Warrant Agreement
and the Underwriters' Purchase Option 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 Underwriters' Purchase Option and the
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Purchase Option Securities. 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 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, to the knowledge of the
Company after reasonable investigation, 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 (to the knowledge of the
Company after investigation) 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, the
Warrant Agreement and the Purchase Option Agreement, the issue and sale of the
Securities, the Underwriters' Purchase Option and the Purchase Option Securities
and the compliance by the Company with all of the provisions of this Agreement,
the Warrant Agreement and the Purchase Option 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 Securities, the Underwriters' Purchase
Option and
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Purchase Option Securities or in connection with the consummation of the other
transactions contemplated by this Agreement, the Warrant Agreement and the
Purchase Option 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 Securities by you and the purchase of the Underwriters'
Purchase Option and Purchase Option 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, with the exception of the Warrants,
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 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
Representatives.
(h) Legality of Securities. The Securities have been duly
authorized by the Company and conform to the descriptions thereof in the
Registration Statement and in the Prospectus. The Securities 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, with the
exception of the Warrants, redemption rights.
Underwriters' Purchase Option. The Underwriters'
Purchase Option and the Purchase Option Securities conform 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 Underwriters' Purchase
Option and Purchase Option Securities have been duly and validly authorized and
reserved for issuance upon exercise of the Underwriters' Purchase Option and the
Underwriters' Warrant and, when issued upon such exercise in accordance with
terms at the price therein provided, will be validly issued, fully paid and
nonassessable and free of preemptive and redemption rights.
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.
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 materially 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
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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 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.
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 (or has obtained currently effective
extensions); 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.
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.
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
(except to the extent that the absence of such authorizations would not have
material adverse effect on 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.
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.
20
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Finder or Broker. The Company has not retained or
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
Securities. The Company will indemnify and hold harmless the Underwriters with
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.
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.
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 material 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.
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.
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
21
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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.
Reason for Sale. The sale of the Securities 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.
Employment Agreements. The employment agreements
between the Company and its officers described in the Registration Statement are
valid, binding and enforceable obligations upon the respective parties thereto
in accordance with their respective terms, subject to the effect of bankruptcy
or similar proceedings and the effect and application of general principles of
equity.
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): (i) 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.
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 Representatives 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 repaid (or agreed to repay), other than in the
ordinary course of business or as disclosed in the Registration Statement, 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.
22
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Principal Shareholders' Options and Notes. Each of
the following agreements with the Company's principal shareholders conforms to
the description thereof in the Registration Statement and the Prospectus, and
are valid, binding and enforceable obligations upon the respective parties
thereto in accordance with their respective terms, subject to the effect of
bankruptcy or similar proceedings and the effect and application of general
principles of equity: (i) the stock option agreements between the Company and
each of Slav Stein and Roman Briskin to purchase 100,000 shares of Common Stock
("Principal Stockholders' Options"); (ii) the stock option agreement between the
Company and each of Slav Stein and Roman Briskin to purchase 180,250 shares of
Common Stock ("Principal Stockholders' Contingent Options"); and (iii) the
Convertible Subordinated Promissory Note (the "Principal Stockholders' Note")
from the Company to each of Slav Stein and Roman Briskin. Such agreements
provide, among other things, that in the event that the Company's audited after
tax profit (on a pro forma basis assuming C corporation status) for the year
ended December 31, 1996 is less than $639,000, then the shares of Common Stock
underlying such agreement shall be reduced in an amount equal to the difference
between $639,000 and the actual after tax profit (or loss) divided by the
applicable exercise or conversion price. In order of priority, any reduction in
shares of Common Stock underlying such agreement shall be first to the Principal
Stockholders' Contingent Option, second to the Principal Stockholder Note and
third to the Principal Stockholders' Options. By way of example, if the Company
were to experience a after tax loss of $100,000 for the year ended December 31,
1996, then Messrs. Stein and Briskin shall each forfeit approximately 61,583
shares of Common Stock underlying the Principal Stockholders' Contingent Options
(assuming a $6.00 exercise price).
Indemnification.
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, 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 Securities
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, or arise out of or are based upon any failure of the
Company to comply with any provision of this Underwriting Agreement resulting in
a claim or loss to the Underwriters. Notwithstanding the preceding sentence,
23
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 Securities to such person. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
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 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.
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
24
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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 and have been so advised in a written opinion from counsel 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.
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 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 Securities 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
25
<PAGE>
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 Securities
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 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 Securities 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.
Conditions of the Underwriters' Obligations. Your obligation
to purchase and pay for the Firm Securities 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:
26
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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 Securities 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 Securities, 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.
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.
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.
Review by Underwriters' Counsel. The authorization
and issuance of the Securities, the sale and delivery thereof, the Registration
Statement, the Prospectus and all other documents and corporate proceedings
incident thereto shall be satisfactory in all material 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).
27
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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, from Akerman, Senterfitt & Eidson, P.A.,
counsel for the Company, to the effect that:
Each of the Company and its subsidiaries
is, to the knowledge of counsel after limited investigation (as used
herein, such phrase shall have the meaning set forth in the Florida Bar
Report on Standards for Opinions), 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 cor-
poration 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, would, 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 limited investigation, each of the Company and its
subsidiaries has corporate power and authority to own and lease its
properties and to conduct its business as described in the Registration
Statement and the Prospectus. The Company has no subsidiaries to the
knowledge of such counsel after limited investigation other than those
disclosed in the Registration Statement and the Prospectus.
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 limited investigation, threatened, pending
or contemplated under the Securities Act, except as may be disclosed in
the Prospectus; the 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.
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
28
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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.
The authorized, issued and outstanding
capital stock of the Company and all other outstanding securities of
the Company and its subsidiaries 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 Securities 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 knowledge of such counsel after
limited 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.
The Securities to be issued and sold to the
Underwriters by the Company have been authorized by the Company and
will conform in all material respects to the description thereof in the
Registration Statement and in the Prospectus. The Firm Securities, 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 Closing Date shall
state that each of the Firm Securities is validly issued, fully paid
and non-assessable and not subject to preemptive rights.
The Purchase Option Agreement conforms 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
Underwriters' Purchase Option and the Purchase Option Securities have
been validly authorized and reserved for issuance upon exercise of the
Underwriters' Purchase Option and the Underwriters' Warrants and, when
issued upon such exercise in accordance with the terms of the Purchase
Option Agreement at the price therein provided, will be validly issued,
fully paid and non-assessable and not subject to preemptive rights.
The certificates used to evidence the
Securities, the Underwriters' Purchase Option and the Purchase Option
Securities are each in due and proper form as required by the laws of
the State of Florida.
Neither the Company nor any of its
subsidiaries is, to the knowledge of such counsel, in material
violation of its corporate charter or bylaws, respectively, or, to the
knowledge of counsel after limited investigation, any franchise,
license, permit, judgment, decree, order, statute, regulation, rule or
ordinance of any court or administrative
29
<PAGE>
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 limited
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 limited 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 and adverse to the
Company or any of its subsidiaries. To such counsel's knowledge after
limited 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.
The execution and delivery of this
Agreement, the Purchase Option Agreement, the Warrant Agreement, and
the Financial Advisory Agreement, the issuance and sale of the
Securities, the Underwriters' Purchase Option, and the Purchase Option
Securities and the compliance by the Company with all of the provisions
of this Agreement, the Purchase Option Agreement, the Warrant
Agreement, and the Financial Advisory Agreement, 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 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 limited investigation.
To such counsel's knowledge after limited 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 and adverse 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 and adverse 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 Securities, the Underwriters' Purchase Option or
the Purchase Option Securities or the consummation of the other
transactions contemplated by this Agreement, the Purchase Option
Agreement and the Warrant Agreement except the registration of the
Securities and, the Purchase Option Securities under the Securities
Act, and such consents, approvals, authorizations,
30
<PAGE>
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by you and the purchase of the
Underwriters' Purchase Option by you.
To the knowledge of such counsel, 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.
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 knowledge of such counsel after limited 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.
To the knowledge of such counsel after
limited 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.
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 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, however, that such counsel may
not rely on an opinion if he has actual knowledge that such opinion is
not correct or knows that the facts or law on which the opinion of
local counsel is based are not correct.
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:
31
<PAGE>
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 Securities 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 investigation, 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.
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.
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.
There are no legal proceedings pending or,
to the knowledge of the Company after reasonable investigation,
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.
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.
32
<PAGE>
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.
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
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.
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.
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:
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
Securities 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.
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.
33
<PAGE>
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.
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.
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.
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.
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.
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.
Underwriters' Purchase Option. The Company shall
have executed the Purchase Option Agreement and shall have delivered
properly executed Underwriters' Option Certificates to you
simultaneously with the closing of the sale of the Firm Securities.
Lock-Up Agreements. You shall have received the
executed "lock-up" letters described in Section 5(h) of this Agreement.
34
<PAGE>
Employment Agreements. Prior to the effective date
of the Registration Statement, the Company will enter into and deliver
to the Underwriters employment and stock option agreements with Slav
Stein and Roman Briskin, which agreements will be subject to the
Underwriters' approval.
NASDAQ Listing. The Common Stock and Warrants must
be qualified for listing on the Nasdaq SmallCap Market on the effective
date of the Registration Statement. Blue Sky Qualification. The
Securities 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 stop 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 reasonably satisfactory to you and your
counsel. The Company shall furnish to you such conformed copies 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 Securities 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 Securities from
the Company (which purchase may occur simultaneously with the purchase of the
Option Securities 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 Securities
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
35
<PAGE>
the Firm Securities, the opinion delivered pursuant hereto shall also refer to
the Option Securities.
(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.
(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.
36
<PAGE>
Effective Date of Agreement; Termination.
This Agreement shall become effective when you and
the Company shall have received notification of the effectiveness of the
Registration Statement.
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 Securities 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 Securities 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.
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
37
<PAGE>
Protection Act of 1970, the obligations of the Company under this Agreement
shall cease without any liability on the part of the Company.
Survival of Indemnities, Representations, Warranties and
Covenants. The respective indemnities of the Company and the Underwriters and
the respective representations, warranties and covenants of the Company and the
Underwriters 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
Underwriters or any of their respective officers, directors, partners or any
controlling person, and will survive delivery of and payment for the Securities
or termination of this Agreement pursuant to Section 10 hereof as the case may
be.
Miscellaneous.
This Agreement shall inure to the benefit of the
Company and the Under- writers, 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 Securities from the Underwriter.
This Agreement constitutes the entire agreement among
the parties concerning the subject matter hereof and supersedes all prior
agreements and understandings.
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
38
<PAGE>
If to the Underwriters: Corporate Securities Group, Inc.
980 North Federal Highway
Suite 310
Boca Raton, Florida 33432
Attn: Mr. Marshall T. Leeds, President
Facsimile: (407) 338-2827
Argent Securities, Inc.
3340 Peachtree Road
Suite 450
Atlanta, Georgia 30326
Attn: Phil Reames, Chairman
Facsimile: (404) 816-4085
With a Copy to: Lucio, Mandler, Croland, Bronstein, Garbett,
Stiphany & Martinez, P.A.
Barnett Bank Tower
701 Brickell Avenue, 20th Floor
Miami, Florida 33131
Attn: Leslie J. Croland, Esq.
Facsimile: (305) 579-0012
Johnson & Montgomery
One Buckhead Plaza
3060 Peachtree Road, N.W.
Suite 400
Atlanta, Georgia 30305
Attn: Robert Altenbach, Esq.
Facsimile: (770) 977-7673
This Agreement was executed and delivered in, and i
ts 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.
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.
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.
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
39
<PAGE>
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:
ARGENT SECURITIES, INC. CORPORATE SECURITIES GROUP, INC.
By: By:
40
EXHIBIT 1.2
750,000 Shares of Common Stock and
750,000 Redeemable Common Stock Purchase Warrants
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
SELECTED DEALER AGREEMENT
______________, 1997
Gentlemen:
Argent Securities, Inc. and Corporate Securities Group, Inc. have
agreed as the underwriters (the "Underwriter") named in the enclosed
prospectus (the "Prospectus"), subject to the terms and conditions of an
Underwriting Agreement dated _____________, 1997 (the "Underwriting Agreement"),
to purchase from Advanced Electronic Support Products, Inc., a Florida
corporation (the "Company"), 750,000 shares of Common Stock, par value $.01 per
share (the "Public Shares") and 750,000 Redeemable Common Stock Purchase
Warrants (the "Public Warrants"). We may also purchase as many as 75,000
additional shares of Common Stock and 75,000 Redeemable Common Stock Purchase
Warrants (the "Option Securities") from the Company pursuant to Section 2 of the
Underwriting Agreement. The Securities are more particularly described in the
Prospectus, additional copies of which will be supplied in reasonable quantities
upon request.
We are offering a portion of the Common Stock and Redeemable Common
Stock Purchase Warrants for sale to selected dealers (the "Selected Dealers"),
among whom we are pleased to include you, at the public offering price, less a
concession in the amount set forth in the Prospectus under "Underwriting." This
offering is made subject to delivery of the Public Shares and Public Warrants
and their acceptance by the Underwriter, to the approval of all legal matters by
our counsel, and to the terms and conditions herein set forth, and may be made
on the basis of the reservation of the Public Shares and Public Warrants or an
allotment against subscription.
We will advise you by telegram of the method and terms of the offering.
Acceptances should be sent to Argent Securities, Inc., 3340 Peachtree Road,
N.E., Suite 450, Atlanta, Georgia 30326, Attention: L. Phillips Reames.
Subscription books may be closed by us at any time without notice, and we
reserve the right to reject any subscription in whole or in part, but
notification of allotments against and rejections of subscriptions will be made
as promptly as practicable.
Any of the Public Shares and Public Warrants purchased by you hereunder
are to be promptly offered by you to the public at the public offering price, as
set forth in the Prospectus, except as herein otherwise provided and except that
a reallowance from any such public offering price not in excess of the amount
set forth in the Prospectus under "Underwriting" may be allowed to dealers who
are members in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"),
<PAGE>
or foreign dealers or institutions not eligible for membership in said
association who agree to abide by the conditions with respect to foreign dealers
and institutions set forth in your confirmation below. We may buy Public Shares
and Public Warrants from, or sell Public Shares and Public Warrants to, any
Selected Dealer, and any Selected Dealer may buy Public Shares and Public
Warrants from, or sell Public Shares and Public Warrants to, any other Selected
Dealer at the public offering price less all or any part of the concession set
forth in the Prospectus. After the Public Shares and Public Warrants are
released for sale to the public, we are authorized to vary the offering price of
the Public Shares and Public Warrants and other selling terms. You agree to sell
to a minimum of one retail purchaser for each ________ Public Shares and Public
Warrants sold.
If, prior to the termination of this Agreement, we purchase or contract
to purchase any Public Shares and Public Warrants which were purchased by you
from us or any Selected Dealer at a concession from the public offering price
(or any Public Shares and Public Warrants which we believe have been substituted
therefor) you hereby agree that we may: (i) require you to pay us on demand an
amount equal to the concession on such Public Shares and Public Warrants; (ii)
sell for your account the Public Shares and Public Warrants so purchased and
debit or credit your account with the loss or profit resulting from such sale;
or (iii) require you to purchase such Public Shares and Public Warrants at a
price equal to the total cost of such purchase including commissions and
transfer taxes (if any) on redelivery.
Public Shares and Public Warrants accepted or allotted hereunder shall
be paid for in full at the public offering price, at the office of Argent
Securities, Inc., 3340 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326
(or such other place as you may be instructed) prior to 8:30 a.m., New York City
time, on such day after the public offering date as we may advise three (3) days
after the effective date, by certified or official bank check payable in New
York Clearing House funds to the order of Argent Securities, Inc. against
delivery of certificates. Certificates representing purchases by each
Underwriter or Selected Dealer will be registered in each Underwriter or
Selected Dealer's name. We shall maintain a list of certificate numbers for each
Underwriter and Dealer. There will be no registration in street or clearing
agent names. Accordingly, you have agreed to notify your clearing agent firm of
the physical settlement procedures and you shall instruct such clearing agent
not to deliver any certificate to satisfy any other correspondent's trades. If
Public Shares and Public Warrants are purchased and paid for by you hereunder at
the public offering price, the concession will be paid to you after the
termination of this Agreement. The selling concession may be withheld if any
shares so purchased by you as a Selected Dealer are resold and repurchased by us
prior to the termination date of this Agreement.
We have been advised by the Company that a registration statement
(Registration No. 333-15967 (the "Registration Statement") for the Public Shares
and Public Warrants has been filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"). You will be promptly
advised when the registration statement becomes effective. You will comply with
the applicable requirements of the Act and of the Securities Exchange Act of
1934, as amended, and the terms and conditions set forth in the Prospectus. No
person is authorized by the Company or the Underwriter to give or rely on any
information or to make any representations not contained
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<PAGE>
in the Prospectus in connection with the sale of Public Shares and Public
Warrants. You are not authorized to act as agent for the Company or the
Underwriter in offering the Public Shares and Public Warrants to the public or
otherwise. Nothing contained herein shall constitute or be construed to make the
Selected Dealers partners with the Underwriter or with one another.
We shall not be under any liability (except for our own want of good
faith) for or in respect of the validity or value of, or title to, any Public
Shares and Public Warrants; the form or completeness of, or the statements
contained in, or the validity of, the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto or any other
letters or instruments executed by or on behalf of the Company or others; the
form or validity of the agreement for the purchase of the Public Shares and
Public Warrants or this Agreement; the delivery of the Public Shares and Public
Warrants; the performance by the Company or others of any agreement on its or
their part; or any matter in connection with any of the foregoing; provided,
however, that nothing in this paragraph shall be deemed to relieve the
Underwriter from any liability under the Act.
You, by your confirmation below, represent that: (i) you are a member
in good standing of the NASD or are a foreign bank or dealer not eligible for
membership in the NASD which agrees to make no offers or sales of Public Shares
and Public Warrants within the United States, its territories or its
possessions, or to persons who are citizens thereof or residents therein, (ii)
neither you nor any of your directors, officers, partners or "persons associated
with" you (as defined in the By-Laws of the NASD) nor, to your knowledge, any
"related person" (as defined by the NASD in its Interpretation of Article III,
Section I of its Rules of Fair Practice, as amended) or any other broker-dealer,
have participated or intend to participate in any transaction or dealing as to
which documents or information are required to be filed with the NASD pursuant
to such Interpretation, and as to which such documents or information have not
been so filed as required.
You agree not to, at any time prior to the termination of this
Agreement, bid for, purchase, sell or attempt to induce others to purchase or
sell, directly or indirectly, any Public Shares and Public Warrants other than
(a) as provided for in this Agreement or the Underwriting Agreement relating to
the Public Shares and Public Warrants, or (b) purchases or sales as broker on
unsolicited orders for the account of others. In making the sales of Public
Shares and Public Warrants, if you are a member of the NASD, you will comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation of Article II, Section I of its Rules of Fair Practice with
respect to Free-Riding and Withholding and Section 24 of Article III of the
NASD's Rules of Fair Practice, or if you are a foreign bank or dealer, you agree
to comply with such Interpretation of Sections 8, 24 and 36 of such Article as
though you were such a member and Section 25 of such Article as it applies to a
nonmember broker or dealer in a foreign country. Further, pursuant to Securities
Act Release No. 4968, you will distribute a Preliminary Prospectus to all
persons reasonably expected to be purchasers of shares from you at least 48
hours prior to the time you expect to mail confirmation.
Upon written application to us, we will inform you as to the advice we
have received from counsel concerning the jurisdictions in which the Public
Shares and Public Warrants have been
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<PAGE>
qualified for sale or are exempt under the respective securities or blue sky
laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Public Shares and Public Warrants in any jurisdiction.
As Underwriter, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. We shall not be under any obligation to you except for
obligations expressly assumed by us in this Agreement.
You agree, upon our request, at any time or times prior to the
termination of this Agreement, to report to us the number of Public Shares and
Public Warrants purchased by you pursuant to the provisions hereof which then
remain unsold.
Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate at the close
of business on the 30th business day after the public offering of the Public
Shares and Public Warrants, but, in our discretion, may be extended by us for a
further period or periods not exceeding 30 business days in the aggregate and in
our discretion, whether or not extended, may be terminated at any earlier time.
Notwithstanding the termination of this Agreement, you shall remain liable for
your proportionate amount of any claim, demand or liability which may be
asserted against you alone, or against you together with other dealers
purchasing Public Shares and Public Warrants upon the terms hereof, or against
us, based upon the claim that the Selected Dealers, or any of them, constitute
an association, an unincorporated business or other entity.
This Agreement shall be construed in accordance with the laws of the
State of Georgia without giving effect to conflict of laws principles.
In the event that you agree to purchase Public Shares and Public
Warrants in accordance with the terms hereof, and of the aforementioned
telegram, kindly confirm such agreement by competing and signing the form
provided for that purpose on the enclosed duplicate hereof and returning it to
us promptly.
All communications from you should be addressed to Argent Securities,
Inc., 3340 Peachtree Road, N.E., Suite 450, Atlanta, Georgia 30326, Attention:
L. Phillips Reames. Any notice from us to you shall be deemed to have been duly
given if mailed or telegraphed to you at this address to which this letter is
mailed.
Very truly yours,
ARGENT SECURITIES, INC.
By: _________________________
Name: _______________________
Title: ______________________
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<PAGE>
Argent Securities, Inc.
3340 Peachtree Road, NE, Ste. 450
Atlanta, Georgia 30326
Attention: L. Phillips Reames
Gentlemen:
We hereby confirm our agreement to purchase the Public Shares and
Public Warrants (as such term is defined in the Selected Dealer Agreement)
consisting of one share of Class A Common Stock and one Redeemable Class A
Common Stock Purchase Warrant, of Streicher Mobile Fueling, Inc., subject to the
terms and conditions of the foregoing Agreement and your telegram to us referred
to herein. We hereby acknowledge receipt of the definitive Prospectus relating
to the Public Shares and Public Warrants, and we confirm that in purchasing
Public Shares and Public Warrants we have relied upon no statements whatsoever,
written or oral, other than the statements in such Prospectus. We have made a
record of our distribution of preliminary prospectuses and, when furnished with
copies of any revised preliminary prospectus, we have, upon your request,
promptly forwarded copies thereof to each person to whom we had theretofore
distributed preliminary prospectuses. We confirm that we have complied and will
comply with all of the requirements of Rule 15c2-8 of the Securities Exchange
Act of 1934.
We hereby represent that we are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or, if we are not
such a member, we are a foreign dealer or institution not eligible for
membership in said Association which agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein. If we are a member of the NASD, we agree to comply
with all applicable rules of the NASD, including, without limitation, the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, or, if we are such a foreign dealer or institution, we agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Sections 8, 24
and 36 of such Article as if we were such a member, and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
Pursuant to your telegram, we hereby subscribe for an allotment of
Public Shares and Public Warrants, and acknowledge a concession of $____ from
the $_____ public offering price of the Unit.
- ------------------------------- -------------------------------
(Corporate or Firm Name of (Signature of Authorized
Selected Dealer) Official or Partner)
Address:
_______________________________ Date Accepted:__________________
_______________________________ Telephone: _____________________
_______________________________ Tax I.D.#: _____________________
EXHIBIT 3.4
SECOND AMENDED AND RESTATED
BY-LAWS
OF
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of shareholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-Laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. MATTERS TO BE CONSIDERED AT ANNUAL MEETINGS. At any annual
meeting of shareholders or any special meeting in lieu of annual meeting of
shareholders (the "Annual Meeting") only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
SECTION 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
shareholder shall: (i) give timely notice as required by this SECTION 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding
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Annual Meeting (the "Anniversary Date"); provided, however, that in the event
the Annual Meeting is scheduled to be held on a date more than 30 days before
the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
For purposes of these By-Laws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a Report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or Report sent to shareholders of
record of the Corporation at the time of the mailing of such letter or it
Report.
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other shareholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other shareholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other shareholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this SECTION 2 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
SECTION 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this SECTION 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this SECTION 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this SECTION 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a stockholder proposal was made in
accordance with the requirements of this SECTION
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2, the presiding officer shall so declare at the Annual Meeting and ballots
shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions by this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this By-Law, and nothing in
this By-Law shall be deemed to affect any rights of shareholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
SECTION 3. SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of Preferred Stock,
special meetings of the shareholders of the Corporation may be called by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the Directors then in office or by the affirmative vote of at
least ten percent (10%) of the outstanding shares of voting stock issued,
outstanding and entitled to vote at a meeting of shareholders.
SECTION 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETINGS. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of shareholders of the Corporation, unless
otherwise provided by law.
SECTION 5. NOTICE OF MEETINGS: ADJOURNMENTS. A written notice of all
Annual Meetings stating the hour, date and place of such Annual Meetings shall
be given by the Secretary or an Assistant Secretary (or other person authorized
by these By-Laws or by law) not less than 10 days nor more than 60 days before
the Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Articles of Incorporation of the
Corporation (as the same may be amended and/or restated, the "Articles") or
under these By-Laws, is entitled to such notice, by delivering such notice to
him or by mailing it, postage prepaid, addressed to such stockholder at the
address of such stockholder as it appears on the Corporation's stock transfer
books. Such notice shall be deemed to be delivered when hand delivered to such
address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of shareholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of shareholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of shareholders need
to be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of shareholders and any record date
with respect thereto, regardless of
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whether any notice or public disclosure with respect to any such meeting has
been sent or made pursuant to SECTION 2 of this Article 1 or SECTION 3 of
Article II hereof or otherwise. In no event shall the public announcement of an
adjournment, postponement or rescheduling of any previously scheduled meeting of
shareholders commence a new time period for the giving of a stockholder's notice
under SECTION 2 of Article I and SECTION 3 of Article II of these By-Laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the shareholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
shareholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of shareholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Articles or these By-Laws, is entitled to such notice.
SECTION 6. QUORUM. The holders of shares of voting stock representing a
majority of the voting power of the outstanding shares of voting stock issued,
outstanding and entitled to vote at a meeting of shareholders, represented in
person or by proxy at such meeting, shall constitute a quorum; but if less than
a quorum is present at a meeting, the holders of voting stock representing a
majority of the voting power present, at the meeting or the presiding officer
may adjourn the meeting from time to time, and the meeting may be held as
adjourned without further notice, except as provided in SECTION 5 of this
Article I. At such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 7. VOTING AND PROXIES. Shareholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Articles.
Shareholders may vote either in person or by written proxy, but no proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting before being voted. Except as otherwise limited therein or as otherwise
provided by law, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a stockholder shall be deemed valid, and the
burden of proving invalidity shall rest on the challenger.
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SECTION 8. ACTION AT MEETING. When a quorum is present, any matter
before any meeting of shareholders shall be decided by the vote of a majority of
the voting power of shares of voting stock, present in person or represented by
proxy at such meeting and entitled to vote on such matter, except where a larger
vote is required by law, by the Articles or by these By-Laws. Any election by
shareholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Articles or by these By-Laws. The
Corporation shall not directly or indirectly vote any shares of its own stock;
provided, however, that the Corporation may vote shares which it holds in a
fiduciary capacity to the extent permitted by law.
SECTION 9. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-Laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of shareholders, a complete list of the shareholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of shareholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to SECTIONS 5 AND 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the shareholders
shall be determined by the presiding officer.
SECTION 11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of shareholders, appoint one or
more inspectors to act at the meeting and make a written Report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of shareholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the Florida Business Corporation Act, as amended from time to time
("FBCA"), including the counting of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors. The presiding officer may review
all determinations made by the inspector(s), and in so doing the presiding
officer shall be entitled to exercise his or her sole judgment and discretion
and he or she shall not be bound by any determinations made by the
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inspector(s). All determinations by the inspector(s) and, if applicable, the
presiding officer shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
DIRECTOR
SECTION 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Articles or required
by law.
SECTION 2. NUMBER AND TERMS. The number of Directors of the Corporation
shall be fixed by resolution duly appointed from time to time by the Board of
Directors. The Directors shall hold office in the manner provided in the
Articles.
SECTION 3. DIRECTOR NOMINATIONS. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this SECTION 3. Any stockholder who has complied
with the timing, informational and other requirements set forth in this SECTION
3 and who seeks to make such a nomination, or his, her or its representative,
must be present in person at the Annual Meeting. Only persons nominated in
accordance with the procedures set forth in this SECTION 3 shall be eligible for
election as directors at an Annual Meeting.
Nominations, other than those made by, or at the discretion of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this SECTION 3. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a shareholders notice shall be timely if delivered to, or mailed to
and received by, the Corporation at its principal executive office not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of such Annual Meeting or (B) the 15th day following the day on
which public announcements of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
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A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other shareholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other shareholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this SECTION 3 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this SECTION 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this SECTION 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this SECTION 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
SECTION 3 in any material respect, then such nomination shall be considered at
the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this SECTION 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this SECTION 3, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this
SECTION 3 shall be considered timely, but only with respect to nominees for any
new positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
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No person shall be elected by the shareholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures as set forth in this
Section shall be provided for use at the annual meeting.
SECTION 4. QUALIFICATION. No Director need be a stockholder of the
corporation.
SECTION 5. VACANCIES. Subject to the rights, if any, of the holders of
any series of Preferred Stock to elect Directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filed solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors, when the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors, the
remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. REMOVAL. Subject to the rights, if any, of any series of
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office only by the affirmative vote of at least two-thirds of the total
votes which would be eligible to be cast by shareholders in the election of such
Director. At least 30 days prior to any meeting of shareholders at which it is
proposed that any Director be removed from office, written notice of such
proposed removal shall be sent to the Director whose removal will be considered
at the meeting.
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SECTION 7. RESIGNATION. A Director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Bylaw, on the same date
and at the same place as the Annual Meeting following the close of such meeting
of stockholder. Other regular meetings of the Board of Directors may be held at
such hour, date and place as the Board of Directors may by resolution from time
to time determine without notice other than such resolution.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. NOTICE OF MEETINGS. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each Director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each Director in person, by telephone,
or by telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Articles or by
these Bylaws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
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SECTION 11. QUORUM. At any meeting of the Board of Directors, a majority
of the Directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in SECTION 10 of
this Article II. Any business which might have been transacted at the meeting as
originally noticed may be transacted at such adjourned meeting at which a quorum
is present.
SECTION 12. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Articles or by these By-Laws.
SECTION 13. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. COMMITTEES. The Board of Directors, by vote of a majority of
the Directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, an Audit and Compensation
Committee and, if needed, a Stock Option Committee and may delegate thereto some
or all of its powers except those which by law, by the Articles or by these
By-Laws may not be delegated.
Except as the Board of Directors may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Board of Directors. All members of such committees shall hold
such offices at the pleasure of the Board of Directors. The Board of Directors
may abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall Report it action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
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ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the Corporation shall consist of
a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors and one or more Vice
Presidents (including Executive Vice President or Senior Vice Presidents),
Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may determine.
SECTION 2. ELECTION. At the regular annual meeting of the Board
following the Annual Meeting of shareholders, the Board of Directors shall elect
the President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder or a
Director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by the Articles or by
these By-Laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next annual
meeting of shareholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the Directors then in office.
SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. PRESIDENT. Unless otherwise provided by the Board of
Directors or the Articles, the President shall be the Chief Executive Officer of
the Corporation and shall subject to the
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direction of the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
shareholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the shareholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate .
SECTION 11. VICE PRESIDENT AND ASSISTANT VICE PRESIDENT. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. TREASURER AND ASSISTANT TREASURER. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive officer.
SECTION 13. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall
record all the proceedings of the meetings of the shareholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. OTHER POWERS AND DUTIES. Subject to these Bylaws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers
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and duties as from time to time be conferred by the Board of Directors or the
Chief Executive Officer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. ARTICLES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by Corporation
officers, the transfer agent or the registrar may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the time of its issues. Every certificate for
shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer and unless
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney property executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. RECORD HOLDERS. Except as may otherwise be required by law,
by the Articles or by these By-Laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment o dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
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 other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of
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Directors, and which record date: (1) in the case of determination of
shareholders entitled to vote at any meeting of shareholders, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting and (2) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed: (1)
the record date for determining shareholders entitled to notice of or to vote at
a meeting of shareholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and (2) the record date for determining shareholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this Article: (a) "Officer"
means any person who serves or has served as a Director or officer of the
Corporation or in any other office filled by election or appointment by the
shareholders or the Board of Directors of the Corporation and any heirs,
executors, administrators or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Corporation, but who is not or was not an Officer, and any heirs,
executors, administrators or personal representatives of such person; (c)
"Proceeding" means any threatened; pending, or completed action, suite or
proceeding (or part thereof), whether civil, criminal, administrative,
arbitrative or investigative, any appeal of such an action, suit or proceeding,
and any inquiry or investigation which could lead to such an action, suite, or
proceeding; and (d) "Expenses" means any liability fixed by a judgment, order,
decree or award in a Proceedings, any amount reasonably paid in settlement of a
Proceeding and any professional fees and other expenses and disbursements
reasonably incurred in a Proceeding or in settlement of a Proceeding, including
fines, taxes and penalties relating thereto.
SECTION 2. OFFICERS. Except as provided in SECTION 4 of this Article V,
each Officer of the Corporation shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the FBCA, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader rights
than said law permitted the Corporation to provide prior to such amendment)
against any and all Expenses incurred by such Officer in connection with any
Proceeding in which such Officer is involved as a result or serving or having
served (a) as an Officer or employee of the Corporation, (b) as a director,
officer or employee of any subsidiary of the Corporation, or (c) in any capacity
with any other corporation, organization, partnership, joint venture, trust or
other entity at the written require or direction of the Corporation, including
service with respect to employee or other benefit plans, and shall continue as
to an Officer after he or she has ceased to be an Officer and shall inure
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to the benefit of his or her heirs, executors, administrators and personal
representatives; provided, however, that the Corporation shall indemnify any
such Officer seeking indemnification in connection with a Proceeding initiated
by such Officer only if such Proceeding was authorized by the Board of Directors
of the Corporation.
SECTION 3. NON-OFFICER EMPLOYEES. Except as provided in SECTION 4 of
this Article V, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
fullest extent authorized by the FBCA, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader rights than said law
permitted the Corporation to provide prior to such amendment) against any or all
Expenses incurred by such Non-Officer Employee in connection with any Proceeding
in which such Non-Officer Employee is involved as a result of serving or having
served (a) as a Non-Officer Employee of the Corporation, (b) as a director,
officer or employee of any subsidiary of the Corporation, or (c) in any capacity
with any other corporation, organization, partnership, joint venture, trust or
other entity at the request or direction of the Corporation, including service
with respect to employee or other benefit plans, and shall continue as to a
Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and
shall inure to the benefit of his or her heirs, personal representatives,
executors and administrators; provided, however, that the Corporation may
indemnify any such Non-Officer Employee seeking indemnification in connection
with a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors of the Corporation.
SECTION 4. GOOD FAITH. No indemnification shall be provided pursuant to
this Article V to an Officer or to a Non Officer Employee with respect to a
matter as to which such person s hall have been finally adjudicated in any
Proceeding not to have acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal Proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In the event that a Proceeding is compromised
or settled prior to final adjudication so as to impose any liability or
obligation upon an Officer or Non-Officer Employee, no indemnification shall be
provided pursuant to this Article V to said Officer or Non-Officer Employee with
respect to a matter if there be a determination that with respect to such matter
such person did no act in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal Proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The determination contemplated by the preceding
sentence shall be made by (i) a majority vote of those Directors who are not
involved in such Proceeding (the "Disinterested Directors"); (ii) by the
shareholders; or (iii) if directed by a majority of Disinterested Directors, by
independent legal counsel in a written opinion. However, if more than half of
the Directors are no Disinterested Directors, the determination shall be made by
(i) a majority vote of a committee of one or more Disinterested Director(s)
chosen by the Disinterested Director(s) at a regular or special meeting; (ii) by
the shareholders; or (iii) by independent legal counsel chosen by the Board of
Directors in a written opinion.
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SECTION 5. PRIOR TO FINAL DISPOSITION. Unless otherwise determined by
(i) the Board of Directors, (ii) if more than half of the Directors are involved
in a Proceeding by a majority vote of a committee of one or more Disinterested
Director(s) chosen in accordance with the procedures specified in SECTION 4 of
this Article or (iii) if directed by the Board of Directors, by independent
legal counsel in a written opinion, any indemnification extended to an Officer
or Non-Officer Employee pursuant to this Article V shall include payment by the
Corporation or a subsidiary of the Corporation of Expenses as the same are
incurred in defending a Proceeding in advance of the final disposition of such
Proceeding upon receipt of any undertaking by such Officer or Non-Officer
Employee seeking indemnification to repay such payment if such Officer or
Non-Officer Employee shall be adjudicated or determined not to be entitled to
indemnification under this Article V.
SECTION 6. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Officer and Non-Officer Employee who serves in such capacity at anytime while
this Article V is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any Proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of expenses hereunder by an Officer or
Non-Officer Employee is not paid in full by the Corporation within 60 days after
a written claim for indemnification or documentation of expenses has been
received by the Corporation, such Officer or Non-Officer Employee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim, and if successful in whole or in part, such Officer or Non-Officer
Employee shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or shareholders) to make a
determination concerning the permissibility of such indemnification or
advancement of expenses under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 7. NON-EXCLUSIVITY OF RIGHTS. The provisions in respect of
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition set forth in this Article V shall not be
exclusive of any right which any person may have or hereafter acquire under any
statute, provision of the Articles or these By-Laws, agreement, vote of
shareholders or disinterested directors or otherwise; PROVIDED, HOWEVER, that in
the event the provisions of this Article V in any respect conflict with the
terms of any agreement between the Corporation or any of its subsidiaries and
any person entitled to indemnification under this Article V, then the provision
which is more favorable to the relevant individual shall govern.
SECTION 8. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Officer of Non-Officer Employee, or arising out of any such status,
whether or note the Corporation would have the power to indemnify such person
against such liability under the FBCA or the provisions of this Article V.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasury or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors otherwise
provides, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of this Corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
an Annual Meeting of shareholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a resident
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. CORPORATE RECORDS. The original or attested copies of the
Articles, By-Laws and records of all meetings of the incorporators, shareholders
and the Board of Directors and the stock transfer books, which shall contain the
names of all shareholders, their record addresses and the amount of stock held
by each, may be kept outside the State of Delaware and shall be kept at the
principal office of the Corporation, at the office of its counsel or at an
office of its transfer agent or at such other place or places as may be
designated from time to time by the Board of Directors.
SECTION 7. ARTICLES. All references in these By-Laws to the Articles
shall be deemed to refer to the Articles of Incorporation of the Corporation, as
amended and in effect from time to time.
SECTION 8. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as providedo otherwise by law,
the Bylaws may be amended or repealed by the Board of Directors.
(b) AMENDMENT BY SHAREHOLDERS. These Bylaws may be amended or
repleaded at any Annual Meeting of shareholders, or special meeting of
shareholders called for such purpose, by the
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affirmative vote of at least two-thirds of the total votes eligible to be cast
on such amendment or repeal by holders of voting stock, voting together as a
single class; provided, however, that if the Board of Directors recommends that
shareholders approve such amendment or repeal at such meeting of shareholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cased on such amendment or repeal by holders
of voting stock, voting together as a single class.
SECTIN 9. FLORIDA ANTI-TAKER PROVISIONS. The Corporation elects not
to be governed by Florida Statutes, Section 607.0901 entitled "Affiliated
Transactions" and Section 607.0902 entitled "Control Share Acquisitions."
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EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ____________, 1997 between Advanced
Electronic Support Products, Inc., a Florida corporation, having its principal
place of business at 1810 N.E. 144th Street, North Miami, FL 33181, (the
"Company") and Continental Stock Transfer & Trust Company, a New York
corporation, having its principal place of business at 2 Broadway, New York, New
York 10004 (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the public in an
initial public offering (the "IPO") 750,000 shares of the Company's Common
Stock, par value $.01 per share ("Shares"), and one Redeemable Common Stock
Purchase Warrant (the "Public Warrants") (plus an additional 75,000 Shares and
75,000 Public Warrants to cover overallotments);
WHEREAS, the Company also proposes to issue and sell to Argent
Securities, Inc. and Corporate Securities Group, Inc. (collectively, the
"Underwriter") in the IPO an option to purchase 75,000 shares of Common Stock
and 75,000 Common Stock Purchase Warrants (the "Underwriter Warrants" and
together with the Public Warrants sometimes hereinafter referred to as the
"Warrants");
WHEREAS, the Warrants shall be evidenced by certificates substantially
in the form of Exhibit A annexed hereto (the "Warrant Certificate"), each
Warrant entitling the holder thereof to purchase one share of Common Stock;
WHEREAS, the Warrants will have an exercise price of $____ per share of
Common Stock, subject to certain adjustments (the "Warrant Price"), will be
exercisable commencing on the first anniversary of the effective date of the IPO
("First Exercise Date") until a date which is the fifth anniversary of the
effective date of the IPO ("Last Exercise Date"), unless extended by the
Company, and, except for the Underwriter's Warrants, will be exercisable during
any period of time fixed for that Warrant's redemption in a Redemption Notice
(hereinafter defined in Section 2.03), which period of time will terminate on a
stated Redemption Date (hereinafter defined in Section 2.03);
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act in connection with the
issuance, registration, transfer, exchange and replacement of the Warrant
Certificates and exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Agreement the terms and conditions upon which the Warrant Certificates shall be
issued, transferred, exchanged and placed and the Warrants exercised, and to
provide for the rights of the holders of the Warrants;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and the respective undertakings herein below set forth, the
Company and the Warrant Agent agree as follows:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
SECTION 1.01 The Company hereby appoints the Warrant Agent to act on
behalf of the Company in accordance with the terms and conditions herein set
forth, and the Warrant Agent hereby accepts such appointment and agrees to
perform the same in accordance with such provisions.
SECTION 1.02 The Warrant Certificates for the Warrants shall be issued
in registered form only. The text of the Warrant Certificate, including the form
of assignment and subscription printed on the reverse side thereof, shall be
substantially in the form of Exhibit A annexed hereto, which text is hereby
incorporated in this Agreement by reference as though fully set forth herein and
to whose terms and conditions the Company and the Warrant Agent hereby agree.
Each Warrant Certificate shall evidence the right, subject to the provisions of
this Agreement and of such Warrant Certificate, to purchase the number of
validly issued, fully paid and non-assessable shares of Common Stock, as that
term is defined in Section 1.05 of this Agreement, stated therein, free of
preemptive rights, subject to adjustment as provided in Article III of this
Agreement.
SECTION 1.03 Upon the written order of the Company, signed by the
President or any Vice President, and the Secretary, Treasurer, Assistant
Secretary or Assistant Treasurer of the Company, the Warrant Agent shall issue
and register Warrants in the names and denominations specified in that order,
and will countersign and deliver Warrant Certificates evidencing the same in
accordance with that order. Each Warrant Certificate shall be dated the date of
its countersignature. Each Warrant Certificate shall be executed on behalf of
the Company by the manual or facsimile signature of the President of the
Company, under its corporate seal, affixed or facsimile, attested by the manual
or facsimile signature of the Secretary of the Company and shall be
countersigned manually by the Warrant Agent. The Warrant Certificates shall not
be valid for any purpose unless so countersigned. In case any officer whose
facsimile signature has been placed upon any Warrant Certificate shall have
ceased to be such before such Warrant Certificate is issued, it may be issued
with the same effect as if such officer had not ceased to be such on the date of
issuance.
SECTION 1.04 Except as otherwise expressly stated herein, all terms
used in the Warrant Certificate have the meanings provided in this Agreement.
SECTION 1.05 As used herein, the term " Common Stock" shall mean the
aggregate number of shares of common stock that the Company, by its Certificate
of Incorporation, as from time to time amended, is authorized to issue, which
are not limited by its Certificate of Incorporation to a fixed sum or percentage
of the book value in respect of the rights of the holders thereof to
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participate in dividends or in distribution of assets upon the voluntary or
involuntary liquidation, dissolution, or winding up the Company.
SECTION 1.06 The Warrant Agent understands and agrees that the Shares
and the Public Warrants are being issued separately in the IPO.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS, CALL OF
WARRANTS AND TRADING OF WARRANTS
SECTION 2.01
(a) Each Warrant shall entitle the person in whose name at the
time the Warrant shall be registered upon the books to be maintained by the
Warrant Agent for that purpose (the "Warrant Holder"), subject to the provisions
of the Warrant Certificates and of this Agreement, to purchase from the Company
any time on or after the First Exercise Date but at or before the Last Exercise
Date, up to the number of shares of Common Stock stated therein, as adjusted, at
the Warrant Price in effect at such date, payable in full at the time of
purchase in the manner provided in Section 2.02 of this Agreement.
(b) Each Warrant shall be exercisable in accordance with the
terms herein and in the Warrant Certificate which, among other things, contains
certain terms as to the Warrant Price.
SECTION 2.02
(a) The Warrant Holder may exercise a Warrant, in whole or in
part, by surrender of the Warrant Certificate, with the form of subscription
thereon duly executed by the Warrant Agent at its corporate office, together
with the Warrant Price for each share of Common Stock to be purchased in lawful
money of the United States, or by certified check, bank draft, or postal or
express money order payable in United States Dollars to the order of the
Company.
(b) Upon receipt of a Warrant Certificate with the form of
election to purchase thereon duly executed and accompanied by payment of the
aggregate Warrant Price for the shares of Common Stock for which the Warrant is
then being exercised, the Warrant Agent shall requisition from the transfer
agent certificates for the total number of the shares of Common Stock for which
the Warrant is being exercised in such names and denominations as are required
for delivery to the Warrant Holder, and the Warrant Agent shall thereupon
deliver such certificates to or in accordance with the instructions of the
Warrant Holder. The Company covenants and agrees that it has duly authorized and
directed its transfer agent (and will authorize and direct all its future
transfer agents) to comply with all such requests of the Warrant Agent.
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(c) In case any Warrant Holder shall exercise his Warrant with
respect to less than all of the shares of Common Stock that may be purchased
under the Warrant, a new Warrant Certificate for the balance shall be
countersigned and delivered to or upon the order of the Warrant Holder.
(d) The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in respect to the issuance of
Warrants, or the issuance of any shares of Common Stock upon the exercise of
Warrants. However, neither the Company nor the Warrant Agent shall be required
to issue or deliver any Warrant Certificate or shares of Common Stock in a name
other than that of the Warrant Holder at the time of surrender if any tax is
payable in respect of such transfer until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid or shall not be due and payable. In the
event that any transfer tax is due and payable, the Warrant Agent shall be under
no obligation to issue or deliver any Warrant Certificate or shares of Common
Stock in a name other than that of the Warrant Holder until the Company has
notified the Warrant Agent that the transfer tax, if any, has been paid, or in
the alternative, that no transfer tax is due and payable by reason of an
exemption.
(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently account to the Company for
all moneys received by the Warrant Agent for the purchase of shares of Common
Stock upon the exercise of Warrants.
(f) The Warrant Agent covenants and agrees that upon the
exercise of any of the Warrants, the Warrant Agent shall provide written notice
to the Company and to the Underwriter at the addresses set forth in Section 6.09
hereof, the expense of which notice shall be borne by the Company. Each notice
shall contain the name of the exercising Warrant Holder, the number of shares of
Common Stock that the Warrant Holder has elected to purchase, the purchase price
paid on a per share basis and the cumulative number of Warrants exercised by all
of the Warrant Holders as of the date of the transaction which is the subject of
the aforesaid notice. Such notice shall be made no later than two (2) business
days following the date of the exercise of the Warrant. Nothing contained herein
shall be construed so as to prevent the Warrant Agent from providing the
information required in this Section 2.02 (f) in a consolidated or tabular form,
provided that all other provisions of this Section are complied with.
(g) The Warrant Agent covenants and agrees that it shall
provide a list of each and every holder of the Warrants to the Company and the
Underwriter at such time or from time to time as shall be required by the
Company or the Underwriter, but in no event shall such a list be provided less
frequently than once per annum at a date as shall be determined by the Company.
SECTION 2.03
(a) Commencing on the first anniversary of the effective date
of the IPO, the Company may, subject to the conditions set forth herein, redeem
all, but not less than all, the
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Warrants then outstanding at a redemption price of $.01 per Warrant upon not
less than thirty (30) days prior written notice (the "Redemption Notice") to the
holders thereof provided that the average closing price of the Common Stock for
the 20 consecutive trading days ending three (3) days prior to the date of the
Redemption Notice is at least $_____, subject to adjustment for stock dividends,
stock splits and other anti-dilution provisions as provided for under Article
III herein. For purposes of this Section 2.03, "closing price" at any date shall
be deemed to be: (i) the last sale price regular way as reported on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or (ii) if the Common Stock is not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices regular way for the Common Stock as reported by the Nasdaq National
Market or Nasdaq Small Cap Market of the Nasdaq Stock Market, Inc. ("NASDAQ") or
(iii) if the Common Stock is not listed or admitted for trading on any national
securities exchange, and is not reported by NASDAQ, the average of the closing
bid and asked prices in the over-the-counter market as furnished by the National
Quotation Bureau, Inc. or if no such quotation is available, the fair market
value of the Common Stock as determined in good faith by the Board of Directors
of the Company. The Redemption Notice shall be deemed effective upon mailing and
the time of mailing is the "Effective Date of the Notice". The Redemption Notice
shall state a redemption date not less than thirty (30) days from the Effective
Date of the Notice (the "Redemption Date") . No Redemption Notice shall be
mailed unless all funds necessary to pay for redemption of all Warrants then
outstanding shall have first been set aside by the Company in trust with the
Warrant Agent for the benefit of all Warrant Holders so as to be and continue to
be available therefor. The redemption price to be paid to the Warrant Holders
will be $.05 for each share of the Common Stock of the Company to which the
Warrant Holder would then be entitled upon exercise of the Warrant being
redeemed, as adjusted from time to time as provided herein (the "Redemption
Price"). In the event the number of shares of Common Stock issuable upon
exercise of the Warrant being redeemed are adjusted pursuant to Article III
hereof, then upon each such adjustment the Redemption Price will be adjusted by
multiplying the Redemption Price in effect immediately prior to such adjustment
by a fraction, the numerator of which is the number of shares of Common Stock
issuable upon exercise of the Warrant being redeemed immediately prior to such
adjustment and the denominator of which is the number of shares of Common Stock
issuable upon exercise of such Warrant being redeemed immediately after such
adjustment. The Warrants may only be redeemed if the Company has in effect a
current Registration Statement or post-effective amendment covering the shares
underlying the Warrants. The Warrant Holders may exercise their Warrants between
the Effective Date of the Notice and the Redemption Date, such exercise being
effective if done in accordance with Section 2.02 (a), and if the Warrant
Certificate, with form of election to purchase duly executed and the Warrant
Price, as applicable for such Warrant subject to redemption for each share of
Common Stock to be purchased is actually received by the Warrant Agent at its
office located at 2 Broadway, New York, New York 10004, no later than 5:00 P.M.
New York time on the Redemption Date.
(b) If any Warrant Holder does not wish to exercise any
Warrant being redeemed, the Warrant Holder should mail such Warrant to the
Warrant Agent at its office located at 2 Broadway, 19th Floor, New York, New
York 10004, after receiving the Redemption Notice required by this Section. If
such Redemption Notice shall have been so mailed, and if on or before the
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<PAGE>
Effective Date of the Notice all funds necessary to pay for redemption of all
Warrants then outstanding shall have been set aside by the Company in trust with
the Warrant Agent for the benefit of all Warrant Holders so as to be and
continue to be available therefor, then, on and after said Redemption Date,
notwithstanding that any Warrant subject to redemption shall not have been
surrendered for redemption, the obligation evidenced by all Warrants not
surrendered for redemption or effectively exercised shall be deemed no longer
outstanding, and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each Warrant subject to
redemption to receive the Redemption Price for each share of Common Stock to
which he would be entitled if he exercised the Warrant upon receiving the
Redemption Notice of the Warrant subject to redemption held by the Holder
hereof.
(c) Notwithstanding anything contained in this Article II, the
Underwriter's Warrants shall not be eligible for redemption by the Company.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF WARRANT PRICE
SECTION 3.01 In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the outstanding Common Stock in shares
of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Warrant
Price, and the number and kind of shares of Common Stock receivable upon
exercise, in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination, or reclassification shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be entitled to receive the aggregate number and kind of shares which
if such Warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
SECTION 3.02 In case the Company after the date hereof shall issue
rights, options, or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion
price per share, if a security convertible into or exchangeable for Common
Stock) less than the "current market price" (as defined in Section 3.04 hereof)
per share of Common Stock on the record date established for the issuance of
such rights, options or warrants, then, in such case, the Warrant Price shall be
adjusted by multiplying the Warrant Price in effect on the record date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date for such issuance plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so to be issued
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<PAGE>
(or the aggregate initial conversion price of the convertible securities to be
issued or sold) would purchase at such "current market price" and of which the
denominator shall be the number of shares of Common Stock outstanding on the
record date for such issuance plus the number of additional shares of Common
Stock to be issued (or into which the convertible or exchangeable securities to
be issued or sold are initially convertible or exchangeable). Such adjustment
shall become effective at the close of business on such record date; provided,
however, that, to the extent the shares of Common Stock (or securities
convertible to or exchangeable for shares of Common Stock) are not delivered,
the Warrant Price shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Warrants exercised after such
expiration), to the Warrant Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock actually issued. In
case any subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
Notwithstanding the foregoing, no adjustment in the Warrant
Price or the number of shares of Common Stock issuable upon exercise of the
Warrants shall be made upon (i) the issuance of options (or upon exercise
thereof) by the Company pursuant to its Stock Option Plans, (ii) the issuance of
the Underwriter's Warrants, or (iii) any other options and warrants outstanding
as of the date hereof.
SECTION 3.03 In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other than cash
dividends distributions and dividends payable in shares of Common Stock),
subscription rights, options, or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding those referred to in Section 3.02 hereof), then, in each case,
the Warrant price shall be adjusted by multiplying the Warrant Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the "current market price" per share of Common Stock on such record date,
less the fair market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such subscription rights, options, or warrants,
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, applicable to the share, and of which the
denominator shall be such "current market price" per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of such distribution retroactive to the record date
for the determination of stockholders entitled to receive such distribution.
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<PAGE>
SECTION 3.04 For the purpose of any computation under sections 3.02 and
3.03 hereof, the "current market price" per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 20
consecutive trading days ending three (3) days prior to such date. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price as furnished by NASDAQ. If on any such date the
Common Stock is not quoted on NASDAQ or any such organization, the closing price
shall be deemed to be the average of the closing bid and asked prices in the
over-the-counter market as reported by the National Quotation Bureau or if no
such quotation is available, the fair value of the Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error.
SECTION 3.05 No adjustment in the Warrant Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 3.05 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article III shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
SECTION 3.06 In any case in which this Article III shall require that
an adjustment in the Warrant Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holder of any Warrant exercised after such record date,
the shares, if any, issuable upon such exercise over and above the shares, if
any, issuable upon such exercise on the basis of the Warrant Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
SECTION 3.07 Upon each adjustment of the Warrant Price as a result of
the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant
outstanding prior to the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted Warrant Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of a Warrant prior to adjustment of the number of shares by the Warrant
Price in effect prior to adjustment of the Warrant Price by (B) the Warrant
Price in effect after such adjustment of the Warrant Price.
SECTION 3.08 In case of any capital reorganization of the Company, or
of any reclassification of the Common Stock (other than a reclassification of
the Common Stock referred to in Section 3.01 hereof), or in the case of the
consolidation of the Company with or the merger of the Company into any other
corporation or of the sale, transfer, or lease of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation or
other entity, each Warrant shall after such capital reorganization,
reclassification of Common Stock, consolidation,
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<PAGE>
merger, sale, transfer, or lease, be exercisable, on the same terms and
conditions specified in this Agreement, for the number of shares of stock or
other securities, assets, or cash to which a holder of the number of shares
purchasable (at the time of such capital reorganization, reclassification of
Common Stock, consolidation, merger, sale, transfer, or lease) upon exercise of
such Warrant would have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger, sale, transfer, or
lease; and in any such case, if necessary, the provisions set forth in this
Article III with respect to the rights and interests thereafter of the holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock, other securities, assets,
or cash thereafter deliverable on the exercise of the Warrants. The subdivision
or combination of shares of Common Stock at any time outstanding into a greater
or lesser number of shares shall not be deemed to be a reclassification of the
Common Stock for the purposes of this subsection. The Company shall not effect
any such consolidation, merger, transfer, or lease, unless prior to or
simultaneously with the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
Corporation purchasing, receiving, or leasing such assets or other appropriate
corporation or entity shall expressly assume, by written instrument in form
satisfactory to the Underwriter, the obligation to deliver to the holder of each
Warrant such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase and to perform
the other obligations of the Company under this Agreement.
SECTION 3.09 The Company may make such reductions in the Warrant Price,
in addition to those required by this Article III, as it shall, in it sole
discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF
WARRANT HOLDERS
SECTION 4.01 No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purposes, nor shall anything contained in any Warrant Certificate be construed
to confer upon any Warrant Holder, as such, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any action by
the Company, whether upon any recapitalization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise, receive dividends or
subscription rights, or otherwise, until in connection with the exercise of any
Warrant, such Warrant shall have been surrendered and the purchase price or the
shares of Common Stock for which such Warrant is being exercised shall have been
received by the Warrant Agent; provided, however, that any such surrender and
payment on any date when the stock transfer books of the Company shall be closed
shall constitute the person or persons in whose name or names the certificate or
certificates for those shares of Common Stock are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open and the Warrant
surrendered shall not be deemed to have been exercised, in whole or in part, as
the case maybe, until such next succeeding day on which stock transfer books are
open.
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SECTION 4.02 The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any publication,
mailing or notice of an event which it shall provide to all of its shareholders
of record and which event shall result in the adjustment to the Warrant Price as
provided in Article III hereof. For purposes of this Section 4.02, the Warrant
Holders of record shall be those Warrant Holders who are of record on a date
even with the date chosen by the Company for the purpose of determining the
shareholders of record who shall be entitled to receive such publication,
mailing or notice.
SECTION 4.03 If any Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as to indemnity
or otherwise as they may in their discretion reasonably impose, which shall, in
the case of a mutilated Warrant Certificate, include the surrender thereof,
issue a new Warrant Certificate of like denomination and tenor as, and in
substitution for, the Warrant Certificate so lost, stolen mutilated or
destroyed.
SECTION 4.04
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of outstanding Warrants such
number of authorized shares of Common Stock and the aggregate number and kind of
any other securities which the Warrants are exercisable for, pursuant to the
provisions of Article III hereof, as are sufficient to permit the exercise in
full of such Warrants and that it will make available to the Warrant Agent from
time to time a number of duly executed certificates representing shares of
Common Stock and other securities, sufficient therefor.
(b) The Company shall use its best efforts to secure the
listing, upon official notice of issuance, of the shares of Common Stock
issuable upon exercise of Warrants upon any securities exchange upon which the
Common Stock becomes listed.
(c) The Company covenants that all shares of Common Stock
issued on exercise of Warrants shall be validly issued, fully paid,
non-assessable and free of preemptive rights.
(d) The Company has filed a Registration Statement on Form
SB-2 (Registration No. 333-15967) for the registration of, among other things,
the sale of the Warrants and the shares of Common Stock issuable upon exercise
thereof under the Securities Act of 1933, as amended (the "Act"). The Company
shall use its best efforts to secure the effectiveness of the Registration
Statement under the Act, and to register or qualify such Warrants and shares of
Common Stock under the laws of any states in which the sale of the Warrants and
shares of Common Stock was registered or qualified at the time of the IPO and
shall use its reasonable good faith efforts to register and qualify such
Warrants and shares of Common Stock in such additional states and jurisdictions
as may be appropriate. The Company further agrees to use its best efforts to
maintain the effectiveness of such Registration Statement and such state
qualifications, as aforesaid, by the filing of any and all amendments to the
Registration Statement and such state qualifications as may be
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required from time to time under the Act or the laws of the various states until
the expiration or termination of all the Warrants in accordance herewith.
(e) The Company will furnish to the Warrant Agent, upon
request, an opinion of counsel satisfactory to the Warrant Agent to the effect
that (i) a Registration Statement under the Act is then in effect with respect
to the Warrants and shares of Common Stock issuable upon the exercise of the
Warrants and that the prospectus included therein complies as to form in all
material respects, (except as to financial statements, including schedules, and
other accounting and financial data, as to which such counsel need express no
opinion), with the requirements of the Act and the rules and regulations of the
Commission thereunder; or a Registration Statement under the Act with respect to
said shares of Common Stock is not required. In the event that said opinion
states that such a Registration Statement is in effect, the Company will from
time to time furnish the Warrant Agent with current prospectuses meeting the
requirements of the Act and such rules and regulations in sufficient quantity to
permit the Warrant Agent to deliver a prospectus ("Prospectus") to each Warrant
Holder upon exercise thereof. The Company further agrees to pay all fees, costs
and expenses in connection with the preparation and delivery to the Warrant
Agent of the foregoing opinions and Prospectuses and the above mentioned
registrations and other actions, and to immediately notify the Warrant Agent in
the event that (i) the Commission shall have issued or threatened to issue any
order preventing or suspending the use of any Prospectus; (ii) at any time any
Prospectus shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; or (iii) for any reason it shall be necessary
to amend or supplement any Prospectus in order to comply with the Act.
SECTION 4.05 If the number of shares purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not
be required to issue fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares. In lieu of
fractional shares, the Company, in its sole discretion, may pay to the
registered holders of Warrant Certificates at the time such Warrants are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a share. For purposes of this Section 4.05, the current
market value of a share issuable upon the exercise of a Warrant shall be the
closing price of a share of Common Stock, as determined pursuant to the second
and third sentences of Section 3.04, for the trading day immediately prior to
the date of such exercise.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01 Prior to due presentment for registration of transfer of
any Warrant, the Company and the Warrant Agent may deem and treat the Warrant
Holder as the absolute owner of such warrant, notwithstanding any notation of
ownership or other writing thereon, for the purpose of any exercise thereof and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
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ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01 The Company will from time to time promptly pay, subject
to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges
that may be imposed upon the Company or the Warrant Agent in respect of the
issuance or delivery of shares of Common Stock upon the exercise of Warrants.
SECTION 6.02
(a) The Warrant Agent may resign and be discharged from its
duties under this Agreement upon sixty (60) days notice in writing, mailed to
the Company by registered or certified mail, and to each Warrant Holder. The
Company may remove the Warrant Agent or any successor warrant agent upon sixty
(60) days notice in writing, mailed to the Warrant Agent or successor Warrant
Agent, as the case may be, by registered or certified mail, and to each Warrant
Holder; provided, however, the Company shall appoint a new Warrant Agent as
hereinafter provided and such removal shall not become effective until a
successor Warrant Agent has been appointed and has accepted such appointment. If
the Warrant Agent shall resign or shall otherwise become capable of acting, the
Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of sixty (60) days after it has
been notified in writing of such resignation or incapability by the Warrant
Agent by a Warrant Holder, who shall, with such notice, submit his Warrant
Certificate for inspection by the Company, then any Warrant Holder may apply to
any court of competent jurisdiction or the appointment of a successor to the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court shall be a registered transfer agent, bank or trust company,
subject to the terms and conditions of this Section 6.02, in good standing and
incorporated under the laws of any State of the United States, having its
principal office in the United States of America. After appointment, the
successor Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed. The former Warrant Agent shall deliver and transfer to the
successor Warrant Agent any property at the time held by it hereunder and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Failure to give any notice provided for in this Section, however,
or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
Warrant Agent, as the case may be.
(b) Any corporation into which the Warrant Agent may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
In case at the time such successor to the Warrant Agent shall succeed to the
agency created by this Agreement, any of the
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Warrant Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent and deliver such Warrant Certificates so countersigned, and in
case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificate in its own name or in the name of the successor Warrant Agent; and
in all such cases such Warrant Certificates shall have the full force provided
in the Warrant Certificates and this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under this prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
SECTION 6.03 The Company agrees to pay the Warrant Agent a reasonable
fee for all services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, willful misconduct or
bad faith on the part of the Warrant Agent, arising out of or in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
SECTION 6.04 The Company covenants and agrees that it shall, at the
Company's expense, provide to the Warrant Agent copies of its current
prospectus, if any, in such quantity as to enable the Warrant Agent to deliver
one copy of such current prospectus to such Warrant Holder who shall exercise
his rights under a Warrant. Notwithstanding anything else contained in this
Section 6.04, the Company shall not be obligated to provide copies of its
current prospectus for the purpose of allowing the Warrant Agent to deliver such
copies to any Warrant Holder who delivers all of his redeemable warrants for
redemption pursuant to Section 2.03 or who shall notice the Company of his
intent to permit redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to the terms of this
Agreement after the earlier of the Redemption Date or the Last Exercise Date of
the Warrants.
SECTION 6.05 The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant certificates, by their acceptance
thereof, shall be bound:
(a) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, that fact or matter, unless other evidence in respect
thereof be herein specifically prescribed, may be deemed to be conclusively
proved and established by a certificate signed by the President or the Secretary
of the Company and delivered to the Warrant Agent. That certificate shall be
full authorization to the Warrant Agent for any action
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taken or suffered in good faith by it under the provisions of this Agreement in
reliance upon that certificate.
(b) The Warrant Agent shall be liable hereunder only for its
own gross negligence, willful misconduct or bad faith.
(c) The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates, except its countersignature thereof, or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(d) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof,
except the due execution hereof by the Warrant Agent, or in respect of the
validity or execution of any Warrant Certificate, except its countersignature
thereof; nor shall it be responsible for any Warrant Certificate; nor shall it
be responsible for the adjustment of the Warrant Price or the making of any
change in the number of shares of Common Stock required under the provisions of
Article III of this Agreement or responsible for the manner, method or amount of
any such change or the ascertaining of the existence of facts that would require
any such adjustment or change except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Warrant Price; nor
shall it by any act under this Agreement be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Agreement or any Warrant Certificate or as to whether
any share of Common Stock will when issued be validly issued, fully paid,
non-assessable and free of preemptive rights.
(e) The Warrant Agent and any shareholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrant
Certificates or other securities of the Company to retain a pecuniary interest
in any transaction in which the Company may be interested or contract with or
lend money to or otherwise act as fully and freely as though it was not the
Warrant Agent or subject to this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
(f) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any officer or assistant officer of the Company, and to apply to any such
officer or assistant officer for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions of any such officer or
assistant officer.
(g) The Warrant Agent may consult with its counsel or other
counsel satisfactory to it, including counsel for the Company, and the opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, offered, or omitted by it hereunder in good faith
and in accordance with the opinion of such counsel.
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(h) The Warrant Agent shall incur no liability to the Company
or to any holder of any Warrant for any action taken by it in reliance upon any
Warrant Certificate or certificate for Common Stock, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed, and where necessary, certified or
acknowledged, by the proper person or persons.
SECTION 6.06 The Warrant Agent may, without the consent or concurrence
of the Warrant Holders, by supplemental agreement or otherwise, concur with the
Company in making any changes or corrections in this Agreement that (i) it shall
have been advised by counsel, who may be counsel for the Company, are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error herein contained, or (ii) as
provided in Section 3.09, the Company deems necessary of advisable and which
shall not be inconsistent with the provisions of the Warrant Certificates,
provided such changes or corrections do not adversely affect the privileges or
immunities of the Warrant Holders.
SECTION 6.07 All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 6.08 Forthwith upon the appointment after the date thereof of
any transfer agent for the Common Stock, or of any subsequent transfer agent for
the Common Stock, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
SECTION 6.09 Notice or demand pursuant to this Agreement to be given or
made by the Warrant Agent or by any Warrant Holder to or on the Company shall be
sufficiently given or made and effective on the third business day after posting
thereof, unless otherwise provided in this Agreement, if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Advanced Electronic Support Products, Inc.
1810 N.E. 144th Street
North Miami, FL 33181
Attn: Mr. Slav Stein
With a copy to:
Akerman Senterfitt & Eidson, PA
One S.E. 3rd Avenue, 28th Floor
Miami, FL 33131-1704
Attn: Mr. Phillip B. Schwartz
notice or demand pursuant to this Agreement to be given or made by the
Company or any Warrant Holder to or on the Warrant Agent shall be sufficiently
given or made and effective on the third
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business day after posting thereof, unless otherwise provided in this Agreement,
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing by the Warrant Agent with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Attn: Compliance Department
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Underwriter shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Underwriter
with the Company) as follows:
Argent Securities, Inc.
3340 Peachtree Street, Suite 450
Atlanta, Georgia 30326
Attn: L. Phillips Reames
Corporate Securities Group, Inc.
980 North Federal Highway, Suite 310
Boca Raton, FL 33432
Attn: Marshall T. Leeds
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this
Agreement on the Warrant Agent, Company or Underwriter shall be promptly
forwarded by the recipient thereof to each of the Company, Warrant Agent or
Underwriter who shall not have received or made such demand or Notice.
SECTION 6.10 The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the law of the State of Florida.
SECTION 6.11 Nothing in this Agreement shall be construed to give to
any person or corporation other than the parties hereto and the Warrant Holders
any right, remedy or claim under promise or agreement hereof. All covenants,
conditions, stipulations, promises and agreements
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contained in this Agreement shall be for the sole and exclusive benefit of the
Company and the Warrant Agent and their successors and of the Warrant Holders,
and their heirs, representatives, successors, assigns and transferees.
SECTION 6.12 A copy of this Agreement shall be available for inspection
by any Warrant Holder during the regular business hours and at the corporate
office of the Warrant Agent in New York, New York, at which time the Warrant
Agent may require any Warrant Holder to submit his Warrant Certificate for
inspection by it.
SECTION 6.13 This Agreement shall terminate on the Last Exercise Date,
or such earlier date upon which all Warrants have been exercised or redeemed,
except that the Warrant Agent shall account to the Company pursuant to Section
2.02 (e) of this Agreement for all cash held by it. The provisions of Section
6.03 and 6.04 of this Agreement shall survive such termination.
SECTION 6.14 The Article headings in this Agreement are for convenience
only and are not part of this Agreement and shall not affect the interpretation
thereof.
SECTION 6.15 This Agreement may be executed in any number counterparts,
each of which is so executed shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same agreement.
ATTEST: ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
____________________________
By:___________________________________
Slav Stein, President
ATTEST: CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
____________________________
By: ______________________________
Name: ___________________________
Title: ___________________________
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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
Fifty Thousand Dollars ($150,000.00) 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 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:
___________________________________
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 February 13, 1997), 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 /s/ BDO SEIDMAN, LLP
February 13, 1997 ------------------------
BDO Seidman, LLP
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Advanced Electronic Support Products Computertillbebor 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 PAREK
- -----------------------------
Thomas Parek
Approved Public Accountant
KPMG Bohlins AB
Givia, Sweden
February 13, 1997
