SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________to_____________
Commission File No. 001-12739
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 2327-381
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1810 N.E. 144th Street
NORTH MIAMI, FLORIDA 33181
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (305) 944-7710
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
The number of shares outstanding of the issuer's Common Stock, as of
November 10, 1997, is 1,922,201 shares.
Transitional Small Business Disclosure Format (check one)
Yes ___ No X
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
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Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at
September 30, 1997..........................................................................................3
Condensed Consolidated Statements of Income for the
three and nine months ended September 30, 1997 and 1996.....................................................4
Condensed Consolidated Statements of Shareholders' Equity
for the nine months ended September 30, 1997................................................................5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 ...................................................................6
Notes to Condensed Consolidated Financial Statements........................................................7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND RESULTS OF OPERATIONS.......................................................12
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.....................................................................................16
Item 2. CHANGES IN SECURITIES.................................................................................16
Item 3. DEFAULTS UPON SENIOR SECURITIES.......................................................................16
Item 4. SUBMISSION OF MATTERS TO VOTE
OF SECURITY HOLDERS...................................................................................16
Item 5. OTHER INFORMATION.....................................................................................16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................................17
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997
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<S> <C>
ASSETS
CURRENT
Cash $ 522,821
Accounts receivable, net of allowance for doubtful accounts of $62,000 3,758,899
Inventories 4,866,466
Prepaid expenses and other current assets 354,595
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Total current assets 9,502,781
PROPERTY AND EQUIPMENT, NET 388,458
INTANGIBLE ASSETS 736,312
OTHER ASSETS 60,000
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$ 10,687,551
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued expenses $ 1,895,831
Income taxes payable 164,728
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Total current liabilities 2,060,559
NOTES PAYABLE-SHAREHOLDERS 1,439,125
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Total liabilities 3,499,684
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COMMITMENT AND CONTINGENCY (NOTE 3)
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SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 1,000,000 shares authorized; none issued -
Common stock, $.001 par value; 20,000,000 shares
authorized; 1,922,201 shares issued 1,923
Paid-in capital 6,713,167
Retained earnings 487,933
Cumulative foreign currency translation adjustment (15,156)
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Total shareholders' equity 7,187,867
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$ 10,687,551
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
NET SALES $ 4,005,220 $ 3,132,267 $ 11,146,954 $ 9,713,478
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OPERATING EXPENSES:
Cost of sales 2,449,612 1,846,235 6,548,191 5,824,083
Selling, general and administrative
expenses 1,405,893 1,107,753 3,986,484 3,055,775
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Total operating expenses 3,855,505 2,953,988 10,534,675 8,879,858
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INCOME FROM OPERATIONS 149,715 178,279 612,279 833,620
Other income (expense):
Interest (41,538) (20,447) (113,531) (95,492)
Other 7,423 - 10,687 -
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INCOME BEFORE INCOME TAXES 115,600 157,832 509,435 738,128
Provision for income taxes 46,462 (7,225) 191,532 10,057
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NET INCOME $ 69,138 $ 165,057 $ 317,903 $ 728,071
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PRO FORMA AMOUNTS:
Income before income taxes $ 115,600 $ 157,832 $ 509,435 $ 738,128
Provision for income taxes 46,462 63,775 202,572 267,057
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Pro forma net income $ 69,138 $ 94,057 $ 306,863 $ 471,071
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Pro forma net income per share $ .04 $ .07 $ .19 $ .38
Weighted average number of shares common
stock outstanding 2,094,343 1,254,948 1,926,383 1,254,948
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Supplemental pro forma net income per share $ .04 $ .17
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
CUMULATIVE
FOREIGN
CURRENCY TOTAL STOCK-
COMMON PAID-IN RETAINED TRANSLATION HOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
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<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 813 $ 45,901 $ 3,762,635 $ (4,891) $ 3,804,458
Distributions (Note 2) - 459,560 (2,458,685) - (1,999,125)
Net proceeds from issuance of common 920 4,373,976 - - 4,374,896
stock and warrants
Net income - - 317,903 - 317,903
Reclassification of cumulative - 1,133,920 (1,133,920) - -
undistributed earnings applicable to the
Company's S corporation status
Issuance of 189,701 shares of common stock 190 699,810 - - 700,000
for acquisition of business segment (Note
3)
Cumulative foreign currency translation - - - (10,265) (10,265)
adjustment
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Balance at September 30, 1997 $1,923 $6,713,167 $487,933 $(15,156) $7,187,867
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SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 317,903 $ 728,071
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for losses on accounts receivable (2,833) 6,000
Depreciation and amortization 35,472 38,160
Deferred income taxes (32,000) -
(Increase) decrease, net of business segment acquired, in:
Accounts receivable (1,040,463) 423,089
Inventories (12,177) (20,337)
Prepaid expenses and other current assets (200,013) (14,322)
Other assets (8,000) -
Increase (decrease), net of business segment acquired, in:
Bank overdraft - (74,889)
Accounts payable and accrued expenses (1,143,237) (938,186)
Income taxes payable 147,827 (46,603)
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Net cash used in operating activities (1,937,521) 100,983
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INVESTING ACTIVITIES:
Acquisition of business segment (174,683) -
Additions to property equipment (21,306) (84,360)
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Net cash used in investing activities (195,989) -
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FINANCING ACTIVITIES:
Net proceeds (payments) on borrowings (1,626,293) 340,453
Dividend distributions (260,000) (345,459)
Payment on notes payable-shareholders (300,000) -
Proceeds from sale of stock and warrants, net 4,637,085 -
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Net cash provided by financing activities 2,450,792 (5,006)
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NET INCREASE (DECREASE) IN CASH 317,282 11,617
Effect of exchange rate changes in cash (10,265) (931)
CASH, AT BEGINNING OF YEAR 215,804 203,804
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CASH, AT END OF PERIOD $ 522,821 $ 214,490
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SUPPLEMENTAL INFORMATION:
Cash paid for:
Interest $ 43,781 $ 98,457
Taxes $ 59,143 $ 56,660
Non-cash distribution to shareholders in the form of a
convertible subordinated promissory note $ 1,739,125 $ -
Non-cash distribution credited to paid-in capital $ 719,560 -
Non-cash reclassification of cumulative undistributed earnings
applicable to the Company's S corporation status $ 1,133,920 $ -
Deferred offering costs charged against paid-in capital
in connection with initial public offering $ 262,189 $ -
Issuance of common stock for acquisition of business segment $ 700,000 $ -
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF The accompanying unaudited condensed
PRESENTATION consolidated financial statements have been
prepared in accordance with generally
accepted accounting principles for interim
financial information and with the
instructions to Form 10-QSB. Accordingly,
they do not include all of the information
and footnotes required by generally
accepted accounting principles for complete
financial statements. In the opinion of
management, all adjustments (consisting of
normal recurring accruals, except for the
adjustment to record deferred taxes
discussed below, considered necessary for a
fair presentation) have been included.
Operating results for the nine month period
ended September 30, 1997 are not
necessarily indicative of the results that
may be expected for the year ending
December 31, 1997. For further information,
refer to the consolidated financial
statements and footnotes thereto included
in the Company's Annual Report on Form
10-KSB for the year ended December 31,
1996.
Pro forma net income per share is computed
based on the weighted average number of
shares of common stock and common stock
equivalents outstanding during each period,
after giving effect to the stock split
(described in Note 2) and the assumed
conversion of the seven year, prime+1%
convertible subordinated notes discussed
below. Accordingly, pro forma net earnings
per share were increased by the after tax
interest on the notes.
Supplemental pro forma net income per share
for the nine months ended September 30,
1997 is based on the weighted average
number of outstanding shares of common
stock and common stock equivalents used in
the computation of pro forma net income per
share plus the 289,854 shares, calculated
at an offering price of $6.00 per share,
sold by the Company in the offering to
repay borrowings, including the $300,000
payment made to shareholders with respect
to the convertible subordinated notes of
$1,739,125 at the date of the public
offering of the Company's common stock. The
computation gives effect to elimination of
interest costs associated with the
borrowings, net of pro forma income taxes.
7
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Through February 14, 1997, AESP, with the
consent of its stockholders, 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 income tax is required for
periods prior to the Company's initial
public offering.
AESP Germany and AESP Sweden, subsidiaries
of the Company, are subject to taxation in
Germany and Sweden, and accordingly,
calculate and report the tax charges in
accordance with applicable statutory
regulations.
Upon the Company becoming subject to income
taxes, a net deferred tax asset was
recorded for the nine months ended
September 30, 1997 for the tax effect of
cumulative temporary differences between
financial statement and tax purposes. Such
net deferred tax asset resulted principally
from temporary differences relating to
allowance for doubtful accounts and the
repatriation of the income of the foreign
subsidiaries and aggregated approximately
$13,000.
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 arising from the differences
between financial statement and income tax
bases of assets and liabilities.
2. INITIAL PUBLIC The Company completed an initial public
OFFERING AND offering in February and March 1997 of an
REORGANIZATION aggregate of 920,000 shares of $.001 par
value per share common stock of the Company
at $6.00 per share plus an aggregate of
920,000 redeemable common stock purchase
warrants of the Company at $.125 per
warrant, including an over-allotment option
of 120,000 shares and warrants. In this
connection, the Company received net
proceeds of approximately $4,862,000, (or
$4,375,000 net of certain capitalized
expenses in connection with the Company's
initial public offering) of which
$1,470,000 was utilized to repay its line
of credit, and $300,000 to make a principal
payment on the subordinated promissory note
to the Company's principal shareholders.
(See below)
8
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements give
effect to the recapitalization, effected on
February 13, 1997, of the Company in
connection with the 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 is accounted for
under the pooling of interests method as
the transaction is a combination of
companies under common control.
In connection with the initial public
offering, immediately prior to the
effectiveness of the registration
statement, AESP issued a stock dividend in
the form of a stock split, whereby the 66
2/3 shares of stock then outstanding (after
cancellation of the shares held in
treasury), were 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 per share.
Upon completion of the initial public
offering, the Company entered into a
financial advisory agreement with the
underwriters for a period of two years, for
an aggregate fee of $47,000.
In connection with the initial public
offering, the Company (i) made a
distribution to its principal shareholders
of $1,739,125, in the form of a seven year,
prime+1%, convertible (at $4.00 per share)
subordinated promissory notes payable, (ii)
entered into five year employment
agreements with its current shareholders
which includes a minimum annual
compensation of $150,000 plus performance
bonuses and (iii) issued options, to each
of its two principal shareholders, to
purchase 180,250 shares of common stock at
the initial public offering price of $6.00
per share; such options 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). In
connection with the favorable conversion
price of the subordinated promissory notes
referred to above, the Company recorded a
$719,560 distribution to the principal
shareholders, with a corresponding credit
to paid-in capital. Such amount is based
upon the difference in the conversion price
and the public offering price times the
number of shares issuable upon conversion
of the notes.
9
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In addition to the foregoing distribution,
in April 1997, the Company made a
distribution of approximately $260,000 to
its two principal shareholders,
representing the income taxes due by them
in connection with the Company's S
Corporation earnings. Such amount has been
charged to paid-in capital.
The aforementioned employment agreements
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
insurance policy and an automobile
allowance.
Effective January 1, 1997, the Company
entered into a consulting agreement for a
period of one year in which the consultant
will be paid $16,300 per month. In
addition, the Company granted the
consultant, in 1996, 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.
3. ACQUISITION Effective September 30, 1997, the Company
entered into an asset purchase agreement
with Focus Enhancements, Inc. ("Focus"),
pursuant to which the Company acquired
certain net assets and inventory
constituting the Network Division of Focus.
In exchange for cash of $138,000 and
189,701 shares of common stock of the
Company valued at $700,000, plus the
assumption of $21,000 of product warranty
liabilities. Additionally the Company
accrued approximately $36,000 in
professional fees in conjunction with the
acquisition.
The assets acquired consisted of inventory,
suppliers lists, customer lists, and rights
to trademarks of the Company.
The company recorded inventory in the
amount of approximately $159,000 and a
liability of approximately $21,000 for
product warranties. The company recorded
customer lists and trademark rights in the
amount of $736,312, which will be amortized
over 7 years. Additionally in conjunction
with the issuance of the shares of common
stock, the Company credited common stock
and paid-in-capital for approximately
$700,000.
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ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SUBSEQUENT On November 12, 1997, the Company acquired
EVENT all the outstanding shares of common stock
of Dataholding, A.S., a Norwegian company,
in exchange for an aggregate of 360,000
shares of the Company's authorized but
unissued common stock. This acquisition
will be accounted for as pooling of
interests.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS QUARTERLY REPORT ON FORM 10-QSB CONTAIN FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO
THE FOLLOWING: COMPETITION FROM OTHER MANUFACTURERS AND DISTRIBUTORS OF
CONNECTIVITY AND NETWORKING PRODUCTS BOTH NATIONALLY AND INTERNATIONALLY; THE
BALANCE OF THE MIX BETWEEN ORIGINAL EQUIPMENT MANUFACTURER SALES (WHICH HAVE
COMPARATIVELY LOWER GROSS PROFIT MARGINS WITH LOWER EXPENSES) AND RETAIL SALES
(WHICH HAVE COMPARATIVELY HIGHER GROSS PROFIT MARGINS WITH HIGHER EXPENSES) FROM
PERIOD TO PERIOD; THE COMPANY'S DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING
AND ASSEMBLY OF PRODUCTS AND THE ABSENCE OF SUPPLY AGREEMENTS; AND THE NEED TO
DEVELOP BRAND NAME RECOGNITION FOR THE COMPANY'S PRODUCTS IN THE RETAIL MARKET
PLACE. THESE AND ADDITIONAL FACTORS ARE DISCUSSED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE COMPANY'S PROSPECTUS
DATED FEBRUARY 13, 1997.
RESULTS OF OPERATIONS
Please refer to the Company's "Results of Operations" section in Item 6
of its Annual Report on Form 10-KSB for the year ended December 31, 1996, which
is incorporated into this Quarterly Report on Form 10-QSB by reference. Item 6
of the Annual Report contains a discussion of, among other things, the
importance to the Company of the impact on the Company's operating results, from
period to period, of the mix of sales between retail and original equipment
manufacturer ("OEM") sales. Item 6 also contains a discussion on how the
Company's retail sales have increased in comparison to its OEM sales, and how
this increase has positively impacted the Company's gross profit margins while
also causing an increase in selling, general and administrative ("SG&A")
expenses, which are generally higher with respect to retail sales.
For the nine month period ended September 30, 1997, the Company
achieved net sales of $11,146,954, an increase of 14.8% compared to net sales of
$9,713,478 for the same period in 1996. For the three month period ended
September 30, 1997, the Company achieved net sales of $4,005,220, an increase of
27.9% compared to net sales of $3,132,267 for the same period in 1996. These
increases in sales were primarily due to the addition of new retail customers
and of new products available for sale to the Company's retail customers in both
the United States and Europe, and in particular in Eastern Europe, offset, in
part, by decreases in OEM sales.
OEM sales decreased for the nine month period ended September 30, 1997,
compared to the same period in 1996, primarily due to the financial problems
(unrelated to the Company) of two large OEM customers during the second half of
1996. During the first nine months of 1996 these two customers made significant
purchases from the Company that were not repeated during the first nine months
of 1997. The Company has recently expanded its OEM sales group in order to
broaden its base of OEM customers and to seek to increase its OEM sales in the
future.
On September 30, 1997, the Company purchased the networking division of
FOCUS Enhancements, Inc. ("Focus") which included the networking product line
and networking customer list and relationships of Focus. The products acquired
with this acquisition are very similar to the networking products already being
offered by the Company. The acquisition also provided for the use of the brand
name "Focus Networking", which the Company intends to utilize in future sales
12
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of all its networking products. The Company believes that this acquisition
should allow the Company to further develop its retail sales base by expanding
its product offerings and by expanding the customer base for all of its
products.
Gross profit margin for the nine month period ended September 30, 1997
increased to 41.3% from the 40.1% for the same period in 1996. This increase in
gross profit margin is primarily due to the change in sales mix from OEM sales
to more retail and international sales, which generally have a higher gross
profit margin than OEM sales. The shift in sales mix from OEM to retail sales
was also present in the three month period ended September 30, 1997 when
compared to the same period in 1996. However, the gross profit margin for the
three month period ended September 30, 1997 decreased to 38.8%, compared to the
same period in 1996, which was 41.1%. This decrease was primarily due to
increased sales of networking products (which, like OEM sales, have a lower
gross profit margin) and due to a reduction of inventory value for certain
customer specific inventory for which a customer order was canceled.
SG&A expenses increased significantly to $3,986,484 for the nine month
period ended September 30, 1997 and to $1,405,893 for the three month period
ended September 30,1997. These amounts represented respective increases of 30.5%
and 26.9% over the same periods in 1996. These increases in expenses are due to
a combination of the following factors: increased costs necessary to support and
service increased sales levels; increased costs due to being a public company,
including fees for professional services; and increased costs related to the
efforts to strengthen OEM sales. Tangible SG&A expenses (excluding amortization
of intangibles related to the purchase of the Focus networking product line) are
projected to increase in the future as sales increase. However, the rate of
tangible SG&A expense increase is projected to be at a lower rate than projected
sales increases.
Interest expense, net of interest income, for the nine month period
ended September 30, 1997 was $113,531, an increase of $18,039, or 18.9% when
compared to the same period in 1996. Interest expense, net of interest income,
for the three month period ended September 30, 1997 was $41,538, which was an
increase of 103.1% when compared to the same period in 1996. These increases
were due primarily to increased combined borrowings and higher average interest
rates during the 1997 periods.
As a result of the factors set forth above, the Company's net income
before taxes was $509,435 for the nine month period ended September 30, 1997 and
$115,600 for the three month period ended September 30, 1997. These were
respective decreases of $228,693 or 31.0% and $42,232 or 26.8% when compared to
the same periods in 1996.
Pro forma net income, which reflects the Company's net income had the
Company been taxed as a C Corporation for the entire nine month period ended
September 30, 1996 and 1997 was
13
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$306,863, for the nine month period and $69,138 for the three month period ended
September 30, 1997, compared to $471,071 for the nine month period and $94,057
for the three month period ended September 30, 1996.
During the nine month periods ended September 30, 1996 and 1997,
average shares outstanding increased by 53.5% from 1,254,948 shares to 1,926,383
shares, which contributed to the calculated earnings per share decrease of
50.0%, or $.19 per share, from $.38 per share during the nine months ended
September 30, 1996, to $.19 per share during the nine months ended September 30,
1997. During the three months periods ended September 30, 1996 and 1997, average
shares outstanding increased 66.9%, which contributed to the calculated
earnings per share decrease of 42.9%, or $.03 per share, from $.07 per share
during the three month period ended September 30, 1996, to $.04 per share during
the three month period ended September 30, 1997. Average shares outstanding for
both the three and nine month 1997 periods increased due to the Company's
initial public offering in the first quarter of 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On February 19, 1997, the Company closed its initial public offering of
800,000 shares of Common Stock and 800,000 Redeemable Common Stock Purchase
Warrants. On March 20, 1997 the Company sold an additional 120,000 shares of
Common Stock and 120,000 of its Redeemable Common Stock Purchase Warrants in
connection with the exercise by the underwriters of an over-allotment option.
Collectively, the Company raised net proceeds of approximately $4,862,000 in its
initial public offering (or $4,375,000 net of certain capitalized expenses in
connection with the offering).
At September 30, 1997, the Company's working capital was $7,442,222 and
its current ratio was 4.61:1, compared to working capital of $3,119,645 and a
current ration of 1.67:1 as of December 31, 1996. The increase in working
capital and the current ratio was due primarily to the receipt of the proceeds
of the Company's initial public offering which contributed to the increase in
cash, the decrease in current portion of long term debt through repayment of
amounts due under the Company's line of credit, and the decrease in accounts
payable and accrued expenses.
As of September 30, 1997, accounts receivable increased $1,043,296, or
38.4% primarily due to increases in sales. Inventories increased $171,548, or
3.6%, from December 31, 1996 to September 30, 1997 primarily due to the
inventory purchased in conjunction with the purchase of the networking product
line acquired from Focus (see above). Prepaid expenses and other current assets
increased $200,013, or 129.4%, from December 31, 1996 to September 30, 1997.
The increases in prepaid expenses and accrued expenses were due primarily to the
following factors: market development funds that were paid to a major
distributor of the Company's products in advance of being earned; amounts paid
to secure space at a trade show that the Company is scheduled to attend in
November; and, the remaining prepaid amounts related to the two year financial
advisory agreement with the Company's underwriters, all of which were not
present as of December 31, 1996.
As of September 30, 1997, accounts payable and accrued expenses
decreased $1,122,237, or 37.2%, compared to December 31, 1996. This decrease is
primarily due to a portion of the proceeds of the Company's initial public
offering being used to pay accounts payable and various accrued expenses.
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As of September 30, 1997, the Company had paid off all amounts due
under notes payable primarily from a portion of the proceeds of the Company's
initial public offering. The Company has available for borrowing (based upon a
formula) at November 11, 1997 approximately $2,032,000 under the terms of its
revolving line of credit with an institutional lender. This revolving line of
credit is for a maximum of $4,500,000 and was renewed as of August 1, 1997 for a
one year term. Borrowings under the revolving line of credit are made available
to the Company based upon specific percentages of accounts receivable and
inventory and if made, will bear interest at the rate of prime plus .25%. The
Company intends to borrow funds from the revolving credit as required to fund
its future growth. There can be no assurances that the Company will be in a
position to borrow funds at the time they become necessary.
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 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 personally paid
taxes on undistributed profits of the Company for the period from January 1,
1996 to February 13, 1997, for which the Company reimbursed them. The
distributions for this purpose were approximately $260,000 and were made in
April 1997.
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 on February 13, 1997, executed two seven year Convertible Subordinated
Promissory Notes (the "Principal Shareholders' Notes") each in the amount of
$869,562.50 in favor of Messrs. Stein and Briskin. The Principal Shareholders'
Notes 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.
The Company believes that the cash balance, along with the unused
balances available under the existing line of credit and the net cash flow
generated from operating activities, will be adequate to fund the Company's
operations in 1997. This is a projection, however, and no assurance can be given
that the Company's cash from operations and from its available line of credit
will be sufficient to meet the Company's cash requirements during 1997.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 25, 1997, the Florida Department of Revenue issued to the
Company a Notice of Intent to Make Audit Changes with respect to a proposed
assessment of sales and use tax covering the period August 1, 1991 through July
31, 1996. The proposed assessment, including penalties and interest, totaled
approximately $1,100,000. During the quarter ended September 30, 1997 this
assessment was modified and settled for approximately $20,000, of which $5,000
related to expenses was charged to earnings during the period.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
As of November 12, 1997, the Company entered into a Share Exchange
Agreement with Dataholding A.S., a Norwegian limited company ("Dataholding"),
and the shareholders of Dataholding, pursuant to which Dataholding has become a
wholly-owned subsidiary of the Company (the "Merger"). Dataholding is based in
Oslo, Norway and is a manufacturer and distributor of connectivity and
networking products primarily in Norway.
In connection with the Merger, which will be accounted for under the
pooling of interest business combination method of accounting, the Company
issued 360,000 unregistered shares of its authorized but unissued Common Stock
in exchange for all of the issued and outstanding capital stock of Dataholding.
The Company agreed to use its best efforts to file, on or before February 28,
1998, a registration statement covering the shares of Common Stock issued to
Dataholding's shareholders in connection with the Merger. The aggregate purchase
price was determined in arms length negotiations between the Company and the
shareholders of Dataholding.
In connection with the execution of the Share Exchange Agreement,
Dataholding's management executed employment and consulting agreements agreeing
to continue to provide services to Dataholding for not less than a two year
period.
The Company will file a Form 8-K amending the information regarding
Dataholding contained in this Form 10-QSB to include the financial and pro-forma
information required by Items 7(a) and (b) of Form 8-K within 60 days after the
completion of this acquisition.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Share Exchange Agreement, dated as of November 12, 1997
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
September 30, 1997. However, two Form 8-K's were filed subsequent to the end of
the quarter both of which were dated October 15, 1997. The first Form 8-K
reported the execution of a Master Purchase Agreement between the Company and
FOCUS Enhancement, Inc. ("Focus"). The second Form 8-K reported the execution of
an Asset Purchase Agreement between the Company and Focus relating to the
Company's acquisition of the assets of the networking division of Focus.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC.
Date: November 18, 1997 By: /S/ RANDALL N. PAULFUS
-----------------------
RANDALL N. PAULFUS, Chief Financial
Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 Share Exchange Agreement, dated as of November 12, 1997
27.1 Financial Data Schedule
EXHIBIT 10.1
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is made and entered
into as of November 12, 1997 by and between ADVANCED ELECTRONIC SUPPORT
PRODUCTS, INC., a Florida corporation with its principal place of business at
1810 N.E. 144th Street, North Miami, Florida 33181 ("AESP"); DATAHOLDING AS, a
limited company organized under the laws of Norway (the "Company"); KNUT
JOHANSSON, VERA NYGARD, AS INDUSTRIBYGNINGEN, KARL PETTER GI0RTZ AND EIVIND
URBYE, each a resident of Norway, who together constitute all of the
shareholders of the Company (together, the "Shareholders"). Certain other
capitalized terms used herein are defined in Article XII and throughout this
Agreement.
RECITALS
A. The Shareholders are the record and beneficial owners of all of the
issued and outstanding shares of ordinary stock, 1 NOK per share, of the Company
(the "Company Ordinary Stock");
B. The Shareholders desire to exchange their Company Ordinary Stock for
shares of common stock, par value $.01 per share, of AESP and AESP desires to
acquire all of the Company Ordinary Stock through such exchange, on the terms
and subject to the conditions contained herein (the "Share Exchange");
C. The Board of Directors of the Company and the Shareholders have
determined that the Share Exchange is in the best interests of the Company and
the Shareholders, and the Board of Directors of the Company and the Shareholders
have approved this Agreement and the transactions contemplated hereby; and
D. The Board of Directors of AESP has determined that the Share Exchange
is in the best interests of AESP and its shareholders and has approved this
Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
ARTICLE I
EXCHANGE OF COMPANY ORDINARY STOCK
1.1 EXCHANGE OF COMPANY ORDINARY STOCK. Upon the terms and subject to
the conditions of this Agreement, at the Closing (as defined in SECTION 2.1),
the Shareholders will convey, assign, transfer and deliver to AESP, and AESP
will acquire and accept from each Shareholder, all right, title and interest in
and to the Company Ordinary Stock, free and clear of any Liens, other than
those, if any, created by, or imposed upon, AESP by reason of its ownership in
the Company Ordinary Stock.
1.2 CONVEYANCE. Such conveyance, assignment, transfer and delivery
shall be effected by delivery at the Closing by each Shareholder to AESP of
stock certificates representing the Company Ordinary Stock, duly endorsed or
accompanied by stock powers duly executed in blank with appropriate transfer
stamps, if any, affixed, and any other documents that are necessary to transfer
title to the Company Ordinary Stock to AESP, free and clear of any and all
Liens, other than those, if any, created by, or imposed upon, AESP by reason of
its ownership in the Company Ordinary Stock.
1.3 PURCHASE PRICE. The purchase price for all of the Company Ordinary
Stock shall be an aggregate 360,000 shares of common stock, $0.01 par value per
share, of AESP (the "AESP Common Stock"). All of the shares of AESP Common Stock
to be issued to the Shareholders hereunder, are referred to as the "AESP
Shares". Each holder of Company Ordinary Stock shall receive the number of AESP
Shares set forth in SCHEDULE 1.3 in the Share Exchange.
1.4 ACCOUNTING. The parties hereto acknowledge and agree that the
transactions contemplated hereby are intended to be treated as a pooling of
interest business combination by AESP for accounting purposes in accordance with
GAAP, Accounting Principles Board Opinion No.16 and the rules and regulations of
the SEC, whereby subject to the satisfaction of certain criteria, among other
consequences, the net income of the Company is combined (or "pooled") with
AESP's net income for the entire year.
ARTICLE II
CLOSING
2.1 CLOSING. Subject to the satisfaction or waiver of all the terms and
conditions hereof, the closing (the "Closing") of the Share Exchange will take
place on or about October 31, 1997 at 10:00 a.m. or as soon as practicable
thereafter after satisfaction or waiver of the conditions to the Closing
contained in ARTICLES VII and VIII hereof, at the offices of AESP's counsel,
Akerman, Senterfitt & Eidson, P.A., One S.E. Third Avenue, Miami, Florida 33131,
unless another date, time
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or place is agreed to in writing by the parties hereto. The date and time at
which the Closing occurs is referred to herein as the "Closing Date".
2.2 DELIVERY OF THE COMPANY ORDINARY STOCK. At the Closing, the
Shareholders shall deliver to AESP certificates evidencing all of the issued and
outstanding shares of Company Ordinary Stock (the "Certificates"), each duly
endorsed or accompanied by stock powers duly executed in blank, with signatures
guaranteed with appropriate transfer stamps, if any, affixed, and any other
documents that are reasonably necessary to transfer title to such shares,
including the appropriate documentation that the person transferring the
Certificate(s) for AS Industribygningen ("ASI") is duly authorized to execute
such Certificate(s) on behalf of such company.
2.3 DELIVERY OF PURCHASE PRICE. At the Closing, AESP shall issue and
deliver to the Shareholders certificates evidencing the AESP Shares in exchange
for the Certificates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AESP
As a material inducement to each of the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, AESP makes the
following representations and warranties to the Shareholders:
3.1 CORPORATE STATUS. AESP is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida.
3.2 CORPORATE POWER AND AUTHORITY. AESP has the corporate power and
authority to execute and deliver this Agreement, to perform its respective
obligations hereunder and to consummate the transactions contemplated hereby.
AESP has taken all action necessary to authorize its execution and delivery of
this Agreement, the performance of its obligations hereunder and the
consummation of the transactions contemplated hereby.
3.3 CAPITALIZATION. SCHEDULE 3.3 sets forth the number of shares of
each class of AESP's capital stock, the number of shares of AESP's capital stock
issued and outstanding, and the number of such shares of AESP's capital stock
held in treasury. All of the issued and outstanding shares of capital stock of
AESP (i) have been duly authorized and validly issued and are fully paid and
non-assessable, (ii) were issued in compliance with all applicable state and
federal securities laws, and (iii) were not issued in violation of any
preemptive rights or rights of first refusal. No preemptive rights or rights of
first refusal exist with respect to the shares of capital stock of AESP and no
such rights arise by virtue of or in connection with the transactions
contemplated hereby. Except as set forth in AESP's public filings with the SEC,
there are no outstanding or authorized rights, options, warrants, convertible
securities, subscription rights, conversion rights, exchange rights or other
agreements or commitments of any kind that could require AESP to issue or sell
any shares of its capital stock (or
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securities convertible into or exchangeable for shares of its capital stock).
Except as set forth in AESP's public filings with the SEC, there are no
outstanding stock appreciation, phantom stock, profit participation or other
similar rights with respect to AESP. Except as set forth in AESP's public
filings with the SEC, (i) there are no proxies, voting rights or other
agreements or understandings with respect to the voting or transfer of the
capital stock of AESP, and (ii) AESP is not obligated to redeem or otherwise
acquire any of its outstanding shares of capital stock.
3.4 LITIGATION. To the best of AESP's knowledge, there is no material
action, suit, or other legal or administrative proceeding or governmental
investigation pending, threatened, anticipated or contemplated against, by or
affecting AESP, or any of its properties or assets, or which questions the
validity or enforceability of this Agreement or the transactions contemplated
hereby, and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which AESP is or was a party which have not been complied with in
full or which continue to impose any material obligations on AESP.
3.5 NO VIOLATION; CONSENTS AND APPROVAL. The execution and delivery of
this Agreement by AESP, the performance by it of its obligations hereunder and
the consummation by it of the transactions contemplated by this Agreement will
not (i) contravene any provision of the organizational documents of AESP, (ii)
violate or conflict with any law, statute, ordinance, rule, regulation, decree,
writ, injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against AESP, (iii) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any Contract which is
applicable to, binding upon or enforceable against AESP, (iv) result in or
require the creation or imposition of any Lien upon or with respect to any of
the property or assets of AESP, or (v) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except any SEC and other
filings required to be made by AESP, and those entities set forth in SCHEDULE
3.5.
3.6 FINANCIAL STATEMENTS. AESP has delivered or made available to the
Shareholders the financial statements of AESP, which for the purposes hereof
shall be comprised of AESP's (i) Annual Report on Form 10-KSB for the year ended
December 31, 1996, and (ii) Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1997 and June 30, 1997 ("AESP Financial Statements"). Copies of
such financial statements have been filed with the SEC. The balance sheet dated
as of June 30, 1996 from AESP's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997 shall be referred to herein as the "Current Balance Sheet".
AESP's Financial Statements fairly present the financial position of AESP at the
Current Balance Sheet date and for the periods covered thereby, and have been
prepared in accordance with generally accepted accounting principles in the
United States consistently applied throughout the periods indicated. AESP's
Financial Statements will reflect all adjustments necessary for a fair
presentation of the financial information contained therein.
4
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3.7 TAX MATTERS. All Tax Returns required to be filed prior to the date
hereof with respect to AESP or any of its income, properties, franchises or
operations have been timely filed, each such Tax Return has been prepared in
compliance with all applicable laws and regulations, and all such Tax Returns
are true and accurate in all respects. All Taxes due and payable by or with
respect to AESP (including, without limitation, state sales taxes) have been
paid and are accrued on the AESP Current Balance Sheet or will be accrued on its
books and records as of the Closing.
3.8 ENFORCEABILITY. This Agreement has been duly executed and delivered
by AESP and constitutes a legal, valid and binding obligation of AESP,
enforceable against AESP in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
3.9 AESP COMMON STOCK. Upon Closing and the issuance and delivery of
certificates representing the AESP Shares to the Shareholders, the AESP Shares
will be validly issued, fully paid and non-assessable shares of AESP Common
Stock.
3.10 NO COMMISSIONS. AESP has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
As a material inducement to AESP to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company and each of the
Shareholders makes the following representations and warranties to AESP:
4.1 CORPORATE STATUS. The Company is a limited corporation duly
organized, validly existing and in good standing under the laws of Norway and
has the requisite power and authority to own or lease its properties and to
carry on its business as now being conducted. The Company only conducts business
in Norway. The Company has fully complied with all of the requirements of any
statute governing the use and registration of fictitious names, and has the
legal right to use the names under which it operates its business. There is no
pending or threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of the Company.
4.2 POWER AND AUTHORITY. The Company has the power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions
5
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contemplated hereby. The Company has taken all action necessary to authorize the
execution and delivery of this Agreement, the performance of its obligations
hereunder and the consummation of the transactions contemplated hereby. Except
with respect to ASI which is a limited company registered in the Norwegian
Company Register, each of the Shareholders is an individual residing in Norway,
and all of the Shareholders have the requisite competence and authority to
execute and deliver this Agreement, to perform his, her or its respective
obligations hereunder and to consummate the transactions contemplated hereby.
ASI is a corporation duly organized, validly existing and in good standing under
the laws of Norway. ASI has the power and authority to execute and deliver this
Agreement and perform its obligations hereunder, and has approved such
execution, delivery and performance by all necessary corporate action.
4.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by the Company and each of the Shareholders, and constitutes the legal, valid
and binding obligation of each of them, enforceable against them in accordance
with its terms.
4.4 CAPITALIZATION. SCHEDULE 4.4(A) sets forth the number of shares of
each class of the Company's capital stock, the number of shares of the Company's
capital stock issued and outstanding, and the number of such shares of the
Company's capital stock held in treasury. All of the issued and outstanding
shares of capital stock of the Company (i) have been duly authorized and validly
issued and are fully paid and non-assessable, (ii) were issued in compliance
with the Norwegian Joint Stock Act of 1976, and (iii) were not issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the shares of capital
stock of the Company and no such rights arise by virtue of or in connection with
the transactions contemplated hereby. Except as set forth in SCHEDULE 4.4(B),
there are no outstanding or authorized rights, options, warrants, convertible
securities, subscription rights, conversion rights, exchange rights or other
agreements or commitments of any kind that could require the Company to issue or
sell any shares of its capital stock (or securities convertible into or
exchangeable for shares of its capital stock). Except as set forth in SCHEDULE
4.4(C), there are no outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company. Except as set
forth in SCHEDULE 4.4(D), there are no proxies, voting rights or other
agreements or understandings with respect to the voting or transfer of the
capital stock of the Company. The Company is not obligated to redeem or
otherwise acquire any of its outstanding shares of capital stock.
4.5 SHAREHOLDERS OF THE COMPANY. SCHEDULE 4.5 sets forth, with respect
to the Company, the name, address and the number of outstanding shares of each
class of its capital stock owned of record and/or beneficially by, each
shareholder of the Company as of the close of business on the date of this
Agreement. As of the date hereof, the Shareholders constitute all of the holders
of all issued and outstanding shares of capital stock of the Company, and each
of the Shareholders owns such shares free and clear of all Liens, restrictions
and claims of any kind, and AESP shall receive good and marketable title to such
shares at the Closing.
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4.6 NO VIOLATION; CONSENTS AND APPROVAL. The execution and delivery of
this Agreement by the Company and the Shareholders, the performance by them of
their respective obligations hereunder and the consummation by them of the
transactions contemplated by this Agreement will not (i) contravene any
provision of the organizational documents of the Company, (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against the Company, any of the Shareholders, (iii) conflict with, result in any
breach of, or constitute a default (or an event which would, with the passage of
time or the giving of notice or both, constitute a default) under, or give rise
to a right to terminate, amend, modify, abandon or accelerate, any Contract
which is applicable to, binding upon or enforceable against the Company or any
of the Shareholders, (iv) result in or require the creation or imposition of any
Lien upon or with respect to any of the property or assets of the Company, or
(v) require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person, except any SEC and other filings required to be made by AESP.
4.7 RECORDS OF THE COMPANY. The copies of the organizational and
operating documents of the Company which are attached hereto as SCHEDULE 4.7 are
true, accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company made available to AESP for
review were correct and complete in all material respects as of the date of such
review, no further entries have been made through the date of this Agreement,
such minute books contain the true signatures of the persons purporting to have
signed them, and such minute books contain an accurate record of all material
corporate actions of the shareholders and directors (and any committees thereof)
of the Company taken by written consent or at a meeting since incorporation. All
material corporate actions taken by the Company have been duly authorized or
ratified. All accounts, books, ledgers and official and other records of the
Company have been fully, properly and accurately kept and completed in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained therein. The stock ledgers of the Company, as previously made
available to AESP, contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of the Company, and
is attached to SCHEDULE 4.7.
4.8 SUBSIDIARIES AND OTHER ENTITIES. SCHEDULE 4.8 sets forth the
Company's ownership in, interest in and/or control over any other corporation,
partnership, joint venture, or other business entity. The Company has taken the
actions to merge its two wholly-owned subsidiaries, Datadistribusjon AS and
Jotec Norge AS, with and into the Company and such merger shall be effective,
with respect to the Norwegian Company Register, on October 25, 1997. The
Shareholders further acknowledge and agree that the name of the Company shall be
changed to "Jotec/AESP" and that as of the date hereof the Shareholders and AESP
shall take all necessary action and file all appropriate documentation to
effectuate the name change as soon as practicable.
4.9 FINANCIAL STATEMENTS. The Shareholders have delivered (or will
deliver subsequent to the date of this Agreement and as a condition to Closing)
to AESP the financial statements of the Company, comprised of the Company's (ii)
audited year-end financial statements consisting of
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balance sheets as of December 31, 1995 and 1996, income statements for the
periods ended December 31, 1995 and December 31, 1996, and (ii) unaudited
interim period financial statements consisting of balance sheets as of August
31, 1996 and 1997, income statements for the periods ended August 31, 1996 and
1997, including the notes thereto and translated into English (the "Company
Financial Statements"). Copies of such financial statements shall become
SCHEDULE 4.9 hereto. The balance sheet dated as of August 31, 1997 of the
Company shall be referred to herein as the "Company Current Balance Sheet". The
Company Financial Statements shall fairly present the financial position of
Company at the Company Current Balance Sheet date and the results of operations
for the periods covered thereby, and shall have been prepared in accordance with
generally accepted accounting principles in Norway (and reconciled into U.S.
GAAP in accordance with SEC rules and regulations) consistently applied
throughout the periods indicated and sufficient in form and substance in the
opinion of AESP's independent auditors for use by AESP in its filings with the
SEC in accordance with the rules and requirements applicable to AESP as a
company whose securities are registered under Section 12(g) under the Securities
Exchange Act of 1934, as amended. The books and records of the Company fully and
fairly reflect all transactions, properties, assets and liabilities of the
Company. There are no material special or non-recurring items of income or
expense during the periods covered by the Company Financial Statements and the
balance sheets included in the Company Financial Statements will not reflect any
writeup or revaluation increasing the book value of any assets, except as
specifically disclosed in the notes thereto. The Company Financial Statements
will reflect all adjustments necessary for a fair presentation of the financial
information contained therein.
4.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as set forth
in SCHEDULE 4.10, since the date of the Current Balance Sheet, the Company has
not: (i) issued any capital stock or other securities; (ii) made any
distribution of or with respect to its capital stock or other securities or
purchased or redeemed any of its securities; (iii) paid any bonus to or
increased the rate of compensation of any of its officers or salaried employees
or amended any other terms of employment of such persons; (iv) sold, leased or
transferred any of its properties or assets other than in the ordinary course of
business consistent with past practice; (v) made or obligated itself to make
capital expenditures out of the ordinary course of business consistent with past
practice; (vi) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (vii) incurred any
obligations or liabilities (including any indebtedness) or entered into any
transaction or series of transactions involving in excess of $10,000 in the
aggregate out of the ordinary course of business, except for this Agreement and
the transactions contemplated hereby; (viii) suffered any theft, damage,
destruction or casualty loss, not covered by insurance and for which a timely
claim was filed, in excess of $10,000 in the aggregate; (ix) suffered any
extraordinary losses (whether or not covered by insurance); (x) waived,
canceled, compromised or released any rights having a value in excess of $10,000
in the aggregate; (xi) made or adopted any change in its accounting practice or
policies; (xii) made any adjustment to its books and records other than in
respect of the conduct of its business activities in the ordinary course
consistent with past practice; (xiii) entered into any transaction with any
Affiliate; (xiv) entered into any employment agreement; (xv) terminated, amended
or modified any agreement involving an amount in excess of $10,000; (xvi)
imposed any security interest or other Lien on any of its assets other than in
the ordinary course of
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business consistent with past practice; (xvii) delayed paying any accounts
payable which are due and payable except to the extent being contested in good
faith; (xviii) made or pledged any charitable contribution in excess of $5,000;
(xix) entered into any other transaction or been subject to any event which has
or may have a Material Adverse Effect on the Company; or (xx) agreed to do or
authorized any of the foregoing.
4.11 LIABILITIES OF THE COMPANY. The Company does not have any
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
except (a) to the extent reflected or taken into account in the Current Balance
Sheet and not heretofore paid or discharged, (b) liabilities incurred in the
ordinary course of business consistent with past practice since the date of the
Current Balance Sheet (none of which relates to breach of contract, breach of
warranty, tort, infringement or violation of law, or which arose out of any
action, suit, claim, governmental investigation or arbitration proceeding), (c)
normal accruals, reclassifications, and audit adjustments which would be
reflected on an audited financial statement and which would not be material in
the aggregate, and (d) liabilities incurred in the ordinary course of business
prior to the date of the Current Balance Sheet which, in accordance with
generally accepted accounting principles in effect in Norway consistently
applied, were not recorded thereon.
4.12 LITIGATION. Except as set forth on SCHEDULE 4.12 attached hereto,
there is no action, suit, or other legal or administrative proceeding or
governmental investigation pending, threatened, anticipated or contemplated
against, by or affecting the Company, or any of its properties or assets, the
Shareholders or which questions the validity or enforceability of this Agreement
or the transactions contemplated hereby, and there is no basis for any of the
foregoing. There are no outstanding orders, decrees or stipulations issued by
any Governmental Authority in any proceeding to which the Company is or was a
party which have not been complied with in full or which continue to impose any
material obligations on the Company.
4.13 ENVIRONMENTAL MATTERS. The Company has complied with all
environmental laws, rules and regulations applicable to its operations,
properties and assets.
4.14 REAL ESTATE.
(a) The Company does not own any real property or any interest
therein; and
(b) SCHEDULE 4.14(B) sets forth a list of all leases, licenses or
similar agreements ("Leases") to which the Company is a party (copies of which
have previously been furnished to AESP), in each case setting forth (A) the
lessor and lessee thereof and the date and term of each of the Leases, (B) the
legal description, including street address, of each property covered thereby,
and (C) a brief description (including size and function) of the principal
improvements and buildings thereon (the "Leased Premises"), all of which are
within the property set-back and building lines of the respective property. The
Leases are in full force and effect and have not been amended, and no party
thereto is in default or breach under any such Lease. No event has occurred
which, with the
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passage of time or the giving of notice or both, would cause a material breach
of or default under any of such Leases. There is no breach or anticipated breach
by any other party to such Leases.
4.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) The Company has good and marketable title to all of its
Assets (as hereinafter defined), free and clear of any Liens or restrictions on
use. For purposes of this Agreement, the term "Assets" means all of the
properties and assets of the Company, other than the Leased Premises, whether
personal or mixed, tangible or intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined) currently in use or
necessary for the business and operations of the Company are in good operating
condition, normal wear and tear excepted, and have been maintained substantially
in accordance with all applicable manufacturer's specifications and warranties.
For purposes of this Agreement, the term "Fixed Assets" means all vehicles,
machinery, equipment, tools, supplies, leasehold improvements, furniture and
fixtures used by or located on the premises of the Company or set forth on the
Current Balance Sheet or acquired by the Company since the date of the Current
Balance Sheet. SCHEDULE 4.15(B) lists the vehicles owned, leased or used by the
Company, setting forth the make, model, description of body and chassis, vehicle
identification number, and year of manufacture, and for each vehicle, whether it
is owned or leased, and if owned, the name of any lienholder and the amount of
the lien, and if leased, the name of the lessor and the general terms of the
lease, and, whether owned or leased.
4.16 COMPLIANCE WITH LAWS.
(a) The Company is and has been in compliance with all laws,
regulations and orders applicable to it, its business and operations (as
conducted by it now and in the past), the Assets and the Leased Premises and any
other properties and assets (in each case owned or used by it now or in the
past). The Company has not been cited, fined or otherwise notified of any
asserted past or present failure to comply with any laws, regulations or orders
and no proceeding with respect to any such violation is pending or threatened.
(b) Neither the Company, nor any of its employees or agents, has
made any payment of funds in connection with the business of the Company which
is prohibited by law, and no funds have been set aside to be used in connection
with the business of the Company for any payment prohibited by law.
(c) The Company is not subject to any Contract, decree or
injunction in which the Company is a party which restricts the continued
operation of any business of the Company or the expansion thereof to other
geographical areas, customers and suppliers or lines of business.
4.17 LABOR AND EMPLOYMENT MATTERS. SCHEDULE 4.17(A) sets forth the
name, address and current rate of compensation of the employees of the Company.
The Company is not delinquent in any payments to any of its directors, employers
or former directors or employers for any wages,
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salaries, commissions, bonuses or other direct compensation for any services
performed by them or amounts required to be reimbursed to such persons. The
Company is not a party to or bound by any collective bargaining agreement or any
other agreement with a labor union, and there has been no effort by any labor
union during the 24 months prior to the date hereof to organize any employees of
the Company into one or more collective bargaining units. There is no pending or
threatened labor dispute, strike or work stoppage which affects or which may
affect the business of the Company or which may interfere with its continued
operations. Neither the Company nor any agent, representative or employee
thereof has within the last 24 months committed any unfair labor practice as
defined in applicable law. There is no pending or threatened charge or complaint
against the Company by or with any Governmental Authority or any representative
thereof. There has been no strike, walkout or work stoppage involving any of the
employees of the Company during the 24 months prior to the date hereof. Except
as set forth in SCHEDULE 4.17(B), none of the Shareholders is aware that any
executive or key employee or group of employees has any plans to terminate his,
her or their employment with the Company as a result of the Share Exchange or
otherwise. SCHEDULE 4.17(C) contains detailed information about each contract,
agreement or plan of the following nature, whether formal or informal, and
whether or not in writing, to which the Company is a party or under which the
Company has an obligation: (i) employment agreements, (ii) employee handbooks,
policy statements and similar plans, (iii) noncompetition agreements and (iv)
consulting agreements. Except as provided in SCHEDULE 4.17(D), the Company has
complied in all material respects with applicable laws, rules and regulations
relating to employment, and employment practices, terms and conditions of
employment, wages and hours.
4.18 EMPLOYEE BENEFIT PLANS.
(a) EMPLOYEE BENEFIT PLANS. SCHEDULE 4.18(A) contains a list
setting forth each employee benefit plan or arrangement of the Company,
including but not limited to any person, medical, health or other insurance,
share incentive, share option, or employee profit sharing or bonus plans, in
which employees, their spouses or dependents, of the Company participate
("Employee Benefit Plans") (true and accurate English language translations of
which have been, or shall be by Closing, furnished to AESP).
(b) COMPLIANCE WITH LAW. With respect to each Employee Benefit
Plan (i) each has been administered in all material respects in compliance with
its terms and with all applicable laws, (ii) no actions, suits, claims or
disputes are pending, or threatened; (iii) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or regulatory
agency; (iv) to the knowledge of the Company, there are no facts which could
give rise to any material liability in the event of any such investigation,
claim, action, suit, audit, review, or other proceeding; and (v) all material
reports, returns, and similar documents required to be filed with any
governmental agency or distributed to any plan participant have been duly or
timely filed or distributed.
4.19 TAX MATTERS. All Tax Returns required to be filed prior to the
date hereof with respect to the Company or any of its income, properties,
franchises or operations have been timely filed, each such Tax Return has been
prepared in compliance with all applicable laws and regulations,
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and all such Tax Returns are true and accurate in all respects. All Taxes due
and payable by or with respect to the Company (including, without limitation,
value added taxes) have been paid and are accrued on the Current Balance Sheet
or will be accrued on its books and records as of the Closing. Except as set
forth in SCHEDULE 4.19 hereto: (i) with respect to each taxable period of the
Company, either such taxable period has been audited by the relevant taxing
authority or the time for assessing or collecting Taxes with respect to each
such taxable period has closed and such taxable period is not subject to review
by any relevant taxing authority; (ii) no deficiency or proposed adjustment
which has not been settled or otherwise resolved for any amount of Taxes has
been asserted or assessed by any taxing authority against the Company; (iii) the
Company has not consented to extend the time in which any Taxes may be assessed
or collected by any taxing authority; (iv) the Company has not requested or been
granted an extension of the time for filing any Tax Return to a date later than
the Closing Date; (v) there is no action, suit, taxing authority proceeding, or
audit or claim for refund now in progress, pending or threatened against or with
respect to the Company regarding Taxes; (vi) there are no Liens for Taxes (other
than for current Taxes not yet due and payable) upon the assets of the Company;
(vii) the Company will not be required (a) as a result of a change in method of
accounting for a taxable period ending on or prior to the Closing Date, to
include any adjustment under any provision of law in taxable income for any
taxable period (or portion thereof) beginning after the Closing or (b) as a
result of any provision of law, to include any item of income or exclude any
item of deduction from any taxable period (or portion thereof) beginning after
the Closing; (viii) the Company has not been a member of an affiliated group or
filed or been included in a combined, consolidated or unitary income Tax Return;
(ix) the Company is not a party to or bound by any tax allocation or tax sharing
agreement or has any current or potential contractual obligation to indemnify
any other Person with respect to Taxes; (x) no claim has ever been asserted
against the Company in writing by a taxing authority in a jurisdiction where the
Company does not file Tax Returns that the Company is or may be subject to Taxes
assessed by such jurisdiction; (xi) true, correct and complete copies of all
income and sales Tax Returns filed by or with respect to the Company since the
date of its formation have been or will be (on or before the Closing) furnished
or made available to AESP; and (xii) the Company will not be subject to any
Taxes for the period ending at the Closing Date for any period for which a Tax
Return has not been filed imposed pursuant to any provision of law.
Notwithstanding anything contained herein to the contrary, in the event the
Company is assessed additional Taxes or costs of any nature due to the filing of
amended returns in connection with the Company Tax Returns for the years 1995
and 1996, the Shareholders shall not be responsible for such additional Taxes or
costs to the extent such additional Taxes or costs are due to any of the
adjustments made by the Company and requested by AESP. However, the Shareholders
shall be responsible for such additional Taxes and costs if the adjustments were
due to the actions or omissions of the Shareholders or to matters other than the
matters amended in such amended returns.
4.20 INSURANCE. The Company is covered by valid, outstanding and
enforceable policies of insurance covering its respective properties, assets and
businesses against risks of the nature normally insured against by corporations
in the same or similar lines of business and in coverage amounts typically and
reasonably carried by such corporations (the "Insurance Policies"). Such
Insurance Policies are in full force and effect, and all premiums due thereon
have been paid. As of the Closing Date, each of the Insurance Policies will be
in full force and effect. None of the Insurance
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Policies will lapse or terminate as a result of the transactions contemplated by
this Agreement. The Company has complied with the provisions of such Insurance
Policies. SCHEDULE 4.20 contains (i) a complete and correct list of all
Insurance Policies and all amendments and riders thereto (copies of which have
been or shall be provided to AESP by the Closing) and (ii) a detailed
description of each pending claim under any of the Insurance Policies for an
amount in excess of $10,000 that relates to loss or damage to the properties,
assets or businesses of the Company. The Company has not failed to give, in a
timely manner, any notice required under any of the Insurance Policies to
preserve its rights thereunder.
4.21 RECEIVABLES AND PAYABLES. All of the Receivables and Payables (as
such terms are hereinafter defined) are valid and legally binding, represent
bona fide transactions and arose in the ordinary course of business of the
Company. All of the Receivables are good and collectible receivables, and will
be collected in full in accordance with the terms of such receivables (and in
any event within six months following the Closing), without setoff or
counterclaims, subject to the allowance for doubtful accounts, if any, set forth
on the Current Balance Sheet as reasonably adjusted since the date of the
Current Balance Sheet in the ordinary course of business consistent with past
practice. All of the Payables must be paid within six months of closing, are
accurately reflected in the Current Balance Sheet and were incurred in the
ordinary course of business consistent with past practice. For purposes of this
Agreement, the term "Receivables" means all receivables of the Company,
including all trade account receivables arising from the provision of services,
sale of inventory, notes receivable, and insurance proceeds receivable. For the
purpose of this Agreement, the term "Payables" represents amounts owed by the
Company to another party whether or not currently due. SCHEDULE 4.21 shall set
forth the Company's Receivables and Payables as of the Closing Date.
4.22 LICENSES AND PERMITS. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its businesses and operations, including with
respect to the operation of each of the Leased Premises, and SCHEDULE 4.22
contains a true and complete list of all such Permits. All such Permits are
valid and in full force and effect, the Company is in full compliance with the
respective requirements thereof, and no proceeding is pending or threatened to
revoke or amend any of them. None of such Permits is or will be impaired or in
any way affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
4.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. Except as set forth in SCHEDULE 4.23(A)
hereto, the Assets and Leased Premises constitute, in the aggregate, all of the
assets and properties necessary for the conduct of the business of the Company
in the manner in which and to the extent to which such business is currently
being conducted. No current supplier to the Company of items essential to the
conduct of its business has threatened to terminate its business relationship
with it for any reason. No customer has advised the Company of its intent to, or
has threatened the Company, to terminate its relationship with the Company. The
Company does not have any direct or indirect interest in any customer, supplier
or competitor of the Company, or in any person from whom or to whom the Company
leases real or
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personal property. Except as set forth in SCHEDULE 4.23(B) hereto, no officer,
director or shareholder of the Company, nor any person related by blood or
marriage to any such person, nor any entity in which any such person owns any
beneficial interest, is a party to any Contract or transaction with the Company
or has any interest in any property used by the Company.
4.24 INTELLECTUAL PROPERTY. The Company has full legal right, title and
interest in and to all trademarks, service marks, trade names, copyrights,
know-how, patents, trade secrets, proprietary computer software, data bases and
compilations, licenses (including licenses for the use of computer software
programs), and other intellectual property used in the conduct of its business
(the "Intellectual Property"). The business of the Company as presently
conducted, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or misappropriate
any rights held or asserted by any Person, and no Person is infringing on the
Intellectual Property. No payments are required for the continued use of the
Intellectual Property. None of the Intellectual Property has ever been declared
invalid or unenforceable, or is the subject of any pending or threatened action
for opposition, cancellation, declaration, infringement, or invalidity,
unenforceability or misappropriation or like claim, action or proceeding.
4.25 CONTRACTS.
(a) SCHEDULE 4.25 sets forth a list of each Contract to which the
Company is a party or by which it or its properties and assets are bound and
which is material to its business, assets, properties or prospects (the
"Designated Contracts"), true and correct copies of which have been provided to
AESP. The copy of each Designated Contract furnished to AESP is a true and
complete copy of the document it purports to represent and reflects all
amendments thereto made through the date of this Agreement. The Company has not
violated any of the material terms or conditions of any Designated Contract or
any term or condition which would permit termination or material modification of
any Designated Contract, and all of the covenants to be performed by any other
party thereto have been fully performed and there are no claims for breach or
indemnification or notice of default or termination under any Designated
Contract. No event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a default by the Company under any
Designated Contract, and no such event has occurred which constitutes or would
constitute a default by any other party. The Company is not subject to any
liability or payment resulting from renegotiation of amounts paid it under any
Designated Contract.
(b) As used in this Section, Designated Contracts shall include,
without limitation, (a) loan agreements, indentures, mortgages, pledges,
hypothecations, deeds of trust, conditional sale or title retention agreements,
security agreements, equipment financing obligations or guaranties, or other
sources of contingent liability in respect of any indebtedness or obligations to
any other Person, or letters of intent or commitment letters with respect to
same; (b) contracts obligating the Company to provide products or services for a
period of three (3) months or more, entered into in the ordinary course of
business without material modification from the preprinted forms used by the
Company in the ordinary course of its business; (c) leases of real property, and
leases of personal property not cancelable without penalty on notice of sixty
(60) days or less; (d) distribution, sales agency or
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franchise or similar agreements, or agreements providing for an independent
contractor's services, or letters of intent with respect to same; (e) employment
agreements, management service agreements, consulting agreements,
confidentiality agreements, non-competition agreements, any other agreements
relating to any employee, officer or director of the Company, and all employee
handbooks, policy statements and similar plans; (f) licenses, assignments or
transfers of trademarks, trade names, service marks, patents, copyrights, trade
secrets or know how, or other agreements regarding proprietary rights or
intellectual property; (g) any Contract relating to pending capital expenditures
by the Company; and (h) other material Contracts or understandings, irrespective
of subject matter and whether or not in writing, not entered into in the
ordinary course of business by the Company and not otherwise disclosed on the
Schedules.
4.26 CUSTOMER LISTS AND RECURRING REVENUE. SCHEDULE 4.26 is a true,
correct and complete list of all existing customers (collectively, the
"Customers") of the Company who have entered into valid and enforceable
agreements with the Company. True, correct and complete copies of such
agreements, and any ordinances relating thereto, have been furnished by the
Shareholders to AESP. Other than the Customers listed on SCHEDULE 4.26, no
customer of the Company as of the date of this Agreement accounts for more than
1% of its annual revenue. SCHEDULE 4.26 sets forth each Customer's name,
address, account number, term of franchise or agreement, billing cycle, type of
service and rates charged.
4.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. Each of the Shareholders is acquiring the AESP Shares hereunder for
his, her or its own account for investment purposes only and not with a view to,
or for the sale in connection with, any distribution of any of the AESP Shares,
except in compliance with applicable securities laws. Each of the Shareholders
has had the opportunity to discuss the transactions contemplated hereby with
AESP and has had the opportunity to obtain such information pertaining to AESP
as has been requested, including but not limited to its public filings made by
AESP with the Securities and Exchange Commission under the Securities Exchange
Act of 1934, including the most recent filings by AESP of its Annual Reports on
Form 10-KSB, and any filings of its Quarterly Reports on Forms 10-QSB or Current
Reports 8-K since the end of AESP's last fiscal year end. Each of the
Shareholders has such knowledge and experience in business or financial matters
that he, she or it is capable of evaluating the merits and risks of an
investment in the AESP Shares.
Shareholder represents that he, she or it is not a "U.S. Person," as
that term is defined in Regulation S promulgated under the Securities Act, and
that they are not acquiring the AESP Shares in the Share Exchange for the
account or benefit of a "U.S. Person." Rule 902(o) of Regulation S defines a
"U.S. Person" as (i) a natural person resident in the United States; (ii) a
partnership or corporation organized or incorporated under the laws of the
United States; (iii) an estate of which any executor or administrator is a U.S.
Person; (iv) a trust or which any trustee is a U.S. person; (v) an agency or
branch of a foreign entity located in the United States; (vi) a
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) a discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the
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United States; and (viii) a partnership or corporation if (a) organized or
incorporated under the laws of any foreign jurisdiction; and (b) formed by a
U.S. person principally for the purpose of investing in securities not
registered under the Securities Act, unless it is organized or incorporated and
owned by accredited investors (as defined in Rule 501(a) of Regulation D under
the Securities Act) who are not natural persons, estates or trusts.
4.28 BANK ACCOUNTS; BUSINESS LOCATIONS. SCHEDULE 4.29 sets forth all
accounts of the Company with any bank, broker or other depository institution,
and the names of all persons authorized to withdraw funds from each such
account. As of the date hereof, the Company has no office or place of business
other than as identified on SCHEDULES 4.14(A), if any, and 4.14(b) and the
Company's principal places of business and chief executive offices are indicated
on SCHEDULE 4.14(A), if any, or 4.14(B), and, except for equipment leased to
customers in the ordinary course of business, all locations where the equipment,
inventory, chattel paper and books and records of the Company is located as of
the date hereof are fully identified on SCHEDULES 4.14(A), if any, and 4.14(B).
4.29 NAMES; PRIOR ACQUISITIONS. All names under which the Company does
business as of the date hereof are specified on SCHEDULE 4.30. Except as set
forth on SCHEDULE 4.30, the Company has not changed its name or used any assumed
or fictitious name, or been the surviving entity in a merger, acquired any
business or changed its principal place of business or chief executive office,
within the past three years.
4.30 NO COMMISSIONS. Neither the Company nor the Shareholders has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS PENDING SHARE EXCHANGE
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE SHARE EXCHANGE. The
Company covenants and agrees that, between the date of this Agreement and the
Closing Date, the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business,
consistent with past practice. The Company shall use its best efforts to
preserve intact its business organization, to keep available the services of its
current officers, employees and consultants, and to preserve its present
relationships with customers, suppliers and other persons with which it has
significant business relations. By way of amplification and not limitation, the
Company shall not, between the date of this Agreement and the Closing Date,
directly or indirectly, do or propose or agree to do any of the following
without the prior written consent of AESP:
(a) amend or otherwise change its organizational or operating
documents;
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(b) issue, sell, pledge, dispose of, encumber, or, authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any
shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares
of such capital stock, or any other ownership interest, of it or (ii)
any of its assets, tangible or intangible, except in the ordinary course
of business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or
shares of stock, by merger, consolidation, or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or make any investment
either by purchase of stock or securities, contributions of capital or
property transfer, or, except in the ordinary course of business,
consistent with past practice, purchase any property or assets of any
other Person, (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, or (iii) enter into any Contract other than
for an aggregate of less than $10,000 in the ordinary course of
business, consistent with past practice;
(f) increase the compensation payable or to become payable to its
officers or employees, or, except as presently contractually bound (in
writing) to do, grant any severance or termination pay to, or enter into
any employment or severance agreement with, any of its directors,
officers or other employees, or establish, adopt, enter into or amend or
take any action to accelerate any rights or benefits which any
collective bargaining, bonus, profit sharing, trust, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any directors, officers
or employees;
(g) take any action other than in the ordinary course of business
and in a manner consistent with past practice with respect to accounting
policies or procedures;
(h) pay, discharge or satisfy any existing claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of due and
payable liabilities reflected or reserved against in its financial
statements, as appropriate, or liabilities incurred after the date
hereof in the ordinary course of business and consistent with past
practice;
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(i) increase or decrease prices charged to its customers, except
for previously announced price changes, or take any other action which
might reasonably result in any material increase in the loss of
customers through non-renewal or termination of service contracts or
other causes; or
(j) agree, in writing or otherwise, to take or authorize any of
the foregoing actions or any action which would make any representation
or warranty in Article IV untrue or incorrect.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 FURTHER ASSURANCES; COMPLIANCE AND COVENANTS; CLOSING DOCUMENTS.
Each party shall execute and deliver such additional instruments and other
documents and shall take such further actions as may be necessary or appropriate
to effectuate, carry out and comply with all of the terms of this Agreement and
the transactions contemplated hereby. The Shareholders shall cause the Company
to comply with all of the respective covenants of the Company under this
Agreement. At the Closing, the Company and the Shareholders covenant and agree
to deliver to AESP the certificates, opinions and other documents required to be
delivered to AESP pursuant to Article VII and AESP covenants and agrees to
deliver to the Company and the Shareholders such documents required to be
delivered to the Company and the Shareholders pursuant to Article VIII.
6.2 NOMINEES TO COMPANY'S BOARD OF DIRECTORS. The parties acknowledge
and agree that, as of the Closing Date, the Company's Board of Directors shall
consist of Knut Johansson, Eivind Urbye, Heikki Giverholt, Slav Stein, and Roman
Briskin and that Johansson shall remain on the Company's Board of Directors for
at least a period of one (1) year from the Closing Date, and that Mr. Urbye
shall remain on the Company's Board of Directors until the Registration
Statement concerning Mr. Urbye's AESP Shares is declared effective by the
Securities and Exchange Commission.
6.3 EMPLOYMENT AND CONSULTING AGREEMENTS.
(a) Vera Nygard and Karl Petter Gi0rtz shall enter into
employment agreements with the Company in the form of EXHIBIT 6.3(A), attached
hereto and incorporated by reference, as of, and as a condition to, Closing.
Such agreements shall contain, among other provisions, non-competition
provisions.
(b) Knut Johansson shall enter into a consulting agreement with
AESP in the form of EXHIBIT 6.3(B), attached hereto and incorporated by
reference, as of, and as a condition to, Closing. Such agreement shall contain,
among other provisions, a non-competition provision as well as a provision
providing for Knut Johansson to serve as a member and Chairman of the Board of
Directors of the Company and as a consultant to AESP.
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6.4 COOPERATION. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of the NASDAQ SmallCap Market (or any
exchange on which the AESP Common Stock may be listed) in connection with the
transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions.
6.5 OTHER ACTIONS. Each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all appropriate actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated herein, including, without limitation, using its best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to Contracts
with the Company as are necessary for the consummation of the transactions
contemplated hereby. Each of parties shall make on a prompt and timely basis all
governmental or regulatory notifications and filings required to be made by it
for the consummation of the transactions contemplated hereby. The parties also
agree to use best efforts to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby and to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby. The obtaining of all consents, approvals, authorizations,
qualifications and orders of any Governmental Authority required prior to the
Closing to effect the Share Exchange shall be a condition precedent to the
Closing.
6.6 ACCESS TO INFORMATION. From the date hereof to the Closing Date,
the Company shall (and shall cause its directors, officers, employees, auditors,
counsel and agents) to afford AESP and AESP's officers, employees, auditors,
counsel and agents reasonable access at all reasonable times to its properties,
offices, and other facilities, to its officers and employees and to all books
and records, and shall furnish such persons with all financial, operating and
other data and information as may be requested. No information provided to or
obtained by AESP shall affect any representation or warranty in this Agreement.
6.7 NOTIFICATION OF CERTAIN MATTERS. The Shareholders shall give prompt
notice to AESP of the occurrence or non-occurrence of any event which would
likely cause any representation or warranty contained herein to be untrue or
inaccurate, or any covenant, condition, or agreement contained herein not to be
complied with or satisfied.
6.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the other
parties, except that AESP may make such
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public disclosure which it believes in good faith to be required by law or by
the terms of any listing agreement with or requirements of a securities exchange
(in which case AESP will consult with an officer of the Company prior to making
such disclosure).
6.9 NO OTHER DISCUSSIONS. The Company and the Shareholders and their
respective Affiliates, employees, agents and representatives will not (i)
initiate, encourage the initiation by others of discussions or negotiations with
third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale of
stock or otherwise) or (ii) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions. The Shareholders
will immediately notify AESP if any third party attempts to initiate any
solicitation, discussion or negotiation with respect to any of the foregoing
transactions.
6.10 RESTRICTIVE COVENANTS. In order to assure that AESP will realize
the benefits of the Share Exchange (and assuming, pursuant to this Agreement
that, among other things, the business, assets, customers, certain employee, and
proprietary rights of the Company become those of or become employed by (as the
case may be) AESP as of the Closing), each of the Shareholders agree with AESP
that he, she or it will not:
(a) for a period of three (3) years from the Closing Date alone
or as a partner, joint venturer, officer, director, employee,
consultant, agent, independent contractor or stockholder of any company
or business, engage in any business activity which is directly or
indirectly in competition with the business currently conducted by AESP,
any of its subsidiaries, affiliates, and/or distributors; provided,
however, that the beneficial ownership of less than 10 percent (10%) of
the shares of stock of any corporation having a class of equity
securities actively traded on a national securities exchange or
over-the-counter market shall not be deemed, in and of itself, to
violate the prohibitions of this Section;
(b) for a period of three (3) years from the Closing Date (i)
induce any Person which is a customer of AESP, any of its subsidiaries,
affiliates, and/or distributors to patronize any business directly or
indirectly in competition with the business conducted by AESP, any of
its subsidiaries, affiliates, and/or distributors; (ii) canvass, solicit
or accept from any Person which is a customer of AESP, any of its
subsidiaries, affiliates and/or distributors, any such competitive
business; or (iii) request or advise any Person which has a business
relationship with AESP, any of its subsidiaries, affiliates, and/or
distributors to withdraw, curtail or cancel any business with such
entity;
(c) for a period of three (3) years from the Closing Date employ,
or knowingly permit any company or business directly or indirectly
controlled by him or her, to employ, any person who was employed by AESP
or any of its subsidiaries, affiliates, and/or distributors at or within
the prior six months, or in any manner seek to induce any such person to
leave his or her employment; and
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(d) at any time following the Closing Date, directly or
indirectly, in any way utilize, disclose, copy, reproduce or retain in
his or her possession AESP's proprietary rights or records, including,
but not limited to, any of its customer lists.
With respect to Karl Petter Giortz, each of the restrictive covenants
set forth above in this Section, to which Mr. Giortz shall also be part of the
employment agreement between Mr. Giortz and the Company (referenced in SECTION
6.3 above). Such provisions shall not apply, however, in the event that Mr.
Giortz is terminated without cause pursuant to the terms of the referenced
employment agreement. Notwithstanding anything contained herein to the contrary,
such restrictive covenants shall remain in effect during their applicable terms
so long as Mr. Giortz continues to receive compensation or any other payments
from the Company pursuant to such employment contract.
With respect to Knut Johansson, the provisions of this SECTION 6.10
shall only apply for a period of two (2) years. With respect to ASI and Eivind
Urbye, the provisions of this SECTION 6.10 shall only apply for a period of one
(1) year.
The Shareholders agree and acknowledge that the restrictions contained
in this Section are reasonable in scope and duration and are necessary to
protect AESP after the Closing Date. The parties agree and acknowledge that the
breach of this Section will cause irreparable damage to AESP and upon breach of
any provision of this Section, AESP shall be entitled to injunctive relief,
specific performance or other equitable relief; provided, however, that, this
shall in no way limit any other remedies which AESP may have (including, without
limitation, the right to seek monetary damages).
6.11 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. AESP shall be
entitled to have conducted prior to Closing a due diligence review of the
assets, properties, books and records of the Company and an environmental
assessment of the Leased Premises (hereinafter referred to as "Environmental
Assessment"). The Environmental Assessment may include, but not be limited to, a
physical examination of the Leased Premises, and any structures, facilities, or
equipment located thereon, soil samples, ground and surface water samples,
storage tank testing, review of pertinent records, documents, and Licenses of
the Company. The Shareholders shall provide AESP or its designated agents or
consultants with the access to such property which AESP, its agents or
consultants require to conduct the Environmental Assessment. If the
Environmental Assessment identifies environmental conditions which require
remediation or further evaluation under the Environmental Laws or if the results
of the Environmental Assessment or due diligence review are otherwise not
satisfactory to AESP in its sole discretion, then AESP may elect not to close
the transactions contemplated by this Agreement in which case this Agreement
shall be terminated. AESP's failure or decision not to conduct any such
Environmental Assessment shall not affect any representation or warranty of the
Company and/or the Shareholders under this Agreement.
6.12 TRADING IN AESP COMMON STOCK. Except as otherwise expressly
consented to by AESP, from the date of this Agreement until the Closing Date,
neither the Company nor the Shareholders (nor any Affiliates thereof) will
directly or indirectly purchase or sell (including short sales) any shares of
AESP Common Stock in any transactions effected on the NASDAQ Small Cap
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Market or otherwise, or sell, transfer, pledge, dispose of or otherwise part
with any interest in or with respect to or in any other manner reduce their
investment risk with respect to any shares of AESP Common Stock to be received
pursuant to this Agreement.
6.13 ACCOUNTING TREATMENT. The Shareholders acknowledge that it is
AESP's intention that the transactions contemplated by this Agreement be
accounted for as a pooling of interests business combination and that each of
the Shareholders may be deemed to be an "affiliate" of the Company within the
meaning of Rule 145 promulgated under the Securities Act. Accordingly, each of
the Shareholders as of, and as a condition to, Closing shall execute that
certain Affiliate Representation Letter in the form of EXHIBIT 6.13 and agrees
to those restrictive covenants set forth therein.
6.14 CERTAIN TAX MATTERS. The Shareholders shall duly prepare, or cause
to be prepared, and file, or cause to be filed, on a timely basis, all Tax
Returns as set forth on SCHEDULE 6.14 for the Company for any period ending on
or before the Closing Date. The Shareholders shall provide such Tax Returns to
AESP for review at least 60 days prior to their due date (including extensions
where applicable), or as soon as practicable. The Shareholders shall not file
any amended Tax Returns with respect to the Company without the prior written
consent of AESP. The Shareholders and AESP shall provide the other party with
such information and records and access to such of its officers, directors,
employees and agents as may be reasonably requested by the other party in
connection with the preparation of any tax return or any audit or other
proceeding relating to the Company.
6.15 SHAREHOLDER VOTE. Each of the Shareholders, in executing this
Agreement, consents as a shareholder of the Company to the Share Exchange and
the transactions contemplated hereby, and waives notice of any meeting in
connection therewith, and hereby releases and waives all rights with respect to
the transactions contemplated hereby under any agreements relating to the sale,
purchase or voting of any capital stock of the Company.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF AESP
The obligations of AESP to effect the Share Exchange shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions,
any or all of which may be waived in whole or in part by AESP:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Shareholders contained in
this Agreement shall be true and correct at and as of the Closing Date with the
same force and effect as though made at and as of that time except (i) for
changes specifically permitted by or disclosed on any schedule to this
Agreement, and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. The Company and the Shareholders shall have
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performed and complied with all of their respective obligations required by this
Agreement to be performed or complied with at or prior to the Closing Date. The
Company and the Shareholders shall have delivered to AESP a certificate, dated
as of the Closing Date, duly signed (in the case of the Company, by the Chairman
of the Board of Directors), certifying that such representations and warranties
are true and correct and that all such obligations have been complied with and
performed.
7.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the
date hereof and the Closing Date, (i) there shall have been no Material Adverse
Change to the Company, (ii) there shall have been no adverse national or local
legislative or regulatory change affecting in any material respect the services,
products or business of the Company, and (iii) none of the properties and assets
of the Company shall have been damaged by fire, flood, casualty, act of God or
the public enemy or other cause (regardless of insurance coverage for such
damage) which damages may have a Material Adverse Effect thereon, and there
shall have been delivered to AESP a certificate to that effect, dated the
Effective Date and signed by or on behalf of the Company and the Shareholders.
7.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered to
AESP (i) copies of the organizational and operating documents of the Company as
in effect immediately prior to the Closing Date, (ii) copies of resolutions
adopted by the Board of Directors and Shareholders of the Company authorizing
the transactions contemplated by this Agreement, and (iii) a certificate of good
standing of the Company issued by all appropriate Norwegian governmental
authorities, and if applicable, by all other governmental authorities in
jurisdictions in which the Company is qualified to do business as of a date not
more than ten days prior to the Closing Date, certified in the case of
subsections (i) and (ii) of this Section as of the Closing Date by the Secretary
of the Company as being true, correct and complete.
7.4 OPINION OF COUNSEL. AESP shall have received an opinion dated as of
the Closing Date from counsel for the Company and the Shareholders, in form and
substance acceptable to AESP, to the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of Norway and is authorized to carry on the
business now conducted by it and to own or lease the properties now owned or
leased by it;
(b) The Company has obtained all necessary authorizations and
consents of its Board of Directors and the Shareholders to effect the Share
Exchange;
(c) All issued and outstanding shares of capital stock of the
Company are owned as set forth on SCHEDULE 4.5 hereto;
(d) Such counsel does not know or have reason to believe that
there is any litigation, proceeding or investigation pending or threatened which
might result in any Material Adverse Effect on the Company, or which questions
the validity of this Agreement;
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(e) Such counsel does not know or have reason to believe that any
event has occurred or state of facts exists which would constitute a breach of
any of the representations and warranties made by the Shareholders pursuant to
ARTICLE IV of this Agreement;
(f) This Agreement is a valid and binding obligation of the
Company, and the Shareholders, and enforceable against the Company and the
Shareholders in accordance with its terms; and
(g) Such other matters as AESP shall reasonably request.
7.5 CONSENTS. The Company shall have received consents, as set forth in
SCHEDULE 7.5, to the transactions contemplated hereby and waivers of rights to
terminate or modify any material rights or obligations of the Company from any
Person from whom such consent or waiver is required under any Contract or
instrument as of a date not more than ten days prior to the Closing Date, or
who, as a result of the transactions contemplated hereby, would have such rights
to terminate or modify such Contracts or instruments, either by the terms
thereof or as a matter of law. AESP shall have received consent from its
lenders.
7.6 SECURITIES LAWS. AESP shall have received all necessary consents
and otherwise complied with any state or federal securities laws applicable to
the issuance of the AESP Shares, in connection with the transactions
contemplated hereby.
7.7 COMPANY ORDINARY STOCK. At the Closing, each of the Shareholders
shall have delivered to AESP all certificates evidencing the shares of capital
stock of the Company held by them, and duly executed stock powers with
signatures medallion guaranteed or other appropriate transfer documents.
7.8 POWER OF ATTORNEY. At the Closing, ASI shall have delivered to AESP
a power of attorney appointing Eivind Urbye its legal representative with the
power to execute and deliver this Agreement and all documents related thereto on
behalf of ASI.
7.9 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Share Exchange or any other transaction contemplated hereby, and which, in
the judgment of AESP, makes it inadvisable to proceed with the Share Exchange
and other transactions contemplated hereby.
7.10 BOARD APPROVAL. The Board of Directors of AESP, and the Board of
Directors and Shareholders of the Company, shall have authorized and approved
this Agreement, the Merger and transactions contemplated hereby.
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7.11 EMPLOYMENT. Vera Nygard and Karl Petter Gi0rtz shall have entered
into employment agreements and Knut Johansson shall have entered into a
consulting agreement in the form of EXHIBIT 6.3(A) AND (B), respectively, with
the Company or AESP, as the case may be.
7.12 FINANCIAL STATEMENTS. The Company shall have provided AESP with
the Company Financial Statements prepared in conformity with Norwegian GAAP
(reconciled to U.S. GAAP) and such statements shall not indicate information
which is material and adverse to the financial information previously provided
to AESP.
7.13 DUE DILIGENCE REVIEW. AESP shall be satisfied with the results of
its due diligence review and Environmental Assessment.
7.14 RELEASES. Each of the Shareholders shall deliver to AESP a release
(collectively, the "Releases") in such form as is reasonably satisfactory to
AESP releasing all claims of any nature against the Company, if any, and any
claims arising out of the Share Exchange and the transactions contemplated by
this Agreement, provided that such Release shall not cover (i) any rights of the
Shareholders against AESP under this Agreement, (ii) any employment benefits
accrued in the ordinary course of business consistent with past practice or
related rights under law, or (iii) any rights under law to indemnification
against third party claims arising with respect to any of the Shareholders'
service as officers, directors or agents of the Company prior to the Closing
Date.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the Share
Exchange shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions, any or all of which may be waived in whole or in part
by the Company and the Shareholders:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of AESP contained in this
Agreement shall be true and correct at and as of the Closing Date with the same
force and effect as though made at and as of that time except (i) for changes
specifically permitted by or disclosed pursuant to this Agreement, and (ii) that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date. AESP shall have
performed and complied with all of its obligations required by this Agreement to
be performed or complied with at or prior to the Closing Date. AESP shall have
delivered to the Company and the Shareholders a certificate, dated as of the
Closing Date, and signed by an executive officer, certifying that such
representations and warranties are true and correct and that all such
obligations have been complied with and performed.
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8.2 AESP SHARES. At the Closing, AESP shall have issued all of the AESP
Shares and shall have delivered to the Shareholders certificates representing
the AESP Shares issued to them hereunder.
8.3 NO ORDER OR INJUNCTION. No court of competent jurisdiction or other
governmental body shall have issued or entered any order or injunction
restraining or prohibiting the transactions contemplated hereby, which remains
in effect at the time of Closing.
ARTICLE IX
REGISTRATION RIGHTS
The Shareholders shall have the following registration rights with
respect to the AESP Shares issued to them hereunder:
9.1 REGISTRATION RIGHTS FOR AESP SHARES; FILING OF REGISTRATION
STATEMENT. AESP shall, on or before February 28, 1998, file a registration
statement under the Securities Act for the purpose of registering the AESP
Shares for resale by a Holder(s) thereof (the "Registration Statement"). For
purposes of this Article, a person is deemed to be a "Holder" of AESP Shares
whenever such person is the record owner of AESP Shares. AESP will use
reasonable efforts to have the Registration Statement become effective and cause
the AESP Shares to be registered under the Securities Act, and registered,
qualified or exempted under the state securities laws of such jurisdictions as
any Holder reasonably requests, as soon as is reasonably practicable.
Notwithstanding the foregoing, AESP may delay filing a Registration Statement
for up to 30 days, and may withhold efforts to cause the Registration Statement
to become effective, if AESP determines in good faith that such registration
might interfere with or affect the negotiation or completion of any transaction
that is being contemplated by AESP (whether or not a final decision has been
made to undertake such transaction) at the time the right to delay is exercised.
9.2 EXPENSES OF REGISTRATION. AESP shall pay all expenses incurred by
AESP in connection with the registration, qualification and/or exemption of the
AESP Shares, including any SEC and state securities law registration and filing
fees, printing expenses, fees and disbursements of AESP's counsel and
accountants, transfer agents' and registrars' fees, fees and disbursements of
experts used by AESP in connection with such registration, qualification and/or
exemption, and expenses incidental to any amendment or supplement to the
Registration Statement or prospectuses contained therein. AESP shall not,
however, be liable for any sales, broker's or underwriting commissions or other
selling expenses incurred upon sale by any Holder of any of the AESP Shares.
9.3 FURNISHING OF DOCUMENTS. AESP shall furnish to the Holders such
reasonable number of copies of the Registration Statement, such prospectuses as
are contained in the Registration Statement and such other documents as the
Holders may reasonably request in order to facilitate the offering of the AESP
Shares.
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9.4 AMENDMENTS AND SUPPLEMENTS. AESP shall prepare and promptly file
with the SEC and promptly notify the Holders of the filing of such amendments or
supplements to the Registration Statement or prospectuses contained therein as
may be necessary to correct any statements or omissions if, at the time when a
prospectus relating to the AESP Shares is required to be delivered under the
Securities Act, any event shall have occurred as a result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. AESP shall also advise the Holders promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of the Registration Statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued. If, after a
Registration Statement becomes effective, AESP advises the Holders that AESP
considers it appropriate that the Registration Statement be amended, the Holders
shall suspend any further sales of the AESP Shares until AESP advises the
Holders that the Registration Statement has been amended.
9.5 DURATION. AESP shall maintain the effectiveness of the Registration
Statement until such time as AESP reasonably determines, based on an opinion of
counsel, that the Holders will be eligible to sell all of the Shares then owned
by the Holders without the need for continued registration of the shares, in the
three month period immediately following the termination of the effectiveness of
the Registration Statement. AESP's obligations contained in this ARTICLE IX
shall terminate on the first anniversary of the Closing Date.
9.6 FURTHER INFORMATION. If AESP Shares owned by a Holder are included
in any registration, such Holder shall furnish AESP such information regarding
itself as AESP may reasonably request and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
9.7 LOCK-UP OF CERTAIN AESP SHARES. Karl Petter Gi0rtz agrees that he
will not, without AESP's prior written consent, sell, contract to sell, or
otherwise dispose of any of the AESP Shares or any other securities of AESP now
owned or hereinafter acquired by Mr. Gi0rtz for a period of one (1) year from
the Closing Date of this Agreement.
ARTICLE X
INDEMNIFICATION
10.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. Each of the
Shareholders agrees, severally and not jointly, to indemnify and hold AESP
harmless from and against their proportionate share of the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses) incurred or
suffered by AESP
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arising out of or resulting from (i) any breach of a representation or warranty
made by the Company or any of the Shareholders in or pursuant to this Agreement,
(ii) any breach of the covenants or agreements made by the Company and any
Shareholder in or pursuant to this Agreement (other than the covenant not to
compete contained in SECTION 6.10 which shall be governed by Section 10.2
below), or (iii) any inaccuracy in any certificate delivered by the Company
and/or any Shareholder pursuant to this Agreement (collectively, "Indemnifiable
Damages"). Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, AESP shall have the right to be put in the
same pre-tax consolidated financial position as it would have been in had each
of the representations and warranties of the Shareholders hereunder been true
and correct and had the covenants and agreements of the Company and the
Shareholders hereunder been performed in full.
10.2 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY FOR BREACH OF COVENANT
NOT TO COMPETE. Each of the Shareholders agrees, severally and not jointly, to
indemnify and hold AESP harmless from and against all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, related
counsel and paralegal fees and expenses) incurred or suffered by AESP arising
out of or resulting from a breach by such Shareholder of the covenant not to
compete contained in SECTION 6.10 made by any Shareholder (collectively,
"Indemnifiable Damages"). Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, AESP shall have the right
to be put in the same pre-tax consolidated financial position as it would have
been in had such breach not occurred.
10.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholders in this Agreement or
pursuant hereto shall survive for a period of one year after the Closing Date,
except with respect to representations concerning Taxes which shall survive for
applicable periods of limitation. No claim for the recovery of Indemnifiable
Damages arising out of a breach of any representation or warranty may be
asserted by AESP against the Shareholders after such representations and
warranties shall thus expire, provided, however, that claims for Indemnifiable
Damages first asserted within the applicable period shall not thereafter be
barred. Notwithstanding any knowledge of facts determined or determinable by any
party by investigation, each party shall have the right to fully rely on the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered in
connection herewith. Each representation, warranty, covenant and agreement of
the parties contained in this Agreement is independent of each other
representation, warranty, covenant and agreement. Each of the representations
and warranties of the Company shall expire at the Closing Date.
10.4 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude AESP or any of its shareholders from asserting
any other right, or seeking any other remedies or against the Company and/or the
Shareholders.
10.5 NO BAR; WAIVER. AESP may take any action or exercise any remedy
available to it by appropriate legal proceedings to collect the Indemnifiable
Damages. The Shareholders hereby
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waive any rights to contribution or any similar rights they may have against the
Company as of a result of their agreement to indemnify AESP under this ARTICLE
X.
10.6 BASKET. The foregoing notwithstanding, the Company shall not be
obligated to pay any claims under this SECTION 10 unless and until the aggregate
amount of all claims for indemnifi cation sought by AESP exceeds $25,000. Once
the aggregate amount of claims exceeds $25,000, AESP shall be entitled indemnity
for ALL such amounts of such claims (including the first $25,000).
ARTICLE XI
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after the Closing Date of the AESP Shares:
11.1 DISPOSITION OF SHARES. The Shareholders represent and warrant that
the shares of AESP Common Stock being acquired by them hereunder are being
acquired and will be acquired for their own respective accounts and will not be
sold or otherwise disposed of, except pursuant to (a) an exemption from the
registration requirements under the Securities Act, which does not require the
filing by AESP with the SEC of any registration statement, offering circular or
other document, in which case, the Shareholders shall first supply to AESP an
opinion of counsel (which counsel and opinions shall be satisfactory to AESP)
that such exception is available, or (b) an effective registration statement
filed by AESP with the SEC under the Securities Act. The Shareholders further
understand and agree that the AESP Shares being acquired hereunder may not be
sold or otherwise disposed of pursuant to Regulation S promulgated under the
Securities Act.
11.2 LEGEND. The certificates representing the AESP Shares shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE
WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
AESP may, unless a registration statement is in effect covering such shares,
place stop transfer orders with its transfer agents with respect to such
certificates in accordance with federal securities laws.
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ARTICLE XII
DEFINITIONS
12.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to,
any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable law
or any jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects
which change (or effect) individually or in the aggregate, is
materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
30
<PAGE>
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes imposed
by any federal, state, local or foreign governmental agency, and any
interest or penalties related thereto.
12.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless
the context otherwise requires.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods, where
applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
ARTICLE XIII
TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(i) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
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<PAGE>
(ii) by AESP in the event of a material breach by the Company
or any of the Shareholders of any provision of this Agreement; or
(iii) by the Company in the event of a material breach by AESP
of any provision of this Agreement; or
(iv) by any party at any time prior to the Effective Date if
there shall be a pending or threatened action or proceeding before any
court or other governmental body which shall seek to restrain, prohibit
or invalidate the transactions contemplated hereby, and which, in the
reasonable judgment of such party, makes it inadvisable to proceed with
the transactions contemplated by this Agreement; or
(v) by either AESP or the Company if the Closing shall not
have occurred by December 31, 1997.
13.2 EFFECT OF TERMINATION. Except for the provisions of ARTICLE X
hereof, which shall survive any termination of this Agreement, in the event of
termination of this Agreement pursuant to SECTION 13.1, this Agreement shall
forthwith become void and of no further force and effect and the parties shall
be released from any and all obligations hereunder; provided, however, that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission if such transmission is confirmed by
delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall designate
in writing to the other party):
(a) IF TO AESP TO:
Advanced Electronic Support Products, Inc.
1810 N.E. 144th Street
North Miami, Florida 33181
Attn: Slav Stein, President
Telecopy: (305) 944-7710
32
<PAGE>
WITH A COPY TO:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Attention: Philip B. Schwartz, Esq.
Telecopy: (305) 374-5095
(b) IF TO THE SHAREHOLDERS TO:
c/o Dataholding AS
Ole Deviks Vei 14
0666 Oslo, Norway
Attn: Chairman
Telecopy: 011-47-2264-0544
WITH A COPY TO:
Advokatine M.N.A.
Kr. Augustsgt 13
0164 Oslo, Norway
Attention: Rune Berg, Esq.
Telecopy: 011-47-2211-6615
Notice shall be deemed given on the date sent if sent by facsimile
transmission and on the date delivered (or the date of refusal of delivery) if
sent by overnight delivery, or certified or registered mail.
14.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
14.3 EXPENSES. Except as otherwise provided herein, the parties shall
pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby.
14.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any
33
<PAGE>
provision shall be deemed to be a waiver of any preceding or succeeding breach
of the same or any other provision, nor shall any waiver be implied from any
course of dealing between the parties. No extension of time for performance of
any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
14.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by the Company, or any Shareholders without the
prior written consent of AESP.
14.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
14.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include,""includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
14.8 GOVERNING LAW; SEVERABILITY. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Florida applicable to contracts executed and to be wholly performed within such
State. If any word, phrase, sentence, clause, section, subsection or provision
of this Agreement as applied to any party or to any circumstance is adjudged by
a court to be invalid or unenforceable, the same will in no way affect any other
circumstance or the validity or enforceability of any other word, phrase,
sentence, clause, section, subsection or provision of this Agreement. If any
provision of this Agreement, or any part thereof, is held to be unenforceable
because of the duration of such provision or the area covered thereby or
otherwise, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced.
14.9 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; (f) said
party has obtained
34
<PAGE>
such advice, as they shall have determined to be necessary, regarding both U.S.
and Norwegian law; (g) said party has obtained such advise, as they shall have
determined to be necessary, regarding the fact that this Agreement is in English
(which the parties have agreed is the language to be used in this Agreement);
and (h) this Agreement is the result of arm's length negotiations conducted by
and among the parties and their respective counsel.
[Signatures on following page]
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
AESP:
Advanced Electronic Support Products, Inc., a
Florida corporation
By: /S/ SLAV STEIN
--------------------------------
Name: Slav Stein
Title: President
THE COMPANY:
Dataholding AS, a Norwegian limited company
By:/S/ KNUT JOHANSSON
--------------------------------
Name: Knut Johansson
Title: Chairman
THE SHAREHOLDERS:
/S/ VERA NYGARD
--------------------------------
VERA NYGARD, individually
AS INDUSTRIBYGNINGEN
By: /S/ EIVIND URBYE
--------------------------------
Name: Eivind Urbye
Title: President
/S/ KARL PETTER GI0RTZ
--------------------------------
KARL PETTER GI0RTZ, individually
36
<PAGE>
/S/ EIVIND URBYE
--------------------------------
EIVIND URBYE, individually
/S/ KNUT JOHANSSON
--------------------------------
KNUT JOHANSSON, individually
37
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit 6.3(a) Employment Agreement
Exhibit 6.3(b) Consulting Agreement
Exhibit 6.13 Affiliate Representation Letter
Schedule 1.3 Exchange of Shares
Schedule 4.4(a) - (d) Capitalization
Schedule 4.5 Shareholders
Schedule 4.7 Organizational and Operating Documents
Schedule 4.8 Subsidiaries and Other Entities
Schedule 4.9 Financial Statements
Schedule 4.10 Changes Since Balance Sheet Date
Schedule 4.12 Litigation
Schedule 4.14(b) Leased Premises
Schedule 4.15(b) Vehicles
Schedule 4.17(a) - (d) Employees
Schedule 4.18(a) Employee Benefit Plans
Schedule 4.19 Tax Matters
Schedule 4.20 Insurance Matters
Schedule 4.21 Receivables and Payables
Schedule 4.22 Permits
Schedule 4.23(a) Adequacy of Assets
Schedule 4.23(b) Affiliated Transactions
Schedule 4.25 Designated Contracts
Schedule 4.26 Material Customers
Schedule 4.28 Bank Accounts
Schedule 4.29 Names
Schedule 6.14 Certain Tax Matters
Schedule 7.5 Consents
38
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 522,821
<SECURITIES> 0
<RECEIVABLES> 3,820,899
<ALLOWANCES> (62,000)
<INVENTORY> 4,866,466
<CURRENT-ASSETS> 9,502,781
<PP&E> 649,870
<DEPRECIATION> (261,412)
<TOTAL-ASSETS> 10,687,551
<CURRENT-LIABILITIES> 2,060,599
<BONDS> 0
0
0
<COMMON> 1,923
<OTHER-SE> 7,185,944
<TOTAL-LIABILITY-AND-EQUITY> 10,687,551
<SALES> 11,146,954
<TOTAL-REVENUES> 11,146,954
<CGS> 6,548,191
<TOTAL-COSTS> 10,534,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,531
<INCOME-PRETAX> 509,435
<INCOME-TAX> 202,572 <F1>
<INCOME-CONTINUING> 306,863 <F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,863 <F1>
<EPS-PRIMARY> .19 <F1>
<EPS-DILUTED> .19 <F1>
<FN>
<F1>Proforma as if the Company had been taxed as a C-Corporation during the period.
</FN>
</TABLE>
