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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
CHECK THE APPROPRIATE BOX:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
THE AMERICAS GROWTH FUND, INC.
(Name of Registrant As Specified In Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3)
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which
transaction applies: COMMON STOCK, PAR VALUE $.01
PER SHARE (THE "COMMON STOCK").
2) Aggregate number of securities to which transaction
applies: 1,747,043 SHARES OF COMMON STOCK.
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth in the amount on which the filing fee
is calculated and state how it was determined):
$2.50, BASED UPON THE AVERAGE OF THE BID AND ASKED
PRICE OF THE COMMON STOCK ON AUGUST 9, 1996.
4) Proposed maximum aggregate value of transaction:
$4,367,607.50
5) Total fee paid: $873.22
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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THE AMERICAS GROWTH FUND, INC.
701 BRICKELL AVENUE
SUITE 2000
MIAMI, FLORIDA 33131
-----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________________, 1996
-----------------------------------------
To our Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders of
The Americas Growth Fund, Inc. (the "Company") to be held at the
_____________________________________________________________________________
on _______________, 1996 at 10:00 a.m., local time, for the purpose of
considering and voting upon the following proposals:
1. To approve an Agreement and Plan of Merger (the "Merger Agreement"), dated
July 15, 1996, a copy of which is attached as Appendix A to the
accompanying Proxy Statement, providing for: (i) the merger of Advanced
Electronic Support Products, Inc. ("AESP") with and into a wholly-owned
subsidiary of the Company; and (ii) the acquisition by the Company by means
of a share exchange of AESP Computerzubehor GMBH ("AESP Germany") and
Advanced Electronic Support Products Compertillbehor I Sweden Aktiebolag
("AESP Sweden") (collectively, the "Merger").
2. In connection with the Merger and subject to consummation of the Merger:
(i) to withdraw the Company's election as a business development company
under the Investment Company Act of 1940 (the "1940 Act");
(ii) to approve the amendment of the Company's Articles of Incorporation
to change the name of the Company from The Americas Growth Fund, Inc.
to Advanced Electronic Support Products, Inc. and to delete all
provisions and references therein related to the 1940 Act; and
(iii) to approve the Company's 1996 Stock Option Plan (the "1996 Plan").
3. To take action upon such other business as may properly come before the
meeting or any adjournments or postponements thereof.
It is a condition to consummation of the Merger that the proposals to
withdraw the Company's election as a business development company under the
1940 Act and to approve the amendments to the Articles of Incorporation be
approved, and likewise, it is a condition to the approval of these proposals
that the Merger be consummated. Therefore, unless all such proposals are
approved by the stockholders of the Company, the Merger will not be consummated
and no such proposal will be deemed approved. While the approval of the 1996
Plan is subject to the consummation of the Merger, it is not a condition to the
Merger that the 1996 Plan be approved.
________________, 1996 has been fixed as the record date for the
determination of the stockholders entitled to receive notice of, and to vote
at, the meeting. Such stockholders may vote in person or by proxy. If your
shares are held in the name of a broker, bank or other holder of record, you
may attend the meeting, but you may not vote at the meeting unless you have
first obtained a proxy, executed in your favor, from the holder of record.
Your vote is important. Whether or not you expect to attend the meeting,
please mark, date, sign and return the proxy card enclosed with this notice as
soon as possible so that your shares can be voted. You may revoke your proxy
at any time prior to its exercise by filing a written notice with the Company
prior to the meeting, by executing another proxy dated after the proxy to be
revoked and prior to the meeting or by personally attending the meeting and
voting.
By Order of the Board of Directors,
Miami, Florida
________________, 1996
Leonard J. Sokolow, President
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THE AMERICAS GROWTH FUND, INC.
701 BRICKELL AVENUE, SUITE 2000
MIAMI, FLORIDA 33131
-----------------------
PROXY STATEMENT
-----------------------
INTRODUCTION
The Board of Directors of The Americas Growth Fund, Inc. (the "Company") is
soliciting proxies, the form of which is enclosed, to be used at the Special
Meeting of Stockholders to be held at
_______________________________________________ on _____________, 1996, at
10:00 a.m. local time, or at any adjournment thereof.
To ensure adequate representation at the meeting, stockholders are
requested to sign the enclosed proxy and to return it promptly. Only
stockholders of record at the close of business on _______________, 1996 (the
"Record Date") will be entitled to vote at the meeting. The approximate
mailing date of this Proxy Statement and accompanying form of proxy is
__________________, 1996.
Any stockholder giving a proxy has the power to revoke it at any time
before it is voted. A stockholder may revoke a proxy by sending a written
revocation prior to the meeting or by attending the meeting and voting in
person. If a proxy is signed with a preference indicated, the shares
represented thereby will be voted accordingly. Except as set forth below, if
no choice has been specified, the shares will be voted FOR the following
proposals to be considered and acted upon at the meeting: (i) an Agreement and
Plan of Merger (the "Merger Agreement"), dated July 15, 1996, a copy of which
is attached as Appendix A to this Proxy Statement, providing for the merger of
Advanced Electronic Support Products, Inc. ("AESP") with and into a
wholly-owned subsidiary of the Company, and the acquisition by the Company by
means of a share exchange of AESP Computerzubehor GMBH ("AESP Germany") and
Advanced Electronic Support Products Compertillbehor I Sweden Aktiebolag ("AESP
Sweden") (collectively, the "Merger"); (ii) withdrawal of the Company's
election as a business development company under the Investment Company Act of
1940 (the "1940 Act"), following and subject to the consummation of the Merger;
(iii) approval of an amendment of the Company's Articles of Incorporation to
change the name of the Company from The Americas Growth Fund, Inc. to Advanced
Electronic Support Products, Inc. and to delete all provisions and references
therein related to the 1940 Act, following and subject to the consummation of
the Merger; (iv) approval of the Company's 1996 Stock Option Plan (the "1996
Plan"), following and subject to the consummation of the Merger; and (v) taking
action upon such other business as may properly come before the meeting or any
adjournments or postponements thereof. The Board of Directors is not aware of
any matters which will come before the meeting other than as described above.
If such matters are presented, however, the named proxies, in the absence of
instructions to the contrary, will vote such proxies in accordance with the
discretion of such named proxies on such other business as may properly come
before the meeting.
Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the meeting, but with respect to which instructions have not been received from
the beneficial owners or persons entitled to vote and the broker or nominee
does not have discretionary voting power) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Broker non-votes and abstentions will have the same effect as votes
against the proposal.
In the event that a quorum is present or represented by proxy at the
meeting, but sufficient votes to approve any of the proposals are not received,
the persons named as proxies may propose one or more adjournments of the
meeting to permit further solicitation of proxies in accordance with Maryland
law. The persons named as proxies will vote those proxies which they are
entitled to vote FOR any such proposal in favor of such an adjournment.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROXY STATEMENT PAGE
----
<S> <C>
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PROPOSAL TO APPROVE THE MERGER
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Background of The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Recommendation of the Board of Directors; Reasons for the Merger . . . . . . . . . . . . . . . 14
Certain Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Interest of Certain Persons in the Transaction . . . . . . . . . . . . . . . . . . . . . . . 20
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Federal Income Tax Consequences of Merger . . . . . . . . . . . . . . . . . . . . . . 25
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conduct of Business Pending Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Operation and Management of the Company Following Merger . . . . . . . . . . . . . . . . . . 27
CERTAIN INFORMATION REGARDING THE COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Business of the Company Prior to Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Present Portfolio - Venture Capital Investments . . . . . . . . . . . . . . . . . . . . . . . 30
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 32
Security Ownership of Certain Beneficial Owners . . . . . . . . . . . . . . . . . . . . . . . 32
CERTAIN INFORMATION REGARDING THE AESP ENTITIES
AESP's Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
AESP's Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Certain Transaction of AESP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AESP's Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Description of AESP's Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
AESP's Selected Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
AESP Management's Discussion and Analysis
of Financial Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . 40
PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION AS A
BUSINESS DEVELOPMENT COMPANY UNDER THE 1940 ACT
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
The 1940 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Definition of "Investment Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Reasons for Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Protective Provisions of the 1940 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Name Change Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Deletion of Certain Provisions and References to 1940 Act . . . . . . . . . . . . . . . . . . 49
PROPOSAL TO APPROVE THE 1996 STOCK OPTION PLAN
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Summary of 1996 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
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<TABLE>
<S> <C>
ADDITIONAL INFORMATION
Proxy Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
FINANCIAL STATEMENTS
Index to Financial Statements
Company's Financial Statements
AESP's Combined Financial Statements
Pro Forma Combined Financial Statements
APPENDICES
Appendix A--Agreement and Plan of Merger
Appendix B--Financial Opinion of ABV
Appendix C--1996 Stock Option Plan
</TABLE>
3
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained or incorporated by
reference in this Proxy Statement and the appendices hereto.
PARTIES TO THE MERGER
THE AMERICAS GROWTH FUND, INC.
The Americas Growth Fund, Inc. (the "Company") was formed in June 1994
as a non-diversified, closed-end management investment company electing to be
treated as a business development company under the Investment Company Act of
1940 (the "1940 Act"). Although the Company has no fixed investment policy,
the Company's investment objective has been to achieve long-term capital
appreciation of its assets, rather than current income, by investing in equity
and debt securities of and providing managerial assistance to, emerging and
established companies that management believes offer significant potential
opportunities for growth (individually, "portfolio company", collectively,
"portfolio companies").
The Company has historically targeted for investment United
States-based portfolio companies with strategic links to the Caribbean and
Latin America, and has emphasized private investments in restricted securities
for which the Company is granted registration rights and/or rights to
participate in the sale of securities of a portfolio company by other
stockholders. The Company's objective has been to identify such companies that
it believes will benefit from economic and political developments in these
regions. The Company's policy has been to limit its investment in any single
private issuer to 15 percent of its net assets, at the time of investment,
although this policy is not a fundamental policy of the Company and may be
changed at any time without stockholder approval. See "CERTAIN INFORMATION
REGARDING THE COMPANY."
The principal executive offices of the Company are located at 701
Brickell Avenue, Suite 2000, Miami, Florida 33131, and its telephone number is
(305) 374-3575.
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
Advanced Electronic Support Products, Inc. ("AESP") is an
international manufacturer and distributor of computer connectivity and
networking products. AESP was incorporated in Florida in 1983 and its
headquarters are located at 1810 N.E. 144th Street, North Miami, Florida, 33181
(800-446-2377). AESP also has warehouse facilities in North Miami, Florida and
near San Francisco, California. Through AESP Computerzubehor GMBH, a German
company established in 1987 ("AESP Germany"), and Advanced Electronic Support
Products Computertillbehor I Sweden Aktiebolag, a Swedish company established
in 1988 ("AESP Sweden"), both wholly owned by the two principals of AESP (Slav
Stein and Roman Briskin), AESP has sales offices and warehouses in Germany and
Sweden.
Until 1990, AESP offered the majority of its products for Apple
Computer, Inc. ("Apple") connectivity solutions, at which point it had been
designated as a "Third-Party Developer" by Apple. In 1991, AESP rapidly began
to expand its product base to include PC connectivity and general networking
solutions. In 1992, AESP obtained the patent for the Ethernet Auto By Pass
Wallplate which has been part of AESP's product line since that time. In 1995,
AESP opened a bonded warehouse in Germany to accommodate its growing product
line and its expanding base of European customers, including those in Eastern
Europe.
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AESP currently offers a full range of products to its customers,
including computer cables, connectors, installation products, data sharing
devices, fiber optic cables as well as a complete selection of networking
products, such as reworking interface cards, hubs, transceivers, and repeaters
for different networking topologies. Through suppliers, AESP manufactures
products that AESP designs as well as standard industry products. AESP's
suppliers are located primarily in the Far East in order to obtain competitive
prices on AESP's labor-intensive products. AESP offers its products to
customers in North America, Latin America, Eastern and Western Europe. See
"CERTAIN INFORMATION REGARDING THE AESP ENTITIES."
THE MEETING
DATE, TIME AND PLACE OF MEETING
The Special Meeting of the Stockholders will be held on __________,
_________, 1996 at 10:00 (Florida Time) at ________________________________.
RECORD DATE AND OUTSTANDING SHARES ENTITLED TO VOTE
Only holders of record of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), on ______________, 1996 (the "Record
Date") will be entitled to notice of, and to vote at, the Special Meeting and
any adjournment or postponement thereof. On the Record Date, there were
outstanding 1,265,100 shares of Common Stock. No other class of stock is
issued by the Company and each share of Common Stock is entitled to one vote.
MATTERS TO BE CONSIDERED
The primary purpose of the Special Meeting is to consider and vote
upon a proposal to adopt and approve the Merger Agreement and the Merger. In
connection with the Merger, the stockholders of the Company are being asked to
consider and vote upon three additional proposals: (i) to withdraw the
Company's election as a business development company under the 1940 Act; (ii)
to approve the amendment of the Company's Articles of Incorporation to change
the name of the Company from The Americas Growth Fund, Inc. to Advanced
Electronic Support Products, Inc. and to delete all provisions and references
therein related to the 1940 Act; and (iii) to approve the Company's 1996 Stock
Option Plan (the "1996 Plan"). The consummation of the Merger is subject to
the approval by the Company's stockholders of the withdrawal of the business
development company election and the amendments to the Articles of
Incorporation. Accordingly, unless the Merger, the withdrawal of the business
development company election and the amendments to the Articles of
Incorporation are approved by the stockholders at the Special Meeting, the
Merger will not be consummated and no such proposals will be approved. While
the approval of the 1996 Plan is subject to the consummation of the Merger, it
is not a condition to the Merger that the 1996 Plan be approved.
VOTES REQUIRED
The affirmative vote of a majority of the outstanding shares of Common
Stock, in person or by proxy at the Special Meeting, is required to approve and
adopt each of the proposals presented to the stockholders at the Special
Meeting.
CONFLICTS OF INTEREST AND CERTAIN CONSIDERATIONS
In connection with a determination to approve the Merger and related
transactions, stockholders of the Company should carefully review the
information set forth under the caption "Certain Considerations." Among other
things, stockholders should be aware that: (i) the members of the Board of
Directors of the Company will derive significant benefits in connection
5
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with and upon the consummation of the Merger, which may present them with a
potential conflict of interest in recommending the approval of the Merger (see
"PROPOSAL TO APPROVE THE MERGER--Interests of Certain Persons in
Transaction"); (ii) the Merger will result in a change in control of the
Company and a change in the business and objectives of the Company; and (iii)
the business of AESP is subject to certain risks related to, among others,
reliance on suppliers, foreign trade and international regulations and
government action, exchange rate fluctuations, and reliance on executive
officers. FOR A MORE DETAILED DESCRIPTION OF CERTAIN CONSIDERATIONS ASSOCIATED
WITH THE MERGER AND THE BUSINESS OF AESP, SEE "PROPOSAL TO APPROVE THE
MERGER--CERTAIN CONSIDERATIONS."
THE MERGER
THE MERGER
The Merger Agreement provides for the merger of AESP with and into AGF
Merger Corporation, a newly-formed, wholly-owned subsidiary of the Company
("Newco"). As a result of the Merger, the separate corporate existence of
Newco will cease and AESP will continue as the surviving corporation of the
Merger. To effectuate the Merger, all of the common stock, no par value, of
AESP ("AESP Common Stock") will be converted into 1,707,043 shares of Common
Stock. The Merger Agreement further provides that the Company will acquire
AESP Germany and AESP Sweden in a share exchange transaction, pursuant to which
all of the issued and outstanding capital stock of AESP Germany and AESP Sweden
will be exchanged for the issuance of 20,000 shares of Common Stock to the
stockholders of AESP Germany and 20,000 shares of Common Stock to the
stockholders of AESP Sweden.
As a result of the Merger, AESP, AESP Germany and AESP Sweden
(collectively, the "AESP Entities") will become wholly-owned subsidiaries of
the Company, and the Company will become a holding company through which it
will operate the AESP Entities. See "PROPOSAL TO APPROVE THE MERGER--Operation
and Management of Company Following Merger." Messrs. Stein and Briskin, the
two current holders of the capital stock of the AESP Entities, will own an
aggregate of 1,747,043 shares of the Company's Common Stock after the Merger,
which will represent approximately 58 percent of the Company's outstanding
Common Stock. The Company has agreed to register with the U.S. Securities and
Exchange Commission (the "Commission") all of the shares of the Common Stock to
be issued to Messrs. Stein and Briskin in connection with the Merger within six
months after the completion of the Merger. Messrs. Stein and Briskin have
agreed not to dispose of any of the Common Stock for a one-year period
following the completion of the Merger.
The Merger Agreement was signed by the parties on July 15, 1996. The
closing (the "Closing") of the Merger Agreement will occur as soon as
practicable following the approval of the Merger Agreement by the Company's
stockholders at the Special Meeting and the satisfaction of certain other
conditions to the consummation of the Merger. See "PROPOSAL TO APPROVE THE
MERGER--Conditions to the Merger." The Merger will become effective (the
"Effective Time") upon the filing of Articles of Merger with the Secretary of
State of the State of Florida, which is scheduled to occur on the same day as
the Closing.
The Merger Agreement provides that the Company shall have cash and
cash equivalents of at least $3,000,000 at the Effective Time, after the
payment by the Company of all fees incurred in connection with the Merger. See
"PROPOSAL TO APPROVE THE MERGER--Certain Considerations," "--Representations
and Warranties" and "--Interests of Certain Persons in Transaction." In
connection with the Merger, warrants to purchase an aggregate of 430,000 shares
of Common Stock will be granted by the Company, which includes the grant of
180,000 warrants
6
<PAGE> 9
to the present officers and directors of the Company. See "PROPOSAL TO APPROVE
THE MERGER--Interests of Certain Persons in Transaction" and "--Operation and
Management of the Company Following Merger-Investment Banking Relationship with
JW Charles." The Merger Agreement also provides for the issuance of a
convertible note in the amount of $1,430,000 in favor of Messrs. Stein and
Briskin, the current stockholders of AESP, to reimburse such persons for their
payment of taxes on the undistributed profits of AESP, a Subchapter S company.
See "PROPOSAL TO APPROVE THE MERGER--The Merger- Convertible Note and Note."
OPINION OF FINANCIAL ADVISOR
Paul D. DeStefanis, P.A., doing business as Advanced Business
Valuations ("ABV"), was retained by the Company to advise and assist the
Company's Board of Directors in its evaluation of the fairness from a financial
point of view of the Merger to the Company's stockholders. At a meeting of the
Company's Board of Directors on July 9, 1996, a representative of ABV rendered
to the Company's Board of Directors its oral opinion that the Merger is fair to
holders of the Company's Common Stock from a financial point of view. ABV
confirmed such opinion by delivery of its written opinion, dated as July 15,
1996, the date of the Merger Agreement, and subsequently reconfirmed its
opinion in writing as of the date of this Proxy Statement. Reference is made
to the full text of ABV's opinion, a copy of which is reprinted in its entirety
as Appendix B, which sets forth the assumptions made, matters considered and
limitations on the scope of review undertaken in connection with rendering such
opinion. See also "PROPOSAL TO APPROVE MERGER-- Fairness Opinion."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Company's Board of Directors has adopted the Merger Agreement,
authorized the Merger and the transactions contemplated in the Merger
Agreement, and has determined that the Merger is in the best interest of the
Company's stockholders. The Company's Board of Directors recommends the
approval and adoption of the Merger Agreement by the Company's stockholders.
In reaching its decision to adopt the Merger Agreement and recommend the
Merger, the Company's Board of Directors considered a number of factors. See
"PROPOSAL TO APPROVE THE MERGER--Background of the Merger," "-- Recommendation
of the Board of Directors; Reasons for the Merger" and "--Interest of Certain
Persons in the Transaction."
ACCOUNTING TREATMENT AND CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For financial reporting purposes, AESP is deemed to be the acquiring
entity as the stockholders of AESP will acquire voting control of the Company
and the Company is not an operating entity. Therefore, the transaction will be
accounted for as a recapitalization of AESP. See "PROPOSAL TO APPROVE THE
MERGER--Accounting Treatment." For federal tax purposes, it is expected that:
(i) the Merger of Newco with and into AESP will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"); (ii) no gain or loss will be recognized by the Company,
Newco or AESP as a result of the Merger; and (iii) no gain or loss will be
recognized by the stockholders of AESP as a result of the Merger with respect
to shares of AESP Common Stock converted into shares of the Common Stock. See
"PROPOSAL TO APPROVE THE MERGER--Certain Federal Income Tax Consequences."
APPRAISAL RIGHTS
Pursuant to the General Corporation Law of Maryland, the stockholders
of the Company will not be entitled to dissenters' or appraisal rights with
respect to the Merger or any of the transactions contemplated thereby.
7
<PAGE> 10
WITHDRAWAL OF BUSINESS DEVELOPMENT COMPANY ELECTION UNDER THE 1940 ACT
The Company is presently a non-diversified, closed-end management
investment company electing to be treated as a business development company
under the 1940 Act. A business development company is, in effect, a closed-end
investment company that: (i) is operated for the purpose of making investments
in small and developing businesses; (ii) makes available significant managerial
assistance to its portfolio companies; and (iii) notifies the Commission of its
election to be treated as a business development company under the 1940 Act.
As a result of being a business development company, the Company has been
exempt from being regulated as an "investment company" under the 1940 Act,
although the Company is still subject to significant regulation under the 1940
Act as a business development company.
Upon the consummation of the Merger, the Company is not expected to
fall within the definition of an "investment company" under the 1940 Act. As a
result, the regulatory oversight normally applied to a regulated business
development company will not be necessary or relevant to the Company. The
Board has therefore concluded that it would not be consistent with the 1940 Act
or in the best interest of the Company to continue to subject the Company to
the limitations and regulatory burdens imposed under the 1940 Act upon business
development companies. As a result, and as a condition to the Merger, the
Company will file a notice of withdrawal of its election as a business
development company on Form N-54C with the Commission following approval of
this proposal and immediately after the Effective Time. This withdrawal is
effective upon filing. See "PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION AS A
BUSINESS DEVELOPMENT COMPANY UNDER THE 1940 ACT."
AMENDMENTS TO THE ARTICLES OF INCORPORATION
In connection with its recommendation to approve the Merger, the Board
of Directors of the Company has unanimously approved and recommended that the
stockholders adopt an amendment to the Company's Articles of Incorporation to
change the name of the Company after the Merger from The Americas Growth Fund,
Inc. to Advanced Electronic Support Products, Inc. After the Merger, the
Company will become a holding company through which it will operate the AESP
Entities as wholly-owned subsidiaries. Accordingly, the Board of Directors
believes that it would be appropriate and in the best interest of the Company
to adopt the Advanced Electronic Support Products, Inc. name after the Merger.
This will allow the Company to take advantage of the goodwill associated with
the Advanced Electronic Support Products, Inc. and will better reflect the
business and the objectives of the Company after the Merger. The Company's
primary operating subsidiary after the Merger is also be named Advanced
Electronic Support Products, Inc. Therefore, to avoid confusion between the
identity of the Company after the name change and this subsidiary, it is the
intent of the Company and the subsidiary to change the name of the subsidiary
from Advanced Electronic Support Products, Inc. to Advanced Electronic Support
Products Florida, Inc. or a similar name.
The Board of Directors of the Company has also unanimously approved
and recommended that the stockholders adopt an amendment to the Company's
Articles of Incorporation in order to delete all provisions and references
therein to the 1940 Act since such provisions and references will serve no
purpose after the Company's withdrawal of its status as a business development
company under the 1940 Act. See "PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
ORGANIZATION."
8
<PAGE> 11
ADOPTION OF THE 1996 STOCK OPTION PLAN
At the Special Meeting, stockholders of the Company are being asked to
consider and approve the 1996 Plan which will provide for the grant by the
Company of options to purchase up to an aggregate of 400,000 of the Company's
Common Stock to the Company's employees, subject to the consummation of the
Merger. See "PROPOSAL TO APPROVE THE 1996 STOCK OPTION PLAN."
SELECTED UNAUDITED AND HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table presents selected: (i) historical data of the
Company as of and for the three months ended March 31, 1996 and as of and for
the year ended December 31, 1995; (ii) historical combined data of AESP as
of and for the three months ended March 31, 1996 and for the year ended
December 31, 1995; (iii) unaudited pro forma combined statement of operations
for the three months ended March 31, 1996 and the year ended December 31,
1995 assuming the Merger had been consummated at the beginning of the
earliest period presented; and (iv) unaudited pro forma combined balance sheet
as of March 31, 1996 assuming the Merger had been consummated at such date.
The information for the three months ended March 31, 1996 is derived from
unaudited financial information of the Company and AESP, respectively. The
information set forth below should be read in conjunction with the historical
financial statements and notes thereto of the Company and AESP and the
unaudited pro forma condensed combined financial statements included elsewhere
in this Proxy Statement.
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
PRO FORMA PRO FORMA
THE COMPANY AESP COMBINED THE COMPANY AESP COMBINED
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $ 59,200 $3,522,097 $3,521,297 $327,300 $13,794,925 $13,841,225
Selling, general and administrative expenses $ 113,300 $ 996,746 $1,136,046 $296,000 $ 3,951,931 $ 4,247,931
Total expenses $ 113,300 $3,095,706 $3,235,006 $296,000 $12,459,451 $12,755,451
Income (loss) before income taxes ($54,100) $ 426,391 $ 286,261 $ 31,300 $ 1,335,474 $ 1,085,774
Net Income (loss) ($41,600) $ 376,630 $ 164,965 $ 25,100 $ 1,290,794 $ 689,137
Earnings (loss) per share ($0.03) n/a $ 0.06 $ 0.02 n/a $ 0.23
Balance Sheet Data:
Current assets $5,145,700 $6,433,976 $9,433,976
Total assets $5,162,000 $6,821,080 $9,821,080
Long-term Liabilities $ 0 $ 0 $1,430,000
Total liabilities $ 23,600 $3,204,764 $5,218,865
Working capital $5,122,100 $3,229,212 $5,644,811
</TABLE>
9
<PAGE> 12
COMPARATIVE PER SHARE DATA
The following table presents for comparative purposes a summary of the
historical per share data of the Company and combined per share data on an
unaudited pro forma basis, based on the assumption that the Merger occurred at
the beginning of the earliest period presented. The pro forma comparative per
share data is not necessarily indicative of the combined financial position and
results of operation for the period indicated or as it may be in the future.
This data should be read in conjunction with the historical financial
statements and notes thereto of the Company and the unaudited pro forma
condensed combined financial statements included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1995 March 31, 1996
----------------- -----------------
<S> <C> <C>
HISTORICAL--THE COMPANY
Net Income(Loss)--fully diluted $ .02 $(.03)
Book Value $4.09 $4.06
PRO FORMA COMBINED
Net Income--fully diluted $ .23 $ .06
Book Value N/A $1.52
</TABLE>
10
<PAGE> 13
PROPOSAL TO APPROVE THE MERGER
THE MERGER
The following discussion is a summary of the Merger and certain
provisions of the Merger Agreement. The description of the terms and
conditions of the Merger Agreement is qualified in its entirety by reference to
the complete text of the Merger Agreement, a copy of which is included herewith
as Appendix A to this Proxy Statement. Stockholders are urged to read the
Merger Agreement for a more complete understanding of the terms of the Merger.
General Structure. The Merger Agreement provides for the Merger of
Advanced Electronic Support Products, Inc., a Florida corporation, ("AESP")
with and into AGF Merger Corporation, a newly-formed, wholly-owned subsidiary
of the Company ("Newco"). As a result of the Merger, the separate corporate
existence of Newco will cease and AESP will continue as the surviving
corporation of the Merger. Thereafter, AESP will continue its business as a
wholly-owned subsidiary of the Company. To effectuate the Merger, all of the
common stock, no par value, of AESP ("AESP Common Stock") will be converted
into 1,707,043 shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), subject to adjustment in the event that the outstanding
shares of the Common Stock and AESP Common Stock change prior to the
consummation of the Merger.
In addition to the Merger, the Merger Agreement provides that the
Company will acquire AESP Computerzubehor GMBH ("AESP Germany") and Advanced
Electronic Support Products Compertillbehor I Sweden Aktiebolag ("AESP Sweden")
in a share exchange transaction, pursuant to which AESP Germany and AESP Sweden
will become wholly-owned subsidiaries of the Company. At the Effective Time,
all of the issued and outstanding capital stock of AESP Germany and AESP Sweden
will be exchanged for the issuance of 20,000 shares of Common Stock to the
stockholders of AESP Germany and 20,000 shares of Common Stock to the
stockholders of AESP Sweden. The merger of AESP with and into Newco and the
simultaneous acquisition of AESP Sweden and AESP Germany is collectively
referred to herein as the Merger. AESP, AESP Germany and AESP Sweden are
collectively referred to herein as the AESP Entities.
As a result of the Merger, Slav Stein and Roman Briskin, the two
current holders of the capital stock of the AESP Entities, will own an
aggregate of 1,747,043 shares of the Company's Common Stock, which will
represent approximately 58 percent of the Company's Common Stock on an
undiluted basis and approximately 53 percent on a fully-diluted basis.
The Company has agreed to register with the U.S. Securities and
Exchange Commission (the "Commission") all of the shares of the Common Stock to
be issued to Messrs. Stein and Briskin in connection with the Merger within six
months after the completion of the Merger. Messrs. Stein and Briskin have
agreed not to dispose of any of the Common Stock for a one-year period
following the completion of the Merger.
Closing, Effective Time and Opt Out Time. The closing (the "Closing")
of the Merger Agreement will occur as soon as practicable following the
approval of the Merger Agreement by the Company's stockholders and the
satisfaction of certain other conditions to the consummation of the Merger.
See "--Conditions to the Merger." The Closing is expected to occur by
____________, 1996. The Merger will become effective (the "Effective Time")
upon the filing of Articles of Merger with the Secretary of State of the State
of Florida, which is scheduled to occur on the same day as the Closing.
Immediately after the Effective Time, the Company will file a notice on Form
N-54C with the Commission to withdraw
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<PAGE> 14
its election as a business development company under the 1940 Act, which notice
is effective upon filing. See "PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION AS
A BUSINESS DEVELOPMENT COMPANY UNDER THE 1940 ACT." The time that the Form
N-54C is filed with the Commission is referred to herein as the Opt Out Time.
Convertible Note and Note. AESP is presently a private corporation
that has elected status as an "S" corporation under the Code. Unlike a C
corporation, an S corporation is not considered a separate legal entity for tax
purposes. Since it is not a separate legal entity, an S corporation is treated
as a "pass through" entity much like a partnership and, therefore, avoids the
double taxation imposed on a C corporation. Consequently, items of income,
loss, deduction and credit are passed through to the stockholders of the S
corporation. Notably, the pass-through of tax items occurs regardless of
whether the S corporation makes any distribution to stockholders.
Since its inception, AESP has generally foregone the distribution of
profits in an effort to grow the company. As a result, Messrs. Stein and
Briskin (who represent all of the stockholders of AESP) have in the past
personally paid taxes on profits that stayed with AESP and were not distributed
to them. In addition, Messrs. Stein and Briskin will personally pay taxes on
undistributed profits of AESP for the period from January 1, 1996 to the
Effective Time. In order to reimburse Messrs. Stein and Briskin for their
payment of taxes on the undistributed profits of AESP, the Merger Agreement
provides that, at or prior to the Effective Time, AESP will execute a Seven
Year Convertible Subordinated Promissory Note (the "Convertible Note") in the
amount of $1,430,000 in favor of Messrs. Stein and Briskin for the purpose of
reimbursing Messrs. Stein and Briskin for federal income tax owed by such
persons with respect to AESP's cumulative pre-merger earnings described above.
The principal amount of the Convertible Note will be adjusted upward based upon
the actual earnings of AESP during the period from January 1, 1996 to the
Effective Time. Under this Convertible Note, which will bear interest at a
rate of one-percent over the floating prime rate charged by Citibank, N.A., the
holders of the Convertible Note has the right to convert the principal amount
of the Convertible Note at any time prior to maturity, into shares of AESP
Common Stock (or, if after the Merger, shares of the Company's Common Stock)
based upon a conversion rate of $3.60 per share. In the event that the holders
of the Convertible Note exercises such conversion right, the shares of Common
Stock issued upon conversion will be afforded one-time demand registration
rights and certain piggyback registration rights.
In connection with the signing of the Merger Agreement, the Company
agreed to loan $100,000 to AESP to pay certain fees incurred by AESP in
connection with negotiation and preparation of the Merger, pursuant to a
promissory note (the "Note"), dated ___________, 1996 in favor of the Company.
The Note bears interest at a rate equal to the floating prime rate charged by
Citibank, N.A., plus one percent and becomes due one year after the date of
making. Under the terms of the Merger Agreement, the repayment of the Note
will be forgiven by the Company in the event that the Company's stockholders do
not approve the Merger at the Special Meeting.
BACKGROUND OF THE MERGER
The terms and conditions of the Merger were determined through
arm's-length negotiations between the management and Boards of Directors of the
Company and AESP. In determining the definitive terms of the Merger Agreement,
the Board of Directors of the Company considered numerous factors. See
"--Reasons for the Merger." The following is a brief discussion of the
background of the Merger.
The Company became aware of AESP in late 1995 in connection with its
review and consideration of possible investments for the Company. The
Company's investment objective and policy has, since its
12
<PAGE> 15
inception, been to achieve long-term capital appreciation of its assets, rather
than current income, by investing in equity and debt securities of and
providing managerial assistance to, emerging and established companies.
Nonetheless, the Company has no fixed investment policy and the Board of
Directors may, without the need to seek stockholder approval, change the types
of businesses or industry groups in which it may invest or the amount of funds
that it may invest in any one issuer. The Company has historically targeted
for investment United States-based portfolio companies strategically linked to
the Caribbean and Latin America. It has been the policy of the Company to
limit its investment in any single private issuer to 15 percent of the
Company's net assets. As a result of this policy, the Company has historically
invested in emerging companies with little or no operating history, revenue or
profit. See "CERTAIN INFORMATION REGARDING THE COMPANY--Business of the
Company."
The Company has experienced difficulty in locating quality portfolio
companies meeting the Company's investment objectives. The lack of such
investment opportunities is, in the opinion of management of the Company,
attributable to two primary causes. First, investments in a single private
issuer limited to 15 percent of the Company's net assets (approximately
$750,000) have come to involve, in the opinion of the Company's management, an
unacceptable degree of risk due to: (i) the fact that the relative small size
of the investment does not fundamentally resolve the capital needs of such
portfolio companies; and (ii) small emerging portfolio companies generally lack
professional management, audited financial statements or management information
systems. The Company's management accordingly believes that the potential
rewards to be gained from investments of up to approximately $750,000 do not
outweigh the high risk assumed in such investments. The second cause relates
to the worsening of the economic and political relationship between the United
States and Cuba since the Company's initial public offering in August 1994 as a
result of, among other things, the November 1994 U.S. congressional election,
the downing by the Cuban military of two "Brothers to the Rescue" airplanes and
Congressional consideration and passage of the Helms-Burton Act (formally known
as the Cuban Liberty and Democratic Solidary Act). As a result, there
continues to be few, if any, U.S. portfolio companies with investments in the
Cuban economy in which the Company may invest. Moreover, the Company does not
anticipate an improvement in the situation in the foreseeable future.
As a result of the foregoing, the Company, starting in late 1995,
began considering the possibility of combining the Company with larger
established companies with an existing revenue and profits base in order to
obtain the opportunity for the Company's stockholders to: (i) derive earnings
from the operation of an established business with a significant infusion of
capital from the Company into such business; (ii) receive a premium over the
existing book value for their shares; and (iii) increase the liquidity for
their shares. The Company considered a proposed transaction with Tallard
Technologies, Inc., a distributer of computers, peripherals, software and
services related to the information processing industry and reportedly the
largest distributor of Apple Computer, Inc. ("Apple") products to independent
resellers located in the Caribbean and Latin America. The Company decided not
to proceed with such transaction based upon, among other things, the
uncertainty surrounding the operations and business strategy of Apple.
The Company identified AESP in Spring 1996 as a company with
significant growth potential, but which needed additional capital resources to
expand its business. Management of the Company believed that an investment in
AESP of approximately $750,000 (consistent with the Company's investment policy
discussed above) would not adequately address this need. The Company therefore
began to pursue a possible merger transaction that would provide the AESP
Entities with a significantly larger infusion of capital ($3,000,000 under the
Merger Agreement) and provide the Company's stockholders with an opportunity to
derive income from the operation of the AESP Entities. AESP has advised the
Company that, in determining to enter into negotiations regarding a possible
merger transaction, AESP reviewed alternative means to raise capital and
increase liquidity in its securities,
13
<PAGE> 16
including, a public offering of AESP's securities, and concluded a merger
transaction with the Company to be the preferable means, based upon the cost,
time and effort involved in completing the process.
In April 1996, the Company and AESP commenced substantive discussions
regarding a possible merger transaction between the parties. On or about April
22, 1996 and June 4, 1996, representatives of the Company and AESP and their
respective legal counsel met in person to discuss and negotiate the possible
terms of a merger of the parties. Between April 22 and July 15, the Company
and its legal counsel and AESP and its legal counsel held numerous telephone
conversations and exchanged several drafts of the Merger Agreement and related
documents in order to arrive at the definitive Merger Agreement. Simultaneous
with the negotiation of the Merger Agreement, the Company conducted its due
diligence review of AESP. The purpose of the due diligence effort was to
evaluate the AESP management team and various operational, financial and legal
matters relating to AESP. Additionally, during this period, AESP's financial
statements for the fiscal years 1995 and 1994 were audited by AESP's auditors,
BDO Seidman, LLP.
On June 18, 1996, the Board of Directors of the Company met to
discuss, among other things, the status of the Company's negotiations with
AESP. On July 9, 1996, the Company scheduled a Board of Directors' meeting,
which was attended, in person or by telephone, by all of the members of the
Board of Directors. At this meeting, a representative of the independent
investment banker retained by the Company presented the oral opinion of ABV
with respect to the fairness of the Merger to the Company's stockholders from a
financial point of view. See "--Fairness Opinion." In addition, the material
terms of the Merger Agreement and the transactions contemplated thereby were
reviewed by the Board of Directors and following discussion, the Board voted
without dissent to approve and adopt the Merger Agreement and recommend the
approval of the same to the Company's stockholders. See "--Recommendation of
the Board of Directors; Reasons for the Merger."
On July 15, 1996, the Company and AESP entered into the Merger
Agreement and its execution was announced by the Company on July 16, 1996
through a press release.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
At a meeting held on July 9, 1996, the Board of Directors of the
Company unanimously approved the Merger (including the Merger Agreement and the
transactions and agreements contemplated thereby) and determined that the terms
of the Merger are fair to, and in the best interests of, the Company and its
stockholders from a financial point of view. Accordingly, the Board of
Directors of the Company recommends that the Company's stockholders vote FOR
approval and adoption of the Merger.
In reaching its conclusion to recommend the Merger Agreement, the
Board of Directors of the Company considered various factors, including, but
not limited to:
(i) the opinion of Advanced Business Valuation, Inc. that the Merger
is fair to the stockholders of the Company from a financial point of
view (see "--Fairness Opinion");
(ii) the financial condition, results of operations, historical and
current business, properties and financial resources of the Company
and each of the AESP Entities;
(iii) the growth potential of the businesses of the AESP Entities in
Latin America, Eastern Europe and elsewhere, after giving effect to
the Merger and the infusion of $3,000,000 into the operations of the
AESP Entities;
14
<PAGE> 17
(iv) the prospects for alternative transactions;
(v) the fact that the Merger Agreement permits the Board of Directors
to terminate the Merger Agreement if a preferable transaction is
proposed (see "--Conduct of Business Pending Merger");
(vi) the fact that, pursuant to the Company's Articles of
Incorporation, the consummation of the Merger is subject to the
approval of stockholders holding a majority of the shares of Common
Stock; and
(vii) the terms and conditions of the Merger Agreement and the
transactions and agreements contemplated thereby.
In view of the wide range of factors considered in connection with its
evaluation of the Merger, the Board of Directors did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the
individual factors considered in reaching their determination.
CERTAIN CONSIDERATIONS
In addition to the other information contained in this Proxy
Statement, the Company's stockholders should carefully consider the factors set
forth below before voting with respect to the Merger.
Certain Considerations Regarding the Merger.
Change in Control of Company. Prior to the Merger, no one stockholder
beneficially owns more than five percent of the outstanding Common Stock.
After the Merger, the current stockholders of the AESP Entities, Messrs. Stein
and Briskin, will own 1,747,043 shares of the Company's Common Stock,
representing approximately 58 percent of the outstanding Common Stock. As a
result, upon the consummation of the Merger, Messrs. Stein and Briskin will be
able to determine the outcome of all matters presented to a vote of the
stockholders of the Company and thereby control the Company. Neither Mr. Stein
nor Mr. Briskin have had any experience in managing a company whose securities
are publicly traded.
Change in Business and Objectives of Company. The Company was formed
in August 1994 as a closed-end management investment company which elected to
be regulated as a business development company under the 1940 Act. Although
the Company has no fixed investment policy, the Company's general objective has
been to achieve long-term capital appreciation of assets by investing in equity
and debt securities of United States companies with strategic links to the
Caribbean and Latin America. If the Merger is approved by the Company's
stockholders and consummated, the Company will become a holding company through
which the Company will operate AESP, AESP Germany and AESP Sweden. Thereafter,
the Company will have one business and will no longer be engaged in the
business of investing in the securities of other companies. See "--Operation
and Management of the Company Following Merger."
Interest of Certain Persons in the Transaction. Each of the members
of the Board of Directors will derive certain benefits in connection with and
upon the consummation of the Merger. In connection with the Company's
cancellation of its employment agreement (the "Employment Agreement") with
Leonard J. Sokolow, the Company's Chairman of the Board, President and
Portfolio Manager, the Company has agreed to pay Mr. Sokolow, as of the Opt Out
Time, a cash payment of $350,000 as compensation for Mr. Sokolow's estimated
loss of three year's salary (including insurance, car allowance and other
benefits) under the Employment Agreement and $620,000 as a performance award in
recognition of Mr. Sokolow's
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<PAGE> 18
efforts on behalf of the Company, and based upon the estimated performance
award under the Company's Profit Sharing Plan for the three-year period
following and giving effect to the Merger. In light of Mr. Sokolow's
extensive experience as an executive officer, director and financial advisor
to public and private companies specializing in manufacturing, distributing
and marketing products internationally and his knowledge and contacts in the
computer hardware, software and information technology industries, the Company
has agreed to enter into a Non-Competition Agreement with Mr. Sokolow pursuant
to which he will receive $925,000, representing $185,000 per year for the
five-year term of his covenant not to compete. The Company will also enter
into with Mr. Sokolow a Warrant Agreement to purchase up to 90,000 shares of
the Company's Common Stock at exercise prices ranging from $3.60 to $5.00 per
share, and a one-year Consulting Agreement, pursuant to which he will receive
a monthly fee of $2,000 per month. The members of the Board of Directors of
the Company, other than Mr. Sokolow, will receive a Warrant to purchase up to
20,000 shares of the Company's Common Stock (30,000 in the case of one
director) at an exercise price of $3.60 per share. For a complete description
of the interests of the Company's executive officers and directors in the
Merger, see "--Interests of Certain Persons in the Transaction." As a result
of the foregoing, a potential conflict of interest may exist for the directors
of the Company regarding their recommendation to approve the Merger.
Expenses of Merger. It is expected that the expenses incurred by the
Company in connection with the Merger will total approximately $200,000, which
includes filing fees, investment banking fees, legal fees, printing costs,
accounting fees and proxy solicitation fees. In addition, the Company will
obligated to forgive a loan of $100,000 to AESP if the Merger is not approved
by the Company's stockholders at the Special Meeting. If the Merger is
consummated, the Company will be obligated to pay an additional approximate
$970,000 in connection with the Severance Agreement, $925,000 in connection
with the Non-Competition Agreement (representing $185,000 per year for each of
the five years that Mr. Sokolow has covenanted not to compete against the
Company) and the payment of a finder's fee of $50,000 to an unaffiliated third
party. See "--Interest of Certain Persons in Transaction."
Loss of Protective Provisions of the 1940 Act. Upon the consummation
of the Merger, the Company is not expected to fall within the definition of an
"investment company" under the 1940 Act. As a result, the regulatory oversight
normally applied to a regulated business development company will not be
necessary or relevant to the Company. It is the view of the Board of the
Company that such regulations could interfere with the operations of the
Company's business following the Merger. The Board has therefore concluded
that it would not be consistent with the 1940 Act or in the best interest of
the Company to unnecessarily subject the Company to the limitations and
regulatory burdens imposed under the 1940 Act upon business development
companies. As a result, and as a condition to the Merger, the Company and its
shareholders will file a notice of withdrawal of its election as a business
development company on Form N-54C with the Commission at the Opt Out Time.
Upon this filing, the Company and its shareholders will no longer have the
benefit of certain protective provisions of the 1940 Act. See "PROPOSAL TO
WITHDRAW THE COMPANY'S ELECTION AS A BUSINESS DEVELOPMENT COMPANY UNDER THE
1940 ACT."
Potential Future Sales of Common Stock and Registration Rights.
Pursuant to the Merger Agreement, 1,747,043 shares of Common Stock will be
issued to Messrs. Stein and Briskin and warrants to purchase up to an aggregate
of 230,000 shares of Common Stock will be granted to, among others, the
officers and directors of the Company. See "-- Interests of Certain Persons in
the Transaction-Warrants." In addition, the Company intends to grant a warrant
to purchase up to 200,000 shares of Common Stock to JW Charles after the
Merger. See "--Operation and Management of the Company Following
Merger-Investment Banking Relationship with JW Charles." Under the Merger
Agreement, the Company has agreed to register with the Commission the shares of
Common Stock issued to Messrs. Stein and Briskin
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<PAGE> 19
and the shares of Common Stock underlying the warrants. After registration,
such shares will be eligible for public resale. Messrs. Stein and Briskin,
however, have agreed not to resell their shares for a one-year period following
the Closing. Any substantial sale of such shares in the future may have a
material adverse effect on the market price of the Common Stock.
Certain Considerations Regarding AESP.
Suppliers. Although AESP purchases its retail products from several
different suppliers, AESP often relies on an individual supplier to
manufacture a particular line of OEM products. Although AESP has several
hundred different product lines, and despite AESP's efforts to minimize such
reliance by having other suppliers available should the need arise, the loss of
one or more manufacturers of OEM products may have a material adverse impact
upon AESP. While most of the retail products sold by AESP are available from
multiple sources, there can be no assurance that AESP will be able to
immediately replace lost suppliers of retail products. One supplier, Kaicap
Investment, Limited, a company located in Hong Kong, supplies approximately 10
percent of AESP's products. No other manufacturer accounts for more than 10
percent of AESP's supplies. See "CERTAIN INFORMATION REGARDING THE AESP
ENTITIES--AESP's Business - Suppliers."
Customers. One customer, Boca Research, Inc., located in Boca Raton,
Florida presently accounts for approximately 13% of AESP's revenues. The
loss of this or another large customer could have a material adverse effect on
AESP's business.
Credit Facility Restrictions; Future Availability. AESP has a
$2,500,000 credit facility with a financial institution. The agreement
governing the line of credit contains covenants that impose limitations on
AESP, and requires AESP to be in compliance with certain financial ratios. If
AESP fails to make required payments, or if AESP fails to comply with the
various covenants contained in its agreement, the lender may be able to
accelerate the maturity of such indebtedness. As of July 26, 1996, AESP was in
compliance with the required financial ratios and AESP believes that it is
presently in compliance with all other covenants under this agreement. The
receivables, inventory and all other assets of AESP are pledged to the lender
to secure its revolving line of credit. The revolving line of credit agreement
expires on or about July 26, 1997. To the extent that there is an increase in
interest rates, or present borrowing arrangements are no longer available, AESP
could be adversely impacted. See "CERTAIN INFORMATION REGARDING THE AESP
ENTITIES--AESP's Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Foreign Trade Regulation. The majority of AESP's products are
manufactured outside the United States. The ability to remain competitive with
respect to the pricing of imported products could be adversely affected by
increases in tariffs or duties, changes in trade treaties, strikes in air or
sea transportation, and possible future United States legislation with respect
to pricing and import quotas on products from foreign countries. AESP's
ability to be competitive in or with the sales of imported components could
also be affected by other governmental actions related to, among other things,
anti-dumping legislation and international currency fluctuations. While AESP
does not believe that such factors adversely impact its business at present,
there can be no assurance that such factors will not materially adversely
affect AESP in the future. See "CERTAIN INFORMATION REGARDING THE AESP
ENTITIES--AESP's Business - Suppliers."
International Regulations & Government Actions. AESP produces a major
percentage of its products using manufacturers located in the Far East.
Changing political situations in the Far East, including China, can materially
affect AESP's production cycles and delay deliveries. Government actions
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with respect to the changing status of the most favorable nations for different
foreign countries can also materially impact the cost of AESP's products.
Fluctuation of Exchange Rates. The majority of AESP's suppliers are
foreign suppliers and fluctuations in exchange rates with regards to the price
changed by these foreign suppliers could adversely affect AESP's performance.
Competition. AESP competes with many companies that manufacture,
distribute and sell computer connectivity products. While these companies are
largely fragmented, throughout different sectors of the computer connectivity
industry, some of these companies have greater assets and possess greater
financial and personnel resources than those of AESP. Some of these
competitors also carry product lines which AESP does not carry. There can be no
assurance that competitive pressure from these companies will not materially
adversely affect AESP's business and financial condition.
Industry Cyclicality. The computer industry has been affected
historically by general economic downturns, which have had an adverse economic
effect upon manufacturers, distributors and retailers of computer-related
products. In addition, the life-cycle of existing computer products and the
timing of new product development and introduction can affect demand for
computer-related products.
Risk Related to Future Acquisitions. AESP's ability to grow by
acquisition depends upon and may be limited by the availability of suitable
acquisition candidates and capital. In addition, an acquisition could adversely
affect AESP's operating results. See "CERTAIN INFORMATION REGARDING
AESP--AESP's Business - Strategy."
Reliance on Executive Officers and Key Employees. The continued
success of AESP is dependent to a significant degree upon the services of its
executive officers, and in particular Slav Stein and Roman Briskin, and upon
AESP's ability to attract and retain qualified personnel experienced in the
various phases of AESP's business. Although AESP currently has no employment
agreements with its executive officers, the Merger Agreement provides for
employment agreements for Slav Stein and Roman Briskin. See "--Operation and
Management of Company Following Merger." The ability of AESP to operate
successfully could be jeopardized if one or more of its executive officers were
unavailable and capable successors were not found. The employment agreements
to be entered into as of the Effective Time of the Merger between AESP and Slav
Stein and Roman Briskin, respectively, are individually terminable by each
executive officer upon a change of control of AESP.
FAIRNESS OPINION
ABV was retained by the Company to advise and assist the Company's
Board of Directors in its evaluation of the fairness from a financial point of
view of the Merger to the Company's stockholders. ABV, which was formed in
1995, specializes in business valuations and is a member of the National
Association of Certified Valuation Analysts, the Institute of Business
Appraisers, the American Society of Appraisers, the Association of Investment
Management & Research, the American Institute of Certified Public Accountants
and Florida Institute of Certified Public Accountants. The selection of ABV
was made by the Company based upon the reputation, credentials and work
experience of ABV. The Company expects to pay ABV no more than $22,500 as
total consideration for ABV's services to the Company in connection with the
Merger. ABV did not participate or advise the Company in the negotiation of
the Merger or the amount of consideration to be paid by the Company.
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<PAGE> 21
At a meeting of the Company's Board of Directors on July 9, 1996, a
representative of ABV rendered to the Company's Board of Directors its oral
opinion to the effect that the Merger is fair to holders of the Company's
Common Stock from a financial point of view. ABV confirmed such opinion by
delivery of its written opinion, dated as July 15, 1996, the date of the Merger
Agreement, and subsequently reconfirmed its opinion in writing as of the date
of this Proxy Statement.
THE FULL TEXT OF ABV'S JULY 15, 1996 WRITTEN OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ
THIS OPINION CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF ABV SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION. ABV'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF
THE MERGER TO THE COMPANY'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND
DOES NOT CONSTITUTE A RECOMMENDATION TO THE COMPANY'S STOCKHOLDERS AS TO HOW TO
VOTE WITH RESPECT TO THE MERGER. ABV'S OPINION IS BASED UPON THE TOTALITY OF
THE MERGER; IT DOES NOT ADDRESS ANY PARTICULAR ASPECT OF THE MERGER, INCLUDING,
WITHOUT LIMITATION, THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE
CONSIDERATION TO BE PAID TO THE COMPANY'S EXECUTIVE OFFICERS AND DIRECTORS IN
CONNECTION WITH THE MERGER. SEE "--INTERESTS OF CERTAIN PERSONS IN THE
TRANSACTION."
In arriving at its opinion, ABV, among other things: (i) interviewed
the management of the Company and AESP; (ii) conducted an on-site inspection of
AESP's principal operating offices in North Miami Beach, Florida; (iii)
reviewed and analyzed the financial statements of AESP for the fiscal years
ended December 31, 1994 and 1995; (iv) reviewed the federal income tax returns
of AESP for the period from 1991 to 1994; (v) examined the periodic reports
filed by the Company with the Commission, including, without limitations, the
Company's Quarterly Report on Form 10-QSB for the period ended March 31, 1996
and the Company's Annual Report on Form 10-KSB for the year ended December 31,
1995; (vi) reviewed the market for the Common Stock, from September 1994 to
June 1996; and (vii) examined, reviewed and analyzed such other documents and
information as ABV deemed appropriate and necessary. In connection with its
review, ABV relied, without independent verification, on the accuracy,
completeness and fairness of all financial and other information that was
publicly available or furnished to ABV by the Company and AESP.
In connection with its July 9, 1996 presentation to the Company's
Board of Directors and its July 15, 1996 written opinion, ABV performed a
variety of financial and comparative analyses, including those described below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances, and therefore such an opinion
is not readily susceptible to summary description. In its analyses, ABV made
numerous assumptions with respect to industry performance, general business,
regulatory, economic, market and financial conditions and other matters, many
of which are beyond the control of the Company. Any estimates contained
therein are not necessarily indicative of actual values or predictive of future
results, which may be significantly more or less favorable than those suggested
by such analyses.
Valuation of AESP. In valuing AESP, ABV selected the Price/Earnings
Ratio valuation methodology, whereby the future estimated net income (after
tax) of AESP is first calculated and this amount is capitalized based upon a
weighted average of the Price/Earnings Ratio of comparable companies. ABV
calculated AESP's future net income (after tax) to be approximately $835,000.
This calculation is based upon the weighted average method, pursuant to which
the sum of AESP's net income (after tax) for the past two years was multiplied
by a weighing factor and then the sum of these products was divided by the sum
of the weights.
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<PAGE> 22
In order to determine the weighted average comparable Price/Earnings
Ratio, ABV identified companies similar to AESP in terms of products, markets,
technologies, growth curves and financial results and then performed a relative
risk analysis of the companies. Based upon this approach, ABV selected the
following seven publicly-traded companies as comparable to AESP: (i) Arrow
Electronics; (ii) Avnet, Inc.; (iii) Marshall Industries, Inc.; (iv) Bell
Industries, Inc.; (v) Wyle Electronics, Inc.; (vi) Pioneer Standard
Electronics, Inc.; and (vii) Standard Microsystems, Inc.
The Price/Earnings Ratio of the seven comparable companies ranged from
8.9x to 13.2x and the weighted average Price/Earnings Ratio was 11.09x. ABV
then discounted this weighted average Price/Earnings Ratio to reflect the fact
that AESP is relatively smaller in size to the comparable companies and thereby
is subject to greater operating risks. ABV used a small firm effect discount
of 1.5x to arrive a weighted average Price/Earnings Ratio of 9.59x. Based upon
this ratio, ABV determined the estimated fair market value of AESP to be
$8,004,000.
Valuation of the Company Giving Effect to the Merger. To arrive at a
valuation of the Company giving effect to the Merger, ABV added the $8,004,000
valuation of AESP to the $3,000,000 estimated fair market value of the Company
(net of transactional fees and expenses). This $11,004,000 estimated fair
market value of the Company does not take into effect the potential for future
growth of the combined companies as a result of the infusion of additional
capital into the Company after the Merger. Premised on the Company's current
stockholders owning approximately 42 percent of the issued and outstanding
shares of the Common Stock after the Merger, ABV calculated that the Company's
current stockholders' percentage interest in the Company, after the Merger,
will represent approximately $4,622,00 or $3.65 per share.
Adjusted Net Assets Value of the Company. In arriving at its opinion
that the Merger is fair, from a financial point of view, to the Company's
stockholders, the $3.65 per share value of the Company's existing stockholders
interest in the Company post Merger was compared to the liquidation value of
the Company. The latter valuation was calculated based upon the Adjusted Net
Assets method, whereby the book value of the Company's assets are adjusted to
their fair market value and then reduced by the fair market value of the
Company's liabilities. The Adjusted Net Assets methodology was considered by
ABV to be the most appropriate method for valuing businesses which have limited
operations, generate losses or are to be liquidated. With respect to
liquidation of the Company, ABV determined that the fair market value of the
Company would be approximately $4,500,000 or $3.56 per share. ABV thus
concluded that the Adjusted Net Assets valuation of the Company before the
Merger is approximately $.09 per share less than the per share value of the
Company's existing stockholders interest in the Company giving effect to the
Merger.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the Merger, the stockholders of the Company should be
aware that certain executive officers and directors of the Company have the
interests that present them with potential conflicts of interest with respect
to the Merger.
Director and Officer Indemnification. Pursuant to the Merger
Agreement, the Company is obligated to indemnify and advance expenses to each
of the Company's current officers and directors for matters arising out of the
transactions contemplated by the Merger Agreement or from his capacity as an
officer or director of the Company to the same extent as such persons would
have been indemnified under the Company's current Articles of Incorporation and
Bylaws.
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Warrants. As consideration for their services on behalf of the
Company, the Merger Agreement provides for the issuance after the Merger of
warrants (the "Warrants") to purchase shares of the Common Stock to the
executive officers and members of the Board of Directors of the Company.
Leonard J. Sokolow, the President and Chairman of the Board of the Company,
will be granted a warrant to purchase 90,000 shares of Common Stock. Sanford
B. Cohen, Martin C. Engelmann and Neil R. Winter, directors of the Company,
will each be granted a warrant to purchase 20,000 shares of Common Stock. J.
Antonio Villamil, a director of the Company, will be granted a warrant to
purchase 30,000 shares of the Common Stock. The exercise price of such
warrants is $3.60 per share, with the exception of 30,000 warrants issued to
Mr. Sokolow which have a $5.00 exercise price. Such warrants expire five years
after the Opt Out Time. The Merger Agreement also provides for the issuance of
a warrant to purchase 50,000 shares to Timothy E. Mahoney, an unaffiliated
financial consultant to the Company. In connection with the grant of the
Warrants, the Company has agreed to register the Warrants and the shares of
Common Stock underlying the Warrants with the Commission within six months of
the Closing. The exercise price of and number of shares underlying the
Warrants are subject to adjustment upon the occurrence of a subdivision or
combination of the Common Stock, merger or consolidation of the Company, the
payment of a dividend or distribution, or the occurrence of certain other
dilutive events. The Company has retained the right to redeem the Warrants at
a price of $.01 per share if the market price of the Common Stock equals or
exceeds $10.80 per share for 20 consecutive days. Prior to any such
redemption, the holders of the Warrants will have an opportunity to exercise
any outstanding Warrants.
Severance Agreement. After the Merger, the Company will terminate Mr.
Sokolow's employment agreement (the "Employment Agreement") with the Company,
dated August 30, 1994, pursuant to which Mr. Sokolow is employed as the
Company's Chairman of the Board, President and Portfolio Manager for a renewing
three-year term. Under the Employment Agreement, Mr. Sokolow presently
receives a salary of approximately $100,000 (excluding insurance, car allowance
and other benefits) per year, increased annually by the percentage increase in
the consumer price index. The Employment Agreement also entitles Mr. Sokolow
to a performance fee each year of not less than 50 percent of the amount
eligible to be distributed to employees under the Company's Profit Sharing
Plan, which plan provides that the Company shall allocate each year 20 percent
of the Company's net income after taxes.
To, among other things, compensate Mr. Sokolow for the loss of
compensation and benefits resulting from the termination his Employment
Agreement, the Company has, as a condition to the Merger, agreed to enter into
a severance agreement (the "Severance Agreement"), pursuant to which Mr.
Sokolow will receive at the Opt Out Time: (i) a cash payment of $110,500 as
compensation for Mr. Sokolow's estimated loss of salary (including insurance,
car allowance and other benefits) under the Employment Agreement for the first
year following the Closing; (ii) a cash payment of $117,130 as compensation for
Mr. Sokolow's estimated loss of salary (including insurance, car allowance and
other benefits) under the Employment Agreement for the second year following
the Closing; (iii) a cash payment of $122,370 as compensation for Mr. Sokolow's
estimated loss of salary (including insurance, car allowance and other
benefits) under the Employment Agreement for the third year following the
Closing; and (iv) certain office equipment having an estimated book value of
approximately $16,000. The Severance Agreement also provides for the cash
payment of $620,000 to Mr. Sokolow, which the Board of Directors of the Company
has determined to be a fair and reasonable performance award in recognition of
Mr. Sokolow's efforts on behalf of the Company, including the successful
negotiation of the Merger. In determining the fairness and reasonableness of
this performance award payment, the Board of Directors used as a benchmark the
estimated performance award under the Company's Profit Sharing Plan for a
three year period following and giving effect to the Merger, and based upon
the full 20 percent available for distribution under the Profit Sharing Plan.
In calculating this benchmark, the Board of Directors assumed (solely for
purposes of the Severance Agreement) a 20 percent per year annual growth
(which is deemed conservative in comparison to AESP's
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annual growth since 1992 of 30 percent) and after applying a 15 percent
uncertainty discount to the total estimated performance award.
The Severance Agreement also provides that the Company and Mr. Sokolow
will mutually release each other from all claims and liabilities, other than
the rights and obligations of the parties under the Severance Agreement, and
the Non-Competition Agreement (as described below) and other than for any
criminal or fraudulent act by a party. The Severance Agreement provides that
the Company will indemnify Mr. Sokolow against any action against Mr. Sokolow
resulting from the performance in good faith of his duties as an officer and
director of the Company.
Non-Competition Agreement. In view of Mr. Sokolow's extensive
experience in the international manufacture, distribution and marketing of
goods and his knowledge and contacts in the computer and information technology
industries, the Company will seek to ensure that Mr. Sokolow does not compete
with the Company for a period of five years pursuant to a non-competition
agreement (the "Non-Competition Agreement") to be entered into as of the Opt
Out Time. Mr. Sokolow's background includes over five years as an executive
officer of Windmere Corporation ("Windmere"), a public company engaged in the
manufacture and distribution of personal care products and small household
appliances through its operations in the United States, Europe, the Far East
and Latin America. At Windmere, Mr. Sokolow served as, among other positions,
the General Counsel and Executive Vice President-Operations, Administration and
Finance and, in connection with the latter position, was responsible for
establishing and expanding Windmere's distribution channels in Europe and Latin
America. Since May 1990, Mr. Sokolow has served as a director of Catalina
Lighting, Inc., a public company engaged in the import and distribution of
commercial and residential electrical lighting. Mr. Sokolow has also served
since April 1995 as a director of Ezcony Interamerica, Inc., a public company
engaged in the distribution to Latin America of electronic products and CD Rom
programming. Since September 1992, Mr. Sokolow has been a director of Video
Jukebox Network, Inc. ("VJN"), a public company and interactive television
programmer with distribution in the United States, Europe and Latin America,
and has also served as a director of Video Jukebox Network International
Limited, a subsidiary of VJN. Since August 1993, Mr. Sokolow has been
President and Chief Executive Officer of Genesis Partners, Inc., a
privately-held corporation which provides domestic and international investment
banking and financial advisory services. In his role as the Company's
Portfolio Manager, Mr. Sokolow has gained knowledge of or established
relationships with other companies engaged in the distribution or manufacture
of computer-related goods and services that could be competitive with the
business of the Company following the Merger.
In light of the foregoing, the Company has agreed to enter into the
Non-Competition Agreement with Mr. Sokolow, which will prohibit Mr. Sokolow
from, directly or indirectly, engaging in any business activity anywhere in the
world which is directly or indirectly in competition with any of the Company's
products or services during a five year period (the "Restricted Period"). Mr.
Sokolow is further prohibited during the Restricted Period from: (i)
recruiting, soliciting or otherwise influencing any employee, consultant,
agent, supplier, customer, banker, investment banker, customer or prospect of
the Company to discontinue or modify their relationship with the Company; or
(ii) employing any of the Company's employees or any person who was employed by
the Company at any time within a two-year period prior to the date that Mr.
Sokolow seeks to employ such person. Mr. Sokolow is also prohibited during the
Restricted Period from acquiring, or assisting any third party to acquire, any
of the Company's securities (excluding the Warrants discussed above). In
consideration of Mr. Sokolow's agreement to the restrictive covenants set forth
in the Non-Competition Agreement, the Company has agreed to pay Mr. Sokolow a
total of $925,000, as of the Opt Out Time, representing $185,000 per year for
each of the five years that Mr. Sokolow has covenanted not to compete against
the Company.
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Consulting Agreement. After the consummation of the Merger, the
Company will enter into a one-year consulting agreement with Mr. Sokolow,
pursuant to which he will provide consulting and advisory services with respect
to, among other things: (i) the development of a strategy to increase revenue
and brand awareness among consumers; (ii) the identification of the Company's
weaknesses; (iii) capital raising and, where appropriate, introductions to
public relations companies, underwriters and other sources of capital within
the financial community; (iv) identification of potential acquisition targets;
and (v) introductions to potential customers. In exchange for the performance
of such services, Mr. Sokolow will receive a monthly fee of $2,000 and the
reimbursement of reasonable out-of-pocket business expenses.
CONDITIONS TO THE MERGER
The obligation of the parties to consummate the Merger is subject to
the satisfaction of certain conditions, including, among other others:
(i) the approval by the stockholders of the Company of the Merger, the
withdrawal of the Company's election as a business development company
under the 1940 Act, and the amendments to the Company's Articles of
Incorporation;
(ii) the absence of any decree, judgment, injunction or other order
issued by a court or government agency of competent jurisdiction which
materially restricts, prevents or prohibits the consummation of the
Merger or any of the transaction contemplated by the Merger Agreement;
(iii) the procurement of all authorizations, consents, waivers, orders
or approvals from all applicable government authorities, with the
exception of the filing of the merger documents in accordance with
Florida law and the filing of Form N-54C with the Commission or any
such authorization which, if not obtained, would not be deemed to have
a material adverse effect on the financial condition of the Company or
the AESP Entities;
(iv) the accuracy of the representations and warranties contained in
the Merger Agreement as of the Effective Time;
(v) the performance by the Company of all covenants and agreements
required by the Closing of Merger Agreement, including, without
limitation, the: (a) indemnification of the current members of the
Board of Directors of the Company (see "--Interest of Certain Persons
in the Transaction); (b) entering into the Consulting Agreement,
Non-Competition Agreement and the Severance Agreement with Mr. Sokolow
(see "--Interest of Certain Persons in the Transaction); (c) entering
into the employment agreements with Messrs. Stein and Briskin (see
"--Operation and Management of the Company following Merger"); (d)
change the composition of the Board (see "--Operation and Management
of the Company following Merger"); and (e) use of its best efforts to
cause the Merger to qualify as tax free reorganization for federal
income tax income purposes (see "--Federal Income Tax Consequences of
Merger"); and
(vi) the performance by AESP of all covenants and agreements required
by the Merger Agreement, including, without limitation, the: (a)
execution of the Convertible Note in favor of Messrs. Stein and
Briskin (see "-- The Merger"); and (b) use of its best efforts to
cause the Merger to qualify as tax free reorganization for federal
income tax income purposes (see "--Federal Income Tax Consequences of
Merger").
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The obligation of the Company to consummate the Merger is subject to
the additional condition that the Company shall have received an opinion,
acceptable to the Company's Board of Directors, from ABV with respect to the
fairness of the Merger from a financial point of view. See "--Fairness
Opinion." The obligation of AESP to consummate the Merger is subject to the
additional condition that AESP shall have reasonably determined that the
Company will have no further obligations under the 1940 Act after the Opt Out
Time. In order for any such determination to be reasonable, AESP must deliver a
legal opinion from a qualified law firm to the effect that: (i) it is more
likely than not that the Company will have further obligations under the 1940
Act after the Opt Out Time; and (ii) such obligations result from the Company's
status and operations as a business development company under the 1940 Act, or
otherwise under the 1940 Act, and do not include those general obligations
under the 1940 Act that are applicable to all U.S. companies.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
relating to, among other things: (i) the corporate organization of the Company
and its subsidiaries (collectively, the "AGF Entities") and the AESP Entities;
(ii) the capital structure of the AGF Entities and the AESP Entities; (iii) the
due authorization, execution, delivery, performance and enforceability of the
Merger Agreement; (iv) consents or approvals of regulatory authorities or third
parties necessary to complete the Merger; (v) the consistency of financial
statements with generally accepted accounting principles; (vi) the absence of
material adverse changes, since December 31, 1995, in the assets, conduct of
the business, accounting methods, dividends or employee benefits; (vii) the
absence of undisclosed material pending or threatened litigation; (viii) the
absence of undisclosed employee benefits plans; (ix) the validity of title to
real property, assets and intellectual property; (x) the filing of tax returns
and the payment of taxes; (xi) the validity of accounts receivables and
material contracts; (xii) the accuracy of books and records; (xiii) compliance
with environmental and other laws; (xiv) the absence of undisclosed brokers' or
finders' fees; and (xv) the continued supply of goods and services.
The Merger Agreement also contains other representations and
warranties by the Company relating to, among other things: (i) documents filed
with the Commission and the accuracy of information contained therein; (ii) the
termination of negotiations with Tallard Technologies, B.V.; (iii) the
stockholder vote required for the approval of the Merger; (iv) the existence of
cash or cash equivalents of the Company as of the Effective Time of at least
$3,000,000 (after the payment of, among other things, fees under the Severance
and Non-Competition Agreement with Mr. Sokolow); and (v) compliance with the
1940 Act. AESP has also made certain representations and warranties with
respect to its status as an eligible portfolio company under the 1940 Act.
APPRAISAL RIGHTS
Pursuant to the General Corporation Law of Maryland, the stockholders
of the Company will not be entitled to dissenters' or appraisal rights with
respect to the Merger or any of the transactions contemplated thereby.
ACCOUNTING TREATMENT
For financial reporting purposes, AESP is deemed to be the acquiring
entity as the stockholders of AESP will acquire voting control of the Company
and the Company is not an operating company. Therefore, the transaction will
be accounted for as a recapitalization of AESP.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF MERGER
Based upon the advice of their respective counsel, the Company and
AESP expect that: (i) the Merger of Newco with and into AESP will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) no gain or loss will be recognized by the Company, Newco or AESP as a
result of the Merger; and (iii) no gain or loss will be recognized by the
stockholders of AESP as a result of the Merger with respect to shares of AESP
Common Stock converted into shares of the Common Stock. Assuming that the
Merger so qualifies, the tax basis of the Common Stock received by AESP
stockholders in the Merger will be the same as the tax basis of the AESP Common
Stock surrendered in exchange therefor. In addition, the holding period of the
Common Stock received in the Merger by the AESP stockholders will include the
period during which the shares of AESP Common Stock surrendered in exchange
therefor were held.
The Company and AESP do not intend to either request a ruling from the
Internal Revenue Service ("IRS") or obtain a formal legal opinion from their
respective counsel as to the tax-free status of the Merger. A successful IRS
challenge to the status of the Merger as a reorganization within the meaning of
Section 368 of the Code would result in the AESP stockholders recognizing gain
or loss with respect to each share of AESP Common Stock surrendered equal to
the difference between the stockholder's basis in such share and the fair
market value, as of the time of the merger, of the Company's Common Stock
received in exchange therefor.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS
AND COURT DECISIONS. THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE DISCUSSION IS NOT
A COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
AND, IN PARTICULAR, DOES NOT ADDRESS TAX CONSIDERATIONS THAT MAY AFFECT THE
TREATMENT OF AESP STOCKHOLDERS WHO ACQUIRED THEIR COMMON STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, OR AESP
STOCKHOLDERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. IN
ADDITION, NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES OF THE MERGER UNDER APPLICABLE STATE, LOCAL, OR FOREIGN LAWS.
REGULATORY APPROVALS
The Company is not aware of any federal or state regulatory
requirements that must be complied with in order to consummate the Merger,
other than the filing of the Articles of Merger with the Secretary of State of
the State of Florida with respect to the merger of Newco with and into AESP and
other than the filing of Form N-54C with the Commission to withdraw the
Company's election as a business development company immediately following the
Merger and stockholder approval of the same.
CONDUCT OF BUSINESS PENDING MERGER
Operation of Businesses in Ordinary Course. The Merger Agreement
provides that, prior to the Effective Time, each of the Company and AESP (and
their respective subsidiaries) shall: (i) operate its business only in the
ordinary course of business, consistent with past practice; and (ii) use its
best efforts to preserve substantially intact its business organization, to
keep available the services of its current
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<PAGE> 28
officers, employees and consultants and to preserve its relationships with,
among others, customers and suppliers. By way of example, none of the parties
may engage in any of the following without the prior written consent of the
other party: (i) amend or otherwise change its Articles of Incorporation or
By-Laws, or other corporate governing instruments; (ii) issue or otherwise
encumber any shares of capital stock or any options, or other rights of any
kind to acquire any shares of such capital stock, or any other ownership
interest or any assets, except for sales in the ordinary course of business or
which, individually, do not exceed $100,000 or which, in the aggregate, do not
exceed $100,000; (iii) declare or pay any dividend or other distribution; (iv)
acquire, directly or indirectly, any of its capital stock; (v) acquire any
corporation, partnership, other business organization or any division thereof
or any assets; (vi) incur any indebtedness for borrowed money or issue any debt
securities or assume, or otherwise become responsible for, the obligations of
any person, or make any loans or advances, except borrowings under existing
bank lines of credit in the ordinary course of business, the Note and the
Convertible Note, or enter into or amend any agreement, with respect to any of
the foregoing, provided that AESP is permitted to enter into a new credit
facility; (vii) increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary course of
business in accordance with past practice, or grant any severance or
termination pay to, or enter into any employment or severance agreement with
any director or executive officer or establish, or amend or take action to
accelerate any rights or benefits under any employee benefit plan; or (viii)
take any action, other than reasonable and usual actions in the ordinary course
of business and consistent with past practice, with respect to accounting
policies or procedures.
No Solicitation. Prior to the Special Meeting of the Company's
stockholders to which this Proxy Statement relates, the Company is prohibited
from soliciting or initiating the submission of any proposal or offer relating
to any transaction involving the capital stock or assets of the Company,
including any joint venture, lease, licensing agreement, dividend, tender
offer, merger, consolidation, acquisition or other business combination. The
Company may, however, participate in any discussions or negotiations with
respect to any unsolicited proposal (or take any of the actions referred to in
the foregoing paragraph) if: (i) counsel to the Company's Board of Directors
advises the Board that the failure to participate in such discussions or
negotiations could involve the members of the Board of Directors in a breach of
their fiduciary duties to the stockholders of the Company; or (ii) the Board
determines, after consulting with its financial advisors, that any such
proposal may be more favorable to the Company's stockholders from a financial
point of view than the Merger. In the event that the Company terminates the
Merger Agreement based upon its fiduciary duty to the Company's stockholders,
then the Company will be required to pay $250,000 to AESP within ten business
days of the third party merger or business combination.
Termination of Merger Agreement. The Merger Agreement provides that
it may be terminated and the Merger may be abandoned at any time on or before
the Effective Time:
(i) by the mutual consent of the Company and AESP;
(ii) by either party if there has been a breach by the other party of
any representation, warranty or covenant set forth in the Merger Agreement;
(iii) by either party if the Merger is not consummated before December
31, 1996;
(iv) by either party if the consummation of the Merger is permanently
enjoined by a governmental authority;
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<PAGE> 29
(v) by the Company if the Board of Directors exercises its fiduciary
duties to the Company's stockholders in connection with an unsolicited third
party merger or business combination (see "--Conduct of Business Pending
Merger"); or
(vi) by either party if the required vote of the Company's
stockholders is not obtained.
OPERATION AND MANAGEMENT OF THE COMPANY FOLLOWING MERGER
General. After the Merger, the Company will be a holding company
through which the Company will operate the AESP Entities as wholly-owned
operating subsidiaries. After the Merger, the primary purpose of the Company
will be to derive earnings from the operation of these subsidiaries as opposed
to the Company's current purpose of deriving earnings from investments in other
companies. See "CERTAIN INFORMATION REGARDING THE AESP ENTITIES--AESP's
Business."
Composition of the Board of Directors. After the Merger, all of the
current members of the Company's Board of Directors, other than Leonard J.
Sokolow, will resign from the Board of Directors. Mr. Sokolow will then vote
to elect Mr. Stein as a Class I director of the Company to hold office until
the Company's 1999 annual meeting of stockholders and Mr. Briskin as a Class II
director of the Company to hold office until the Company's 1997 annual meeting
of stockholders. Thereafter, Messrs. Stein and Briskin will vote their shares
of the Company's Common Stock to ensure that Mr. Sokolow remains on the
Company's Board of Directors until the expiration of his Class III
directorship, which is scheduled to expire at the Company's 1998 annual meeting
of stockholders.
Employment Agreements. As a condition to the consummation of the
Merger Agreement, Messrs. Stein and Briskin will each enter into an employment
agreement with the Company at the Opt Out Time. The term of such employment
agreements will (subject to earlier termination for cause) be for an initial
period of five years and will thereafter continue for successive one year terms
unless canceled by either party. During the term of such employment
agreements, Messrs. Stein and Briskin will receive a salary of $125,000 per
year, which salary will increase annually by 10 percent of the prior year's
salary plus the increase in the consumer price index, which increase may not,
in any event, exceed 20 percent of the prior year's salary. In addition,
Messrs. Stein and Briskin will be entitled to receive an annual bonus equal to
five percent of the Company's pre-tax net income in each fiscal year, provided
that the annual bonus may not exceed 300 percent of the prior year's salary.
The Company will provide each of Messrs. Stein and Briskin with an automobile
allowance of $500 per month and a term life insurance policy in the amount of
$1,000,000. For purposes of the employment agreement, a change in control is
defined as an event that: (i) would be required to be reported in response to
Item 6(e) of Schedule 14(a) of Regulation 14A under the Exchange Act; (ii)
causes a person other than Messrs. Stein and Briskin to beneficially own more
that 20 percent of the Company's outstanding securities; or (iii) causes
members of the Board of Directors following the Merger to cease to constitute a
majority thereof unless the election of each new director was approved by a
vote of at least two-thirds of the directors still in office who were directors
as of the effective date of the employment agreement. In the event that during
the term of such employment agreements there is a change of control of the
Company which has not been approved by the Company's Board of Directors,
Messrs. Stein and Briskin will have the option to terminate their employment
with the Company within three months of the change of control and receive a
lump sum payment of $1,000,000. In such event, all previously granted stock
options would become automatically vested. If the Board of Directors approves
a change of control, Messrs. Stein and Briskin may terminate their employment,
but would only be entitled to receive a payment equal to the prior year's
annual salary and to become automatically vested in a portion of their stock
option equal to their percentage completion of the term of their employment
agreement. As part of such employment agreements, each of Messrs. Stein and
Briskin will agree not to compete against the Company for a 12-month period
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<PAGE> 30
following the termination of his employment with the Company for any reason
other than a change in control without the approval of the Board of Directors.
1996 Stock Option Plan. At the Special Meeting, stockholders of the
Company are being asked to consider and approve the 1996 Plan which will
provide for the grant by the Company of options to purchase up to an aggregate
of 400,000 of the Company's Common Stock to the Company's employees, subject to
the consummation of the Merger. See "PROPOSAL TO APPROVE THE 1996 STOCK OPTION
PLAN."
"Going Private" Transactions. For a three year period following the
Merger, the Company will not enter into any agreement with any stockholder who
beneficially owns more than 20 percent of the Company's outstanding securities
(e.g., Messrs. Stein and Briskin) with respect to any transaction that would
constitute a "going private" or other transaction subject to Rule 13e-3 (a
"Rule 13e-3 Transaction") of the Securities Exchange Act of 1934 (the "Exchange
Act") or any successor rule. As a general matter, a Rule 13e-3 Transaction
involves a transaction (such as a purchase, tender offer, or a reorganization)
by an issuer or an affiliate of an issuer that is designed or reasonably likely
to cause the delisting of the issuer's equity securities from NASDAQ or an
exchange or cause a reduction in the number of stockholders of record to fewer
than 300, thereby qualifying the securities for an exemption from Exchange Act
registration and periodic reporting obligations. The Merger Agreement provides
that the Company may engage in a Rule 13e-3 Transaction during the three year
period if: (i) a majority of disinterested stockholders approve such
transaction; (ii) the disinterested directors of the Board recommend such
transaction; and (iii) an opinion is obtained from a financial advisor that the
transaction is fair to the stockholders from a financial point of view.
Continued Exchange Act Registration. The Merger Agreement provides
that for a three year period following the Merger Agreement, the Company shall
cause the Common Stock to continue to be registered under the Exchange Act and
shall use its reasonable best efforts to timely file all periodic reports and
other documents required to be filed by the Company thereunder.
Use of Working Capital. After the Merger, the Company and its
subsidiary, AESP, will use its available working capital to satisfy corporate
obligations and pursue business opportunities. The Merger Agreement provides
that AESP may use its working capital to make payments under the Convertible
Note and to pay the tax obligations of Messrs. Briskin and Stein arising from
their status as stockholders of AESP prior to the Merger.
Investment Banking Relationship with JW Charles. After the Merger has
been consummated, the Company intends to enter into an agreement with JW
Charles, pursuant to which JW Charles would provide investment banking services
to the Company. It is presently contemplated that in exchange for such
services, the Company would grant JW Charles a warrant to purchase 200,000
shares of Common Stock at a $3.60 exercise price.
CERTAIN INFORMATION REGARDING THE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three Months ended March 31, 1996 as compared to the Three Months ended March
31, 1995
As a result of operations, net assets decreased approximately $41,600
(or by approximately .01 percent) during the quarter ended March 31, 1996. For
the comparable period in 1995, net assets increased $7,400 during the quarter.
The net decrease in net assets resulting from operations for the quarter ended
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<PAGE> 31
March 31, 1996 primarily resulted from a net investment loss of $37,100 and an
increase in unrealized depreciation of investments of $3,300.
The Company recognized investment income (which consisted entirely of
interest income) of approximately $65,100 for the quarter ended March 31, 1996
as compared to $67,400 for the quarter ended March 31, 1995.
Expenses aggregated approximately $113,300 during the quarter ended
March 31, 1996 which included salaries, accounting fees, consulting fees, legal
fees, rent and administrative expenses. Expenses for the quarter ended March
31, 1995 were $68,800. The increased expenses for the quarter ended March 31,
1996 resulted primarily from higher legal fees associated with the negotiation
of the potential merger transaction with Tallard Technologies, B.V.
Year ended December 31, 1995 ("Fiscal 1995") s compared to Period from
inception (June 3, 1994) through December 31, 1994 ("Fiscal 1994")
As a result of operations, net assets increased approximately $25,100
(approximately .05 percent of net assets) during Fiscal 1995 compared with an
increase in net assets of approximately $5,154,900 during Fiscal 1994 primarily
from the proceeds of the Company's initial public offering. The Company was
inactive, except for matters relating to its organization and registration
under the 1940 Act, for the period from inception (June 3, 1994) through August
30, 1994. The net increase in net assets resulting from operations for Fiscal
1995 primarily resulted from an increase in realized gains from sales of
investments of $44,700 offset by unrealized depreciation on investments of
$13,300 as a result of the decline in fair value of the Company's investment in
The Americas Growth Partners, Inc. as of December 31, 1995. These results
compare with a net increase in net assets resulting from operations in Fiscal
1994 of $900 which occurred primarily from net investment income of $6,000
which was offset by unrealized depreciation on investments of $5,100 as a
result in the decline in the market value of certain U.S. Treasury Bills as of
December 31, 1994.
The Company recognized investment income (which consisted entirely of
interest income) of approximately $288,100 for Fiscal 1995 compared with
investment income (which consisted entirely of interest income) of
approximately $77,600 for Fiscal 1994.
Expenses aggregated approximately $296,000 during Fiscal 1995 which
included salaries, consulting fees, legal fees, accounting fees, consulting
fees, rent and administrative expenses as compared with expenses of $70,500
during Fiscal 1994 for salaries, consulting fees, legal fees, accounting fees,
rent and administrative expenses with the Company being inactive except for
organization and registration matters from June 3, 1994 through August 30,
1994. Professional fees increased $56,200 as most fees incurred during Fiscal
1994 were related to the Company's initial public offering and were
appropriately netted against capital in excess of par.
Liquidity and Capital Resources
As of March 31, 1996, the Company had cash and cash equivalents of
approximately $527,800 and U.S. Treasury Bills of approximately $4,429,500. As
of March 31, 1996, the Company had liabilities of approximately $23,600.
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<PAGE> 32
BUSINESS OF THE COMPANY PRIOR TO MERGER
Set forth below is a discussion of the business of the Company as
conducted prior to the Merger. As discussed elsewhere herein, if the Merger is
consummated, the objectives and operations of the Company will be changed from
one engaged in primarily in investment activities to one involved solely in the
operation of the AESP Entities as wholly-owned subsidiaries of the Company.
See "--Operation and Management of the Company Following Merger."
The Company was formed in June 1994 as a non-diversified, closed-end
management investment company electing to be treated as a business development
company under the 1940 Act. Although the Company has no fixed policy
concerning the types of businesses or industry groups in which it may invest or
as to the amount of funds that it will invest in any one issuer, the Company's
investment objective has been to achieve long-term capital appreciation of its
assets, rather than current income, by investing in equity and debt securities
of and providing managerial assistance to, emerging and established companies
that management believes offer significant potential opportunities for growth
(individually, "portfolio company", collectively, "portfolio companies").
The Company has historically targeted for investment United
States-based portfolio companies "strategically-linked" to the Caribbean and
Latin America. The Company has considered companies to be strategically-linked
to the Caribbean and Latin America if they derive substantial revenue (at least
50 percent) from operations or transactions in the Caribbean and Latin America
or, if in the Company's view, they are positioned to do so. The Company
considers "Caribbean and Latin American" countries to be Argentina, Aruba, the
Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba,
Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica,
Mexico, Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, the
Commonwealth of Puerto Rico, Trinidad and Tobago, Uruguay and Venezuela. The
Company considers "emerging companies" to be those companies in the early
stages of development with little or no operating history, and minimal revenue
or profits, which the Company anticipates will increase revenue and become
profitable. The Company considers "established companies" to be those with an
existing revenue and profit base. To a lesser extent, certain of the emerging
and established companies may be in "turnaround" or other restructuring
situations.
To date, the Company has emphasized private investments in restricted
securities for which the Company is granted registration rights and/or rights
to participate in the sale of securities of a portfolio company by other
stockholders. The Company's objective has been to identify such companies that
it believes will benefit from economic and political developments in these
regions. The fulfillment of this objective has been thwarted in large part by
the lack of improvement in the political situation between the United States
and Cuba and continued prohibition under United States law against investment
in Cuba. See "PROPOSAL TO APPROVE THE MERGER--Background for the Merger." The
Company's policy has been to limit its investment in any single private issuer
to 15 percent of its net assets, at the time of investment, although this
policy is not a fundamental policy of the Company and may be changed at any
time without stockholder approval.
The Company's investments have been made primarily as a result of the
recommendations of investment bankers and other professionals known to members
of the Company's management through their business dealings and professional
relationships. Leonard J. Sokolow, the Company's President and Portfolio
Manager, has principal responsibility for selecting investments for the
Company, subject to the approval of the Board of Directors. The Company has
two employees, both of whom are officers.
PRESENT PORTFOLIO - VENTURE CAPITAL INVESTMENTS
Set forth below is certain information concerning the Company's
present principal investments in portfolio companies as of the date of this
Proxy Statement. Although the Company has not
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<PAGE> 33
independently verified for purposes of this Proxy Statement, the information
set forth in the documents filed by the portfolio companies or obtained from
the portfolio companies, to the Company's knowledge the information provided
below concerning such portfolio companies is accurate.
The Americas Growth Partners, Inc. ("AGP"). In 1995, the Company for
an initial investment of $22,608 acquired an 80 percent ownership interest in
and a 10 percent promissory note from AGP, a publishing and consulting company.
AGP published a book entitled "Business Opportunities in a Free Cuba." As of
June 30, 1996, the Company valued its investment in AGP at $0. After the
Merger, the Company does not intend to continue or pursue the business of AGP.
Golf Reservations of America, Inc. ("Golf"). In January 1995, the
Company invested $150,000 in Golf and was issued a $150,000 note and was
granted warrants to purchase 83,180 shares of Golf common stock at $1.88 per
share. Golf, a private company, has a system to make advance golf reservations
through a centralized reservations network of participation golf courses,
hotels, resorts and other lodging properties, and provides ancillary travel
services, all of which can be accessed by calling a single, toll-free phone
number, 1-800-TEE TIME. The $150,000 note was repaid in March 1995. Also in
March 1995, the Company invested an additional $50,000 and was issued a $50,000
note due the earlier of April 1, 1996 or the closing of a firm underwritten
public offering and was granted additional warrants to acquire 27,726 shares of
common stock at $1.88 per share. The past due note has been valued by the
Company at $25,000 as of June 30, 1996. The shares of common stock underlying
the 110,906 warrants have certain registration rights. As of June 30, 1996,
such warrants have been valued by the Company at $0.
COMPETITION
The Company encounters competition in its efforts to locate attractive
opportunities for the investment of its capital from other entities and
individuals having similar investment objectives. The primary competition for
desirable investments comes from investment companies, investment partnerships
and wealthy individuals. Some of the competing entities and individuals have
investment managers or advisors with significantly greater experience,
resources and managerial capabilities than the Company and are therefore in a
better position than the Company to obtain access to attractive investments.
To the extent that the Company can compete for such investments it may only be
able to do so on less favorable terms that those obtained by larger more
established investors.
DESCRIPTION OF PROPERTY
The Company maintains its principal executive office in Miami,
Florida, for which it pays only for administrative services and no rent.
LEGAL PROCEEDINGS
The Company is not currently engaged in any material pending legal
proceeding.
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<PAGE> 34
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been quoted on the NASDAQ SmallCap Market since
August 22, 1994 under the symbol "AGRO". The following table sets forth, for
the periods indicated, the range of high and low bid quotations as reported by
NASDAQ. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions.
There presently is a limited public market for the Common Stock.
<TABLE>
<CAPTION>
Price Per Share
High Low
---- ---
<S> <C> <C>
The period from inception (June 3, 1994)
through December 31, 1994:
Third Quarter (commencing August 22, 1994) $5 $4 7/8
Fourth Quarter 5 4 1/8
Fiscal year ending December 31, 1995:
First Quarter 4 1/2 2
Second Quarter 2 3/4 2
Third Quarter 2 5/8 2
Fourth Quarter 2 5/8 2
Fiscal year ending December 31, 1996
First Quarter 3 2 1/2
Second Quarter 2 3/4 2 1/4
</TABLE>
As of the date of this Proxy Statement, there were approximately
99 holders of record of the Company's Common Stock with 1,265,100 shares of
Common Stock outstanding. In addition, the Company believes that there are more
than 1580 beneficial owners of Common Stock whose shares are held in "street"
name as of such date. On August 9, 1996, the closing bid and ask price of the
Common Stock were $2 1/4 and $2 3/4, respectively. On July 15, 1996, the day
preceding public announcement of the signing of the Merger Agreement and the
proposed Merger transaction, the closing bid and ask price of the Common Stock
were $2 9/16 and $3, respectively.
The Company has never paid and does not currently intend to pay cash
dividends. In addition, the Company has never made, nor adopted any policies
with respect to, in-kind distributions, and has no present intention of
adopting any such policies or of making any such distributions. Furthermore,
there may also be substantial legal and contractual restrictions affecting the
timing of any such distributions by the Company or any such resales by
stockholders of distributed securities.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of the date of this Proxy
Statement. The beneficial ownership of the Common Stock of (i) each person who
is known by the Company to beneficially own more than 5 percent of the Common
Stock, (ii) each director of the Company, and (iii) all directors and executive
officers of the Company as a group (based upon information furnished by such
persons). Under the rules of the Commission, a person is deemed to be a
beneficial owner of a security if he has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition
of such security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to
acquire beneficial ownership within 60 days.
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<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Percentage
of Beneficial Owner(1) Owned(2) of Class
- - - ---------------------- ----------------- -----------
<S> <C> <C>
Leonard J. Sokolow(3) . . . . . . . . . . . . . . . 100 *
Hon. J. Antonio Villamil . . . . . . . . . . . . . -0- *
Neil R. Winter . . . . . . . . . . . . . . . . . . -0- *
Sanford B. Cohen . . . . . . . . . . . . . . . . . -0- *
Martin C. Engelmann . . . . . . . . . . . . . . . . -0- *
*Less than 1 percent
</TABLE>
(1) The business address for purposes hereof of all of the Company's
directors and executive officers is in care of the Company.
(2) Unless otherwise noted, the Company believes that all persons in the
table have sole voting and disposition power with respect to all shares
of Common Stock beneficially owned by them.
(3) Additionally represents all directors and officers as a group (5
persons).
CERTAIN INFORMATION REGARDING THE AESP ENTITIES
AESP'S BUSINESS
General. AESP is an international manufacturer and distributor of
computer connectivity and networking products. AESP was incorporated in
Florida in 1983 and its headquarters are located at 1810 N.E. 144th Street,
North Miami, Florida, 33181 (800-446-2377). AESP also has warehouse facilities
in North Miami, Florida and near San Francisco , California. Through AESP
Computerzubehor Gmbh, a German company established in 1987 ("AESP Germany") and
Advanced Electronic Support Products Compertillbehor I Sweden Aktiebolag, a
Swedish company established in 1988 ("AESP Sweden"), both wholly owned by the
two principals of AESP (Slav Stein and Roman Briskin), AESP has sales offices
and warehouses in Germany and Sweden.
Until 1990, AESP offered the majority of its products for Apple
connectivity solutions, at which point it had been designated as a "Third-Party
Developer" by Apple. In 1991, AESP rapidly began to expand its product base to
include PC connectivity and general networking solutions. In 1992, AESP
obtained the patent for Ethernet Auto By Pass Wallplate which has been part of
AESP's product line since that time. In 1995, AESP opened a bonded warehouse
in Germany to accommodate its growing product line and its expanding base of
European customers, including those in Eastern Europe.
AESP currently offers a full range of products to its customers,
including computer cables, connectors, installation products, data sharing
devices, fiber optic cables as well as a complete selection of networking
products, such as reworking interface cards, hubs, transceivers, and repeaters
for different networking topologies. Through suppliers, AESP manufactures
products that AESP designs as well as standard industry products. AESP's
suppliers are located primarily in the Far East in order to obtain competitive
prices on AESP's labor intensive products. AESP offers its products to
customers in North America, Latin America, Eastern and Western Europe.
The Computer Connectivity Industry. The growth of computer sales over
the past five years has increased the need for components and devices which
connect computers with computer peripherals and other computer-related
equipment. Companies which currently service the computer connectivity market
fall into three broad categories: manufacturers and distributors, retailers and
catalog houses. Catalog
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<PAGE> 36
houses sell directly to end-users by mass mailing catalogs, while retailers,
for the purposes herein, are defined, for the purpose hereof, as companies
which provide retail space to merchandisers often with multiple locations.
Manufacturers and distributors are then defined for the purposes herein as
those companies which service both the retailers and catalog houses.
Due to the high volume and labor intensive nature of manufacturing
computer connectivity products, most of these products are manufactured outside
the United States in such countries as Taiwan, The Peoples' Republic of China,
Hong Kong, Malaysia and Korea.
Currently, distributors of computer connectivity products range in
size, with the largest companies reporting nearly $50 million in annual gross
revenue and the smaller distributors reporting little more than $3 million in
annual gross revenue. The small distributors predominate the computer
connectivity industry.
Products. AESP's products fall into four product lines: connectivity,
networking, audio/video, and accessories. Each of these product lines may be
further partitioned. For example, the networking product line includes PC
products, Apple products, and general purpose products. The networking product
line can be further categorized by identifying types of networking topologies
such as Ethernet, Token Ring Printer, etc. Part of AESP's success is derived
from its diversification into, and management of, these four product lines.
AESP is constantly upgrading its product lines in an effort to meet
changing consumer demand. In the first quarter of 1996, AESP produced a new
comprehensive, reference-style catalog, which includes over 1000 of AESP's
products. During the same quarter, AESP also improved the packaging of its
products. AESP is currently working with an outside advertising agency to
improve AESP's brand name recognition. These improvements are anticipated to
be reflected in AESP's product line by the Spring of 1997.
In addition to offering a large number of products, AESP also offers
numerous services to its customers. These services include, but are not limited
to, stock rotation, price protection, enhanced packaging, technical support,
extended warranties, merchandising/display programs, and quality control.
Suppliers. AESP contracts with suppliers to manufacture products that
AESP designs as well as standard industry products. The suppliers are located
mainly in Taiwan, Korea and The Peoples Republic of China, although AESP also
uses suppliers in Europe and the United States. Original Equipment
Manufacturers ("OEM") products are sometimes designed by the customers (often
with AESP's assistance) and manufactured by one of AESP's suppliers. Some
standard products, such as bulk cable products, are not designed by AESP and
are primarily manufactured in the United States.
For the production of each specific type of retail product, AESP
usually maintains an active relationship with several suppliers to guard
against the possibility of problems with one supplier adversely impacting
AESP's business. For the production of OEM products, AESP usually uses a
single supplier for each product, with other factories providing competitive
price quotes and being available to supply the same OEM product if a primary
supplier fails to produce for reasons outside of AESP's control. In an effort
to produce defect-free products and maintain good working relationships with
its suppliers, AESP keeps in constant contact with its suppliers, often
inspecting the manufacturing facilities of the suppliers and implementing
quality assurance programs in the factories.
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Over the last five years, AESP has significantly expanded its supplier
base. Presently, AESP works with approximately 35 suppliers both in and outside
the United States. AESP has one supplier which supplies approximately 10
percent of the Company's products. No other person supplies more than 10
percent of the AESP products.
Customer Base. AESP's customer base is divided into two areas: OEM
and retail. OEM customers are manufacturers of computer-related equipment
which use AESP products as part of their finished products. Retail customers
are local and regional resellers, value-added resellers and distributors,
educational institutions and catalog houses. Catalog houses constitute a large
share of AESP's domestic retail sales and also represent the most potential in
AESP's efforts to expand its retail customer base. The retail mass
merchandising accounts also represent a significant growth area for AESP. AESP
does not sell directly to end-users. AESP has one customer, Boca Research,
Inc., which represents approximately 13 percent of AESP's total sales. No other
customer is responsible for more than 10 percent of AESP's total sales.
Strategy. AESP's goals are to continue the steady growth rate which
it has experienced since January 1990, and to become a brand recognized leader
in the computer connectivity industry. In order to achieve these two goals,
AESP's strategy is to increase its retail and OEM customer base through
internal growth and through growth by acquisition, as set forth below.
AESP plans to increase its operating revenues and income by increasing
its retail and OEM customer base in existing markets and expanding into new
markets. In order to increase its national and international retail customer
base, AESP intends to continue to increase its product line and the size of its
inventory as well as continue to expand its sales and marketing efforts by
opening additional sales offices in Eastern and Western Europe and in Latin
America. In an effort to expand its OEM customer base, AESP intends to offer
its products not only to OEM computer product manufacturers, but also to the
manufacturers' in the medical, appliance, telecommunications, and cable TV
industries.
Another element of AESP's strategy to achieve its goals, is to grow by
the acquisition of other companies, assets, and/or product lines that would
compliment or expand AESP's existing business. AESP believes that acquisitions
will enable it to leverage its current level of operations and accelerate
growth. AESP has no present understanding, agreement or arrangement with
respect to any such acquisition.
Corporate Structure. AESP is divided into five departments: (1) The
Sales and Marketing Department, (2) the International Sales Department
(including affiliated offices in Sweden and Germany), (3) the Purchasing
Department, (4) the Operations Department (including the MIS, shipping,
warehouse and quality control and production group), and (5) the Accounting
Department. The Sales and Marketing Department covers sales in Latin America,
the United States and Canada. Account Managers and Customer Service
Representatives service this department from the North Miami headquarters. The
International Sales Department covers sales in Eastern and Western Europe, with
offices in Sweden and Germany servicing the European sector, and distributors
in the Ukraine and Moscow handling the Eastern Block customers.
OEM sales are generally handled from the headquarters in North Miami,
Florida, with an additional warehouse in the San Francisco area to improve
delivery times from the Pacific rim. OEM customers located in the Western half
of the United States receive their product directly from AESP's West Coast's
warehouse, while customers located in the Eastern half of the United States
receive their shipments from the North Miami warehouse. Retail sales are
generally handled from the headquarters in North Miami, Florida and from the
German and Swedish offices and warehouses. Quality assurance points are
located at all warehouse locations. AESP also maintains a limited production
facility in North Miami for small OEM and custom cable orders.
35
<PAGE> 38
The Sales and Marketing Department also includes product management,
graphic arts and technical support services. The International Sales
Department also receives support from the Sales and Marketing Department.
Employees. As of June 1996, the AESP Entities employed 67 people at
the following locations: Miami Office - 45; Sweden Office - 12; and German
Office - 10. None of the AESP Entities' employees are covered by collective
bargaining agreements. AESP provides its employees with certain benefits,
including a 401(k) plan. AESP believes that its relationship with its employees
is good.
Property. As of June 1, 1996, AESP either owned or leased the
following real property:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
Miami Office and Warehouse 20,000 sq ft
California Warehouse 5,000 sq ft
Second Miami Warehouse 10,000 sq ft
Sweden Sales Office and Warehouse 5,000 sq ft
Germany Sales Office and Warehouse 5,000 sq ft
Germany Bonded Warehouses 6,000 sq ft
</TABLE>
In addition, as of June 1, 1996, the AESP Entities collectively
maintained a total inventory (including all the stocking locations), valued at
approximately $3 million. All such facilities are leased by AESP. RSB
Holdings, Inc., a related party, owns the Miami office and warehouse, and
leases such properties to AESP. See "--Certain Transactions of AESP."
AESP'S MANAGEMENT
Executive Officers and Directors. The directors and executive
officers of AESP and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ---- --- --------
<S> <C> <C>
Slav Stein . . . . . . . . . . . . . . . . . 52 President and Director
Roman Briskin . . . . . . . . . . . . . . . . 47 Vice President, Secretary, Treasurer
and Director
</TABLE>
- - - -----------------------------
The principal occupations and positions for the past five years of
each of the Directors and Executive Officers of AESP are as follows:
Mr. Stein has served as President and Director of AESP since January
1992. In January 1992, pursuant to a stock redemption effectuated by AESP, Mr.
Stein increased his ownership of the issued and outstanding common stock of
AESP to 50 percent from 33 1/3 percent. Prior to January 1992, Mr. Stein had
served as Executive Vice President, General Manager and Director of AESP. Mr.
Stein has been a director and executive officer of RSB Holdings, Inc., a
Florida corporation, since September 1994, Planet Corporation, a Florida
corporation, since September 1991, and USAdvantage Corporation, a Florida
corporation since October 1994. See "--Certain Transactions of AESP."
36
<PAGE> 39
Mr. Briskin has served as Vice President, Secretary, Treasurer and
Director of AESP since January 1984. In January 1992, pursuant to a stock
redemption effectuated by AESP, Mr. Briskin increased his ownership of the
issued and outstanding common stock of AESP to 50 percent from 33 1/3 percent.
Mr. Briskin has been a director and executive officer of RSB Holdings, Inc., a
Florida corporation, since September 1994, Planet Corporation, a Florida
corporation, since September 1991, and USAdvantage Corporation, a Florida
corporation since October 1994. See "--Certain Transactions of AESP."
Summary Compensation Table. The following table shows remuneration
paid or accrued by AESP during the year ended December 31, 1995 and for each of
the two preceding years, to the President and Vice President, the most highly
compensated executive officers of AESP, for services in all capacities while
they were employees of AESP, and the capacities in which the services were
rendered.
<TABLE>
<CAPTION>
Salary Bonus
Name Year ($) ($)
- - - ----------------------- ------------------------- -------------------- --------------------
<S> <C> <C> <C>
Slav Stein 1995(1) $90,000 --
1994 75,000 --
1993 60,000 --
Roman Briskin 1995(1) 90,000 --
1994 75,000 --
1993 60,000 --
</TABLE>
- - - ----------------------------
(1) Does not include compensation paid to the executive to cover
withholding taxes incurred as a result of AESP's status as an S
corporation.
No long-term compensation awards were made to management during the
three years ended December 31, 1995.
See "--AESP's Principal Stockholders" for information regarding
management's current ownership interest in the AESP Entities. See "--Certain
Transactions for AESP" for information regarding management's current ownership
interests in affiliated entities.
Stock Option Plan. At the Special Meeting, stockholders of the
Company are being asked to consider and approve the 1996 Plan which will
provide for the grant by the Company of options to purchase up to an aggregate
of 400,000 of the Company's Common Stock to the Company's employees, subject to
the consummation of the Merger. See "PROPOSAL TO APPROVE THE 1996 STOCK OPTION
PLAN."
CERTAIN TRANSACTIONS OF AESP
As of July 15, 1996, AESP entered into a five year lease with RSB
Holdings, Inc., a Florida corporation ("RSB Holdings"), pursuant to which AESP
leases its corporate headquarters and warehouse in North Miami, Florida. AESP
makes annual payments under such lease in the amount of approximately $43,200.
Messrs. Stein and Briskin each own 50 percent of the issued and outstanding
common stock of RSB Holdings. Messrs. Stein and Briskin are also President and
Vice President, respectively, of RSB Holdings. See "--AESP's Management."
37
<PAGE> 40
In connection with the Merger and as of the Effective Time, the
Company will issue two seven-year convertible subordinated notes, each in the
amount of approximately $715,000 to Slav Stein and Roman Briskin, respectively,
in consideration for the reimbursement of certain taxes. See PROPOSAL TO
APPROVE THE MERGER--Convertible Note and Note." Under the note, the Company
will pay to the holder monthly interest in the amount of 1 percent over the
prime rate until maturity, at which point payment of all outstanding principal
and any outstanding accrued interest shall be due. The note is convertible
into common stock of the Company at an exercise price of $3.60 per share. The
note is also subordinate to all other institutional senior debt.
AESP sells certain of its computer connectivity products to Planet
Corporation, a Florida corporation ("Planet Corporation"), of which Messrs.
Stein and Briskin each own 25 percent of the issued and outstanding capital
stock. Planet Corporation sells the products it purchases from AESP outside
the United States to unaffiliated third parties.
USAdvantage Corporation, a Florida Corporation ("USAdvantage") made a
loan to AESP in the principal amount of $120,000. Messrs. Stein and Briskin
each own 50 percent of the issued and outstanding capital stock of USAdvantage.
Although USAdvantage has no current operations, as of July 15, 1996, the
principal amount of $120,000 remained outstanding under the referenced loan.
AESP'S PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of AESP's Common Stock by: (i) each person known to AESP
owning beneficially more than five percent of the outstanding shares of AESP's
Common Stock; (ii) each director of AESP; and (iii) all officers and directors
of AESP as a group. Each stockholder has sole voting and investment power with
respect to the shares beneficially owned. Unless otherwise noted, the address
of each person listed below is c/o AESP.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OWNERSHIP
----------------- -------------
<S> <C> <C>
Slav Stein(1)(2)(3) . . . . . . . . . . . . . . . . . . . . . 33 1/3 50%
Roman Briskin(1)(2)(3) . . . . . . . . . . . . . . . . . . . 33 1/3 50%
All officers and directors as a group (2 persons) (1)(2)(3) . 66 2/3 100%
- - - ----------
</TABLE>
(1) Messrs. Stein and Briskin will each own 873,521.5 shares of Common Stock
after the Merger.
(2) Does not include a warrant outstanding to purchase 23,000 shares of Common
Stock of AESP, which was granted pursuant to that certain Consulting Agreement
between AESP and Timothy E. Mahoney, dated January 1996. This warrant will
become a warrant to purchase 23,000 shares of Common Stock in connection with
the Merger.
(3) AESP Germany has (DM)51,000 in capitalization of which Messrs. Stein and
Briskin each own (DM)25,500 of such capitalization. Of the 510 shares of
Capital Stock of AESP Sweden issued and outstanding, Messrs. Stein and Briskin
each are holders of 255 shares of such capital stock.
DESCRIPTION OF AESP'S CAPITAL STOCK
AESP is authorized to issue 100 shares of common stock, no par value,
66 2/3 shares of which are currently issued and outstanding. Slav Stein and
Roman Briskin each own 33 1/3 shares of AESP's common stock, which shares are
being exchanged pursuant to the Merger for 58 percent of the
38
<PAGE> 41
Company's issued and outstanding Common Stock as of the Effective Time of
Merger. AESP has made distributions to the two principals of AESP (Slav Stein
and Roman Briskin) to cover the income taxes paid by Messrs. Stein and Briskin
on income they had received from AESP, an S corporation. See "--AESP
Management's Discussion and Analysis" for information on AESP's credit facility
restrictions on dividends. AESP is a private company and therefore there is no
established public trading market for its securities.
AESP'S SELECTED FINANCIAL INFORMATION
The selected financial information presented below for, and as of the end
of, each of the years in the two-year period ended December 31, 1995, and each
of the three-month periods ended March 31, 1995 and 1996, is derived from the
financial statements of AESP. The combined financial statements for each of
the years ended December 31, 1994 and 1995 are financial statements which
combine AESP, AESP Germany and AESP Sweden and have been audited by BDO
Seidman LLP, independent public accountants, except for AESP Sweden which has
been audited by another independent public accounting firm. The combined
financial statements as of and for the three-month periods ended March 31, 1995
and 1996 have not been audited, but, in the opinion of management, such
financial statements include all material adjustments (which were normal
recurring adjustments) necessary for fair presentation. The following selected
financial information should be read in conjunction with AESP's financial
statements and related notes and with "AESP's Management Discussion" included
elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
---------------------------- ----------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues . . . . . . . . . . . . . $8,797,001 $13,721,014 $2,642,709 $3,515,931
Cost of sales . . . . . . . . . . . 4,905,143 8,507,520 1,569,172 2,098,960
Gross profit . . . . . . . . . . . 3,891,858 5,213,494 1,073,537 1,416,971
Selling, general and administrative 2,993,700 3,951,931 743,900 996,746
expenses . . . . . . . . . . . . .
Operating income . . . . . . . . . 898,158 1,261,563 329,637 420,225
Other income and expenses (before 88,201 73,911 46,382 6,166
taxes) . . . . . . . . . . . . . .
Income before income taxes . . . . 986,359 1,335,474 376,019 426,391
Provision for income taxes . . . . 11,534 44,680 38,531 49,761
---------- ----------- ---------- ----------
Net income . . . . . . . . . . . . 974,825 1,290,794 337,488 376,630
========== =========== ========== ==========
PRO FORMA NET INCOME:
Net income . . . . . . . . . . . . 974,825 1,290,794 337,488 376,630
Provision for income taxes(1) . . . 336,000 439,000 96,000 105,000
---------- ----------- ---------- ----------
Pro forma net income . . . . . . . 638,825 851,794 241,488 271,630
========== =========== ========== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital . . . . . . . . . . $2,336,135 $ 3,024,704 $2,538,964 $3,229,212
Accounts receivable, net of
allowance for doubtful accounts . 1,579,693 3,015,018 1,531,933 2,815,415
Inventory . . . . . . . . . . . . . 1,871,697 3,197,950 2,042,418 3,337,926
Property and equipment (net) . . . 78,056 380,667 139,148 387,104
Total assets . . . . . . . . . . . 3,915,114 6,903,030 4,511,103 6,821,080
Notes payable . . . . . . . . . . . 403,083 1,117,302 750,000 1,495,000
Total current liabilities . . . . . 1,500,923 3,497,659 1,832,991 3,204,764
Stockholders' equity . . . . . . . 2,408,788 3,405,371 2,678,112 3,616,316
</TABLE>
- - - ---------------
(1) Reflects pro forma adjustments as if AESP had been taxed as a C corporation
since the beginning of the applicable periods.
39
<PAGE> 42
AESP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net sales for the three months ended March 31, 1996 increased by 33
percent to $3,515,931, up $873,222 from net sales of $2,642,709 for the three
months ended March 31, 1995. This increase in sales reflects AESP's increased
sales in retail, OEM and international markets. Gross profits as a percentage
of gross sales (i.e., total revenues) remained flat from period to period at 40
percent. AESP believes that this gross margin is high for the computer
networking and connectivity industry, and that as the combined company grows,
margins will drop somewhat.
Selling, general and administrative ("SG&A") expenses as a percentage of
net sales remained flat from period to period at 28 percent. SG&A expenses
were $996,746 for the three months ended March 31, 1996 compared with $743,900
for the same three months of 1995 as a result of increased costs associated
with the development of AESP's business.
Income from operations increased by 27 percent to $420,225 for the quarter
ended March 31, 1996, up $90,588 from income from operations of $329,637 for
the quarter ended March 31, 1995. The increase in 1996 resulted from an
increase in gross sales and without a loss of gross profit margin.
Net income before taxes was $426,391 for the quarter ended March 31, 1996
compared with $376,019 for quarter ended March 31, 1995. The increase of 13.3
percent in net income before taxes up $50,372 from the three quarters ended
March 31, 1995, results from increased sales activity in 1996.
The pro forma net income, which reflects AESP's net income had AESP been
taxed as a C corporation, was 271,630 for the quarter ended March 31, 1996
compared with 241,488 for the same quarter in 1995. The increase of the pro
forma net income of 12 percent for the first quarter in 1996, as with net
income above, resulted from an increase in gross sales.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased by 56 percent to $13,721,014 up $4,934,013
from net sales of $8,787,001 for 1994. The increase in net sales during 1995
reflects increased sales in OEM, retail and international markets. The growth
of the computer industry will continue to present opportunities for growth of
AESP, which focuses in particular on large catalog houses and OEM
manufacturers.
40
<PAGE> 43
Gross profits as a percentage of net sales were 38 percent in 1995
compared with 44 percent in 1994. The decrease in 1995 of gross profits as a
percentage of net sales reflects an increase of OEM sales in 1995 compared with
1994. OEM sales represent high volume sales with comparably lower overhead but
also have a lower gross profit margin compared with retail sales.
The company must continue to balance OEM sales, which have high volume and
a lower gross profit margin, with retail sales, which have a higher profit
margin but more volume that requires more time and effort as well as higher
overhead. The overall mix of retail, OEM and international sales will
determine the gross profit margin of AESP's sales.
SG&A expenses as percentage of net sales were 28.7 percent in 1995
compared with 34 percent in 1994. The improvement in 1995 reflects the
benefits of economies of scale associated with increased sales. This
improvement in SG&A expenses as percentage of net sales was achieved even
though salaries and commissions associated with increased sales increased in
1995 as compared with 1994. Overall in 1995, SG&A expenses increased 32
percent to $3,951,931, a lower rate than the increase in overall sales. The
increase in SG&A expenses was attributed in part to lease improvements,
upgrading computer systems, and an increase in personal.
Income from operations increased 40 percent to $1,261,563 in 1995, up from
income from operations of $898,158 in 1994. This increase resulted from
increased sales and the benefits of economies of scale resulting in a decrease
in SG&A expenses as a percentage of net sales.
Income (before income taxes) increased by 35 percent to $1,335,474 from
$986,359 in 1994. This increase resulted from the growth in sales and a
reduction in SG&A expenses as a percentage of net sales.
Net income for 1995 increased by 32 percent to $1,290,794 up $315,969 from
net income of $974,825 in 1994. In general, net income increased in 1995 was a
result of larger OEM sales. During 1995, AESP's OEM sales were approximately
$6.1 million or 44 percent of total sales, while during 1994, AESP's OEM sales
were approximately $2.90 million which represents 32 percent of total sales.
The pro forma net income, which reflects AESP's net income had it been
taxed as a C corporation, was $851,794 in 1995 compared with $638,825 for 1994.
The increase of the pro forma net income of 33 percent in 1995 occurred despite
the increase in income taxes and was, again, a result of growth in sales.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital was $3,024,704 in 1995, an increase of 29 percent over
1994's working capital of 2,336,135. Working capital was $3,229,212 for the
quarter ended March 31, 1996, which was an increase of 27 percent from
$2,538,964 for the same period in 1995. Accounts receivables were $3,015,018
in 1995, up from accounts receivables of 1,579,693 in 1994. Accounts
receivable were $2,815,415 for the quarter ended March 31, 1996 up from
accounts receivable of $1,531,933 for the same period in 1995. The increase in
accounts receivables reflects increased sales activity during the respective
periods. Inventory was 3,197,950 in 1995, up from inventory of 1,871,697 in
1994. This increase was attributable to purchases made during 1995 to expand
AESP's inventories to meet customers' needs.
AESP has a 2.5 million dollar revolving line of credit with an
institutional lender. The loan will mature on or about July 26, 1997.
Borrowings under this line bear interest at the rate of prime plus 1/2 percent
per annum. Available borrowings under the line of credit are based upon specific
percentages of eligible
41
<PAGE> 44
accounts receivable and inventories. The line of credit is secured by a lien
on AESP's accounts receivable, inventory and all other assets of AESP. As of
July 26, 1996, approximately $1.5 million was outstanding under this new credit
facility. This line of credit is guaranteed by AESP's principal shareholders.
In connection with this credit facility agreement, AESP is required to
comply with certain affirmative and negative covenants, including limitations
on further borrowings and dividend payments. Further, AESP is obligated to
remain in compliance with certain financial ratios. As of July 26, 1996, AESP
was in compliance with all financial ratios under this Agreement and AESP
believes it is in compliance with all other covenants of this Agreement.
AESP has entered into a loan agreement with USAdvantage in the principal
amount of $120,000. As of July 15, 1996 $120,000 remained outstanding under
the loan. AESP anticipates paying off this outstanding amount from available
cash flow. See "--Certain Transactions of AESP".
AESP expects, although no assurances can be given, that its cash flow from
operations, along with its currently available bank line of credit, will be
sufficient to meet its financing requirements over the next twelve months.
AESP's management does not believe that inflation has had a significant
effect on AESP's operations during the last several years. AESP's management
believes AESP has historically been able to pass on increased costs of
production to the price charged for its products, however given the
labor-intensive nature of its products and the fact that the majority of its
production occurs in the Far East, no assurance can be given that AESP will
continue to be able to pass on such increased costs in the future.
PROPOSAL TO WITHDRAW THE COMPANY'S ELECTION AS A BUSINESS
DEVELOPMENT COMPANY UNDER THE 1940 ACT
GENERAL
The Company is presently a non-diversified, closed-end management
investment company electing to be treated as a business development company
under the 1940 Act. As a result of being a business development company, the
Company has been exempt from being "registered" as an investment company under
the 1940 Act, although the Company is still subject to significant regulation
under the 1940 Act. See "--Certain Requirements under the 1940 Act."
Following the consummation of the Merger, the Company will, through
its three wholly-owned subsidiaries, be engaged in operational, non-investment
activities. It is expected that after the Merger less than 45 percent of the
value of the Company's total assets (on a consolidated basis, exclusive of
Government securities and cash items) will consist of, and less than 45 percent
of the Company's net income after taxes (for the last four fiscal quarters
combined) will be derived from, securities (other than, among other things,
Government securities, or securities issued by majority owned subsidiaries).
Accordingly, the Company will not fall within those provisions of the 1940 Act
defining an "investment
42
<PAGE> 45
company" and management believes such provisions will not be applicable to the
Company in the future. See "--Definition of 'Investment Company'." Since the
exemptive benefits of the 1940 Act business development company election will
no longer be relevant to the Company following the consummation of the Merger,
the Board has concluded that it would not either be consistent with the 1940
Act or in the best interest of the Company to unnecessarily subject the Company
to the limitations and regulatory burdens imposed under the 1940 Act upon
business development companies. See "--Reasons for the Proposal."
The 1940 Act provides that a business development company shall not
withdraw its election as a business development company, unless authorized by a
vote of a majority of its outstanding voting securities. The Board of
Directors of the Company has determined that it is in the best interest of the
Company and its stockholders to seek stockholder approval to withdraw the
Company's election as a business development company. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
It is a condition to the consummation of the Merger that the proposal
to withdraw the Company's election as a business development company under the
1940 Act be approved, and likewise, it is a condition to the approval of this
proposal that the Merger be consummated. Therefore, unless the proposal to
withdraw the Company's election as a business development company is approved,
the Merger will not be consummated and no proposal will be deemed approved.
Immediately after the consummation of the Merger at the Effective
Time, the Company will file a notification on Form N-54C with the Commission to
withdraw the Company's election to be subject to the provisions of Sections 55
through 65 of the 1940 Act. Upon the filing of this form, which is effective
immediately upon receipt with the Commission, the Company will no longer be
subject to regulation under the 1940 Act. See "--Protective Provisions of the
1940 Act." The Company will, however, continue to be registered under the
Exchange Act and the Common Stock will continue to be listed on the NASDAQ
SmallCap Market. This proposal will have no federal income tax consequences
upon the Company or its stockholders. The Company will continue to be taxed as
a "C corporation" for federal income tax purposes, as the Company does not
qualify as a "Subchapter M investment company."
Approval of the proposal to withdraw the Company's election as a
business development company under the 1940 Act requires the affirmative vote
of the holders of more than 50 percent of the Company's outstanding Common
Stock. In addition, this proposal will require an amendment to the Company's
Articles of Incorporation to delete all provisions and reference therein
related to the 1940 Act. See "PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
INCORPORATION."
THE 1940 ACT
A company falling within the definition of the term "investment
company" under the 1940 Act is required to register with the Commission as such
unless an exemption from such registration is available. In 1980, the 1940 Act
was amended to provide for the regulation of business development companies and
to exempt such companies from registration under the 1940 Act. A business
development company is, in effect, a closed-end investment company that: (i) is
operated for the purpose of making investments in small and developing
businesses; (ii) makes available significant managerial assistance to its
portfolio companies; and (iii) notifies the Commission of its election to be
treated as a business development company under the 1940 Act.
43
<PAGE> 46
As a result of the Company's election to be treated as a business
development company, the Company has been exempt from the requirement to
register as an investment company under the 1940 Act. However, the Company has
been subject to the 1940 Act's provisions and rules applicable to business
development companies, as well as numerous provisions of the 1940 Act
applicable to registered closed-end investment companies. These consist of
extensive regulations relating to the business development companies'
operations, including: (i) capital structure requirements; (ii) limits on the
sources of funds from which the Company may make distributions, (iii) limits on
the Company's ability to distribute and repurchase its securities; (iv)
requirements relating to disinterested persons; (v) restrictions on executive
compensation arrangements; and (vi) limitations on transactions with
affiliates. See "--Protective Provisions of the 1940 Act."
A business development company may not withdraw its election as a
business development company unless authorized by the vote of a majority of its
outstanding voting securities. Following approval by the Company's
stockholders of the proposal, the Company will file with a Commission a notice
of withdrawal of election to be a business development company on Form N-54C
pursuant to the 1940 Act. Withdrawal of the election is effective upon the
filing of a Form N-54C notification.
DEFINITION OF "INVESTMENT COMPANY"
After the Merger, the Company is not expected to be a statutory
"investment company" and therefore will not be required to register as an
investment company under the 1940 Act. Under the 1940 Act, there are three
provisions defining the term "investment company," two of which are potentially
applicable to the Company.
Under Section 3(a)(1) of the 1940 Act, "investment company" is defined
to include an issuer which "is or holds itself out as being engaged primarily,
or proposes to engage primarily, in the business of investing, reinvesting or
trading in securities." (Emphasis supplied.) After the Merger, the Company
will be a holding company through which the Company will operate its three
wholly-owned, operating subsidiaries: AESP, AESP Sweden and AESP Germany, all
of which together constitute a single operating business. The principal
purpose of the Company will be to derive earnings from the operation of its
business rather than for the purpose of obtaining dividend and interest income
through the efforts of others and disposing of the businesses after they have
appreciated in value. The Company's Board will control the operations of the
business and actively manage the same. Control of the Board will be in the
hands of the persons operating the business; namely Messrs. Stein and Briskin,
who will also be officers and directors of the Company and the subsidiaries.
In light of the foregoing, it is expected that after the consummation of the
Merger, the Company will be engaged in a business other than investing,
reinvesting or trading in securities.
Application of the Section 3(a)(1) definition has also been held to
require a quantitative analysis of the nature of the Company's assets as well
as its sources of revenues on an unconsolidated basis. If more than 50 percent
of the Company's assets or revenues are attributable to the business of
investing, reinvesting or trading in securities, a company may be deemed to be
an investment company under Section 3(a)(1). The securities activities
enumerated in Section 3(a)(1) do not include the passive activities of "owning"
or "holding" securities. The owning or holding of the securities of a
majority-owned or wholly-owned subsidiary, where the parent has no present
intention eventually to sell such securities is not deemed to constitute
"investing, reinvesting, or trading in securities" within the meaning of
Section 3(a)(1).
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Applying the Section 3(a)(1) definition to the Company, on an
unconsolidated basis after giving effect to the consummation of the Merger,
significantly less than 50 percent of the Company's assets will be employed in
the business of investing, reinvesting or trading in securities. Furthermore,
after the Merger, the Company is expected to derive significantly less than 50
percent of its revenues from investing, reinvesting, owning, holding or trading
in securities. On the basis of the foregoing, the Company believes that after
the Merger the Company will not fall within the Section 3(a)(1) definition of
an "investment company."
A second definition of "investment company" is set forth in Section
3(a)(3) of the 1940 Act, which provides that an issuer will be deemed to be an
investment company where it "is engaged or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading in securities, and owns
or proposes to acquire investment securities having a value exceeding 40 per
centum of the value of such issuer's total assets (exclusive of Government
securities and cash items) on an unconsolidated basis." The term "investment
securities" is defined to include all securities except: (i) Government
securities; (ii) securities issued by employees' securities companies; and
(iii) securities issued by majority-owned subsidiaries of the owner which are
not investment companies. Applying the Section 3(a)(3) definition to the
Company on an unconsolidated basis after the Merger, the value of the Company's
"investment securities" will be less than 40 percent of the Company's total
assets (exclusive of Government securities and cash items). On the basis of
the foregoing, the Company believes that after the Merger the Company is not
expected to fall within the Section 3(a)(3) definition of an "investment
company."
Rule 3a-1 promulgated under the 1940 Act provides that even if a
company is deemed to be an investment company under Section 3(a)(3), it will
not be deemed to be an investment company of no more than 45 percent of the
value of its assets (exclusive of Government securities and cash item) consists
of, and no more than 45 percent of its net income after taxes for the last four
fiscal quarters is derived from, securities other than: (i) Government
securities; (ii) securities issued by employees' securities companies; (iii)
securities issued by majority-owned subsidiaries of the issuer which are not
investment companies; and (iv) securities issued by companies which are
controlled primarily by the issuer, through which such issuer engages in a
business other than that of investing, reinvesting, owning, holding or trading
in securities and which are not investment companies. Furthermore, in order to
satisfy the requirements of Rule 3a-1, the issuer may not be an investment
company under Section 3(a)1) and the 45 percent calculation described above
must be determined on an unconsolidated basis, except that the issuer must
consolidate its financial statement with the financial statements of any
wholly-owned subsidiaries.
Applying the Rule 3a-1 exclusionary test to the Company on a
consolidated basis after the Merger, less than 45 percent of the value of the
Company's total assets (exclusive of Government securities and cash items) will
consist of the securities referred to above. In addition, no more than 45
percent of the Company's net income after taxes was derived from securities
other than those referred to above in any of the last four fiscal quarters.
The Company, therefore, is expected to satisfy the Rule 3a-1 exclusionary test
after the consummation of the Merger.
REASONS FOR THE PROPOSAL
An election by a closed-end company to be regulated as a business
development company under the 1940 Act results in there being available to the
company an exemption from the registration and other provisions of the 1940
Act. As discussed above, upon the consummation of the Merger, the Company is
not expected to fall within the definition of an "investment company" under the
1940 Act. As a result, the exemptive benefit ordinarily enjoyed by a regulated
business development company will not be
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<PAGE> 48
necessary or relevant to the Company. The Board of Directors has determined
that it would not be in the best interest of the Company or its stockholders to
continue to subject the Company to 1940 Act regulatory provisions that are not
intended to be applicable to the Company. Moreover, the approval of this
proposal is a condition to the consummation of the Merger. See "PROPOSAL TO
APPROVE THE MERGER."
PROTECTIVE PROVISIONS OF THE 1940 ACT
After the withdrawal of the Company's election as a business
development company, the Company will no longer be subject to regulation under
the 1940 Act and consequently, the Company's stockholders will no longer have
the benefit of certain protective provisions under the 1940 Act, which are
summarized below.
Section 36 of the 1940 Act generally authorizes the Commission to
bring actions against officers, directors and advisory board members of an
investment company and its investment advisors or principal underwriters if
they engage or are about to engage in conduct which violates prevailing
standards of fiduciary duty involving personal misconduct.
Section 55 of the 1940 Act requires that at least 70 percent of a
business development corporation's assets (excluding certain non-investment
assets used in the conduct of its business) be represented by certain
enumerated securities and certain liquid assets. The enumerated categories of
securities include securities purchased in non-public offerings from "eligible
portfolio companies," which include domestic, non-investment companies (other
than a wholly-owned SBIC subsidiary) controlled by the business development
company, either alone or as part of a group acting together.
Section 56 of the 1940 Act generally requires a majority of a business
development company's directors to be persons who are not "interested persons"
of such company. This is a more restrictive governance requirement than the
requirement generally imposed on registered investment companies.
Section 57 of the 1940 Act generally regulates transactions between a
business development company and certain of its affiliates including, without
limitation, purchases and sales of securities and other property, borrowings of
money or other property from a business development company, transactions
involving joint participation and certain profit-sharing plans. Transactions
that are subject to Section 57 of the 1940 Act generally require approval of
the directors of the business development company or the filing of an
application with the Commission and the granting of an order by the Commission.
The provisions of the 1940 Act governing transactions between business
development companies and their affiliates under Section 57 are less
restrictive than for registered investment companies under Section 17 of the
1940 Act. The nature of Section 57's operation depends upon the closeness of
the affiliation between the business development company and the affiliate
involved in the transaction. Transactions involving closer affiliates require
prior Commission approval, as do transactions under Section 17. Transactions
with persons less closely affiliated with the business development company may
be approved by a majority vote of the business development company's Board of
Directors, including a majority of its independent directors. Thus, a business
development company may engage in either principal or joint transactions with
remote affiliates without seeking Commission approval if the directors approve
the transaction. However, Section 57 provides the need for Commission approval
where an "upstream affiliate," such an officer, director or controlling person
of the business development company,
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<PAGE> 49
is a participant. The section also requires the directors to adopt and
periodically review and update procedures designed to monitor the possible
involvement of those persons who are subject to the section's restrictions in
transactions with the business development company. Finally, Section 57
requires business development company directors to record in the minutes of
their meetings detailed information about their decisions to approve
transactions with affiliates.
Section 58 of the 1940 Act provides that no business development
company shall, unless authorized by the vote of a majority of its outstanding
voting securities or partnership interests, either change the nature of its
business so as to cease to be a business development company or withdraw its
election as a business development company.
Section 60 of the 1940 Act generally provides that Section 12 of the
1940 Act shall apply to business development companies. Section 12 of the 1940
Act generally prohibits certain unlawful functions and activities by a
registered investment company including, without limitation, certain purchases
of securities on margin, participation in joint trading accounts, short sales,
acting as a distributor of securities, making any commitment as an underwriter,
and owning certain stock of other investment companies, insurance companies,
brokers, dealers, underwriters or investment advisors.
Section 61 of the 1940 Act generally provides that Section 18 of the
1940 Act shall apply to business development companies. Section 18 of the 1940
Act sets forth the capital structure requirements of registered investment
companies.
Section 62 of the 1940 Act generally provides that Section 21 of the
1940 Act shall apply to business development companies. Section 21 of the 1940
Act generally prohibits registered investment companies from lending money or
property to any person, directly or indirectly, if the investment policies of
such company do not permit such loan or such person controls or is under common
control with such company.
Section 63 of the 1940 Act generally provides that certain provisions
of Section 23 of the 1940 Act shall apply to business development companies.
Section 23 of the 1940 Act regulates distributions and repurchases of
securities by registered closed-end companies and generally prohibits such
companies from (i) issuing its securities for services or property other than
cash or securities, (ii) selling its common stock at a price below the current
net asset value of such stock (unless approved in the manner provided by
Section 63(2)), or (iii) purchasing its securities other than (a) on a
securities exchange or such other open market as the Commission may designate
by rules and regulations or orders, (b) pursuant to tenders or (c) under such
other circumstances as the Commission may permit by rules and regulations or
orders.
Section 64 of the 1940 Act generally provides that Section 31 of the
1940 Act shall apply to business development companies. Section 31 of the 1940
Act generally provides that every registered investment company, and every
underwriter, broker, dealer or investment advisor which is a majority-owned
subsidiary of such a company, shall maintain and preserve, for such period or
periods as the Commission may prescribe by rules and regulations, such
accounts, books and other documents as constitute the record forming the basis
of the financial statements required to be filed under Section 30 of the 1940
Act and of the auditor's certificates relating thereto. Section 64 of the 1940
Act also generally requires a business development company to disclose to its
stockholders certain risk factors involved in an investment in the securities
of a business development company due to the nature of such company's
investment portfolio.
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<PAGE> 50
Section 10(f) of the 1940 Act generally prohibits registered
investment companies from acquiring, during the existence of any underwriting,
any security a principal underwriter of which is an officer, member of an
advisory board, investment advisor, or employee of such registered investment
company, or is a person of which any such officer, director, member of an
advisory board, investment advisor or employee is an affiliated person.
Section 17(h) of the 1940 Act generally prohibits the organizational
documents of any registered investment company from containing any provision
which protects or purports to protect any director or officer of such company
against any liability to the company or its stockholders to which he would
otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Section 17(i) of the 1940 Act generally prohibits contractor
agreements under which any person undertakes to act as an investment advisor
of, or principal underwriter for, a registered investment company from
containing any similar exculpatory provisions for the benefit of such persons.
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
GENERAL
In connection with its recommendation to approve the Merger, the Board
of Directors of the Company has unanimously approved and recommended that the
stockholders adopt amendments to the Company's Articles of Incorporation in
order to: (i) change the name of the Company after the Merger from The Americas
Growth Fund, Inc. to Advanced Electronic Support Products, Inc.; and (ii)
delete all provisions and references in the Articles of Incorporation related
to the 1940 Act. Stockholder approval of this proposal is a condition to the
consummation of the Merger. Accordingly, unless this proposal and the Merger
proposal are approved by the stockholders of the Company, the Merger will not
be consummated and no such proposals will be deemed approved. The amendments
to the Articles of Incorporation require the approval of the holders of a
majority of the outstanding shares of Common Stock.
NAME CHANGE AMENDMENT
As noted elsewhere herein, after the Merger, the Company will become a
holding company through which it will operate the AESP Entities as wholly-owned
subsidiaries. Accordingly, the Board of Directors believes that it would be
appropriate and in the best interest of the Company to adopt the Advanced
Electronic Support Products, Inc. name after the Merger. This will allow the
Company to take advantage of the goodwill associated with the Advanced
Electronic Support Products, Inc. and will better reflect the business and the
objectives of the Company after the Merger.
The Company's primary operating subsidiary after the Merger is also
named Advanced Electronic Support Products, Inc. Therefore, to avoid confusion
between the identity of the Company after the name change and this subsidiary,
it is the intent of the Company and the subsidiary to change the name of the
subsidiary from Advanced Electronic Support Products, Inc. to Advanced
Electronic Support Products Florida, Inc. or a similar name.
If the name change amendment is adopted, stockholders of the Company
will not be required to exchange outstanding stock certificates for new
certificates.
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<PAGE> 51
DELETION OF CERTAIN PROVISIONS AND REFERENCES TO 1940 ACT
The Company's Articles of Incorporation contain certain provisions and
references to the 1940 Act, which are summarized below.
Article III of the Articles of Incorporation provides that the
"PURPOSE FOR WHICH THE [COMPANY] IS FORMED IS TO ACT AS A CLOSED-END MANAGEMENT
INVESTMENT COMPANY, ELECTING STATUS AS A BUSINESS DEVELOPMENT COMPANY UNDER THE
INVESTMENT COMPANY ACT OF 1940 ... and to exercise and generally enjoy all of
the powers, rights and privileges granted to, or conferred upon, corporations
by the General Laws of the State of Maryland now or hereafter in force," and
then provides certain examples of such powers, rights and privileges.
Article V, Section 3 of the Articles of Incorporation provides that,
with respect to matters submitted to stockholders for vote, all classes of the
Company's capital stock are entitled to vote in the aggregate and not by class,
"except (1) when otherwise required by the Maryland General Corporation Law;
(2) WHEN REQUIRED BY THE 1940 ACT, SHARES SHALL BE VOTED BY INDIVIDUAL CLASS;
and (3) when the matter does not affect any interest of the particular class,
then only stockholders of the affected class shall be entitled to vote
thereon..."
Article V, Section 4 of the Articles of Incorporation provides that a
majority of all classes of the capital stock of the Company will constitute a
quorum at a meeting of the stockholders, "EXCEPT AS OTHERWISE PROVIDED BY THE
1940 ACT, the General laws of the State of Maryland or in [the] Articles of
Incorporation."
Article VII, Section 2 of the Articles of Incorporation provides,
among other things, that sales by the Company of "ITS SHARES OF CAPITAL STOCK
FOR LESS THAN NET ASSET VALUE (AS DEFINED IN THE 1940 ACT) SHALL BE IN
ACCORDANCE WITH THE REQUIREMENTS SET FORTH IN THE 1940 ACT."
Article VII, Section 6 of the Articles of Incorporation provides that
the Board of Directors of the Company may amend the Company's Bylaws, "EXCEPT
TO THE EXTENT THAT THE BYLAWS OR THE 1940 ACT OTHERWISE PROVIDE."
Article VII, Section 9 of the Articles of Incorporation provides that
the "NET ASSET VALUE OF THE PROPERTY AND ASSETS OF THE [COMPANY] SHALL BE
DETERMINED IN ACCORDANCE WITH THE 1940 ACT AND WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, AND AT SUCH TIMES AS THE BOARD OF DIRECTORS MAY DIRECT,
BY DEDUCTING FROM THE TOTAL MARKET OR APPRAISED VALUE OF ALL OF THE PROPERTY
AND ASSETS OF THE [COMPANY], ALL DEBTS, OBLIGATIONS, LIABILITIES OF THE
[COMPANY]," AND FURTHER PROVIDES CERTAIN EXAMPLES OF SUCH LIABILITIES.
Article VIII of the Articles of Incorporation provides, among other
things, that "no provision of [the] Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of ... THE
1940 ACT."
Article IX of the Articles of Incorporation provides that the
Company's directors and officers "shall not be liable to the [Company] or its
stockholders for monetary damages arising from any action taken as a director
or officer, except to the extent such exemption from liability or limitation
thereof is not permitted by law (INCLUDING THE 1940 ACT)..." Article IX
further provides that the Company's
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directors and officers "shall be indemnified by the Company to the fullest
extent permitted by the Maryland General Corporation Law, subject to any
limitation imposed by THE 1940 ACT AND the rules and regulations promulgated
thereunder."
In connection with the approval of the Merger and the Company's
subsequent withdrawal of its status as a business development company under the
1940 Act, the Board of Directors of the Company has determined that the
references set forth above in the Articles of Incorporation to the 1940 Act
will serve no purpose and therefore has approved and recommended to the
stockholders the amendment to the Articles of Incorporation to delete the
provisions and references set forth above. In connection therewith, Article
III of the Articles of Incorporation will be amended to read as follows: "The
Corporation is organized for the purpose of transacting any and all lawful
business for which corporations may be organized under the laws of the United
States and the Maryland General Corporation Law and to engage in any business
or transaction deemed necessary, convenient or incidental to carrying out any
of such business within or without the United States."
PROPOSAL TO ADOPT THE 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors of the Company has proposed that the
stockholders approve the Company's 1996 Stock Option Plan (the "1996 Plan").
The 1996 Plan is designed to provide employees, directors, independent
contractors and consultants of the Company (the "Plan Participants") with an
added incentive to provide their services to the Company and to induce them to
exert their maximum efforts toward the Company's success. The 1996 Plan allows
the Company to grant Incentive Stock Options ("ISO's") (as defined under
Section 422 of the Code) and Non-Qualified Stock Options ("NQSO's"), not
intended to qualify under Section 422 of the Code to the Plan Participants. A
copy of the proposed 1996 Plan is attached as Appendix C and incorporated
herein by reference. All stockholders are urged to carefully review Appendix
C.
The adoption by the Company of the 1996 Plan is subject to the
consummation of the Merger and the approval of the holders of a majority of the
outstanding shares of Common Stock.
SUMMARY OF 1996 PLAN
The following is a summary of the terms of the 1996 Plan, and does not
include all of the provisions of the 1996 Plan.
Under the 1996 Plan, options to acquire in aggregate a maximum of
400,000 shares of Common Stock of the Company may be granted to executive
officers, employees (including employees who are directors), independent
contractors and consultants of the Company.
The 1996 Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee will determine which
persons will receive options and the number of options to be granted to such
persons. The Compensation Committee will also interpret the provisions of the
1996 Plan and make all other determinations that it may deem necessary or
advisable for the administration of the 1996 Plan.
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Pursuant to the 1996 Plan, the Company may grant ISOs and NQSOs. The
price at which the Company's Common Stock may be purchased upon the exercise of
options granted under the 1996 Plan will be required to be at least equal to
the per share fair market value of the Common Stock on the date particular
options are granted. Options granted under the 1996 Plan may have maximum
terms of not more than 10 years and are not transferable, except by will or the
laws of descent and distribution. None of the ISOs under the 1996 Plan may be
granted to an individual owning more than 10 percent of the total combined
voting power of all classes of stock issued by the Company unless the purchase
price of the Common Stock under such option is at least 110 percent of the fair
market value of the shares issuable on exercise of the option determined as of
the date the option is granted, and such option is not exercisable more than
five years after the grant date.
Generally, options granted under the 1996 Plan may remain outstanding
and may be exercised at any time up to three months after the person to whom
such options were granted is no longer employed or retained by the Company or
serving on the Company's Board of Directors.
Pursuant to the 1996 Plan, unless otherwise determined by the
Compensation Committee, one-third of the options granted to an individual are
exercisable upon grant, one-third are exercisable on the first anniversary of
such grant and the final one-third are exercisable on the second anniversary of
such grant. However, options granted under the 1996 Plan shall become
immediately exercisable if the holder of such options is terminated by the
Company or is no longer a director of the Company, as the case may be,
subsequent to certain events which are deemed to be a "change in control" of
the Company. A "change in control" of the Company generally is deemed to occur
when: (i) any person becomes the beneficial owner of or acquires voting
control with respect to more than 20 percent of the Common Stock (or 35 percent
if such person is a holder of Common Stock on the effective date of the
Offering); (ii) a change occurs in the composition of a majority of the
Company's Board of Directors during a two-year period, provided that a change
with respect to a member of the Company's Board of Directors shall be deemed
not to have occurred if the appointment of a member of the Company's Board of
Directors is approved by a vote of at least 75 percent of the individuals who
constitute the then existing Board of Directors; or (iii) the Company's
stockholders approve the sale of all or substantially all of the Company's
assets.
ISOs granted under the 1996 Plan are subject to the restriction that
the aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.
The 1996 Plan provide for appropriate adjustments in the number and
type of shares covered by the 1996 Plan and options granted thereunder in the
event of any reorganization, merger, recapitalization or certain other
transactions involving the Company.
FEDERAL INCOME TAX CONSEQUENCES
In accordance with the applicable provisions of the Code currently in
effect, neither the receipt nor the exercise of an ISO by an employee should
result in recognition of income or loss for federal income tax purposes. There
may be an adjustment required for alternative minimum tax purposes in the year
the ISO's are exercised equal to the difference between the fair market value
of the stock on the exercise date and the exercise price.
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Assuming an employee meets the employment requirements at the date of
exercise, no income is recognized by the employee until the stock acquired
pursuant to the exercise of an ISO is subsequently sold. This gain on the sale
will qualify for long-term capital gain treatment if such sale occurs at least
two years after the grant of the ISO and one year after its exercise (the
"holding period requirements").
If the holding period requirements are not met, there should be no tax
imposed on the participant until the sale of the Company Common Stock received
pursuant to the exercise of the ISO. Any gain realized, however, from the sale
of such stock will be taxed as ordinary income to the extent of the difference
between (a) the lesser of (i) the fair market value of the Company's Common
Stock on the date of exercise or (ii) the amount realized from such
disposition, and (b) the exercise price. Any gain realized by the employee in
excess of this difference should be classified as capital gain, to be treated
as long or short term depending upon the period of time that the Common Stock
was held by the participant.
An individual who receives a NQSO will generally recognize ordinary
income on the differences between the fair market value of the Common Stock on
the exercise date, and the amount paid for the Common Stock by the participant.
This gain per share of Common Stock is treated as compensation to the
participant and is subject to income and employment tax withholding. The
adjusted basis in the Common Stock equals the amount paid for the Common Stock
plus any amount that was included as compensation by the participant. The
holding period of the stock for capital gain purposes generally begins on the
exercise date of the option.
Generally, under the Code, assuming the holding period and employment
requirements are satisfied, no deduction will be allowed to the Company with
respect to the grant or the exercise of an ISO. The Company should be allowed
a deduction in the year that an NQSO is exercised, to the extent that the
person realizes ordinary income.
ADDITIONAL INFORMATION
PROXY SOLICITATION
The Company has retained Georgeson & Company Inc. ("Georgeson") as its
proxy solicitor. Georgeson will provide proxy solicitation services for a fee
of $5,000 plus out of pocket expenses, including, but not limited to, postage,
air freight, and telephone and facsimile charges.
INDEPENDENT PUBLIC ACCOUNTANTS.
Representatives of the Company's independent public accountants, Ernst
& Young, are not expected to be present at the Special Meeting.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at
the meeting and does not intend to present any other matters. If any other
matters properly come before the meeting or any adjournments or postponements
thereof, however, the persons named as proxies will have discretionary
authority to vote the shares represented by the accompanying form of proxy in
accordance with their best judgment.
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The Company will bear the entire cost of preparing, assembling,
printing and mailing this Proxy Statement, the accompanying proxy card and any
additional material which may be furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to the beneficial owners of the Common Stock. The
Company will reimburse brokerage houses, fiduciaries and custodians their
out-of-pocket expenses for sending proxy material to beneficial owners. The
solicitation of proxies may be made by mail, telephone or telegram and may be
made by directors, officers and employees of the Company without extra
remuneration.
By Order of the Board of Directors,
Leonard J. Sokolow, President
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF THE COMPANY
- - - -----------------------------------
AUDITED FINANCIAL STATEMENTS AS OF, AND FOR THE YEARS ENDED, DECEMBER 31, 1995 AND 1994
Report of Independent Certified Public Accountant..................................................... F-2
Balance Sheets - December 31, 1995 and 1994........................................................... F-3
Statements of Operations - Year Ended December 31, 1995 and from inception (June 3, 1994)
through December 31, 1994........................................................................... F-4
Statements of Changes in Net Assets - Year Ended December 31, 1995 and from inception
(June 3, 1994) through December 31, 1994............................................................ F-5
Statements of Cash Flows - Year Ended December 31, 1995 and from inception (June 3, 1994)
through December 31, 1994........................................................................... F-6
Notes to Financial Statements......................................................................... F-8
UNAUDITED FINANCIAL STATEMENTS AS OF, AND FOR THE THREE MONTHS ENDED, MARCH 31, 1996 AND 1995
Balance Sheets - March 31, 1996 and 1995.............................................................. F-18
Statements of Operations - Three Months Ended March 31, 1996 and 1995................................. F-19
Statements of Changes in Net Assets - Three Months Ended March 31, 1996 and 1995...................... F-20
Statements of Cash Flows - Three Months Ended March 31, 1996 and 1995................................. F-21
Notes to Financial Statements......................................................................... F-23
FINANCIAL STATEMENTS OF AESP
- - - ----------------------------
AUDITED COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND THE TWO YEARS THEN ENDED
Independent Auditors Report........................................................................... F-32
Combined Balance Sheet - December 31, 1995............................................................ F-33
Combined Statements of Income - Year Ended December 31, 1995 and 1994................................. F-35
Combined Statements of Stockholders' Equity - Year Ended December 31, 1995 and 1994................... F-36
Combined Statements of Cash Flows - Year Ended December 31, 1995 and 1994............................. F-37
Summary of Significant Accounting Policies............................................................ F-38
Notes to Consolidated Financial Statements............................................................ F-40
UNAUDITED COMBINED FINANCIAL STATEMENTS AS OF, AND FOR THE THREE MONTHS ENDED, MARCH 31, 1996 AND 1995
Combined Balance Sheets - March 31, 1996 and 1995..................................................... F-46
Combined Statements of Income - Three Months Ended March 31, 1996 and 1995............................ F-47
Combined Statements of Stockholders' Equity - Three Months Ended March 31, 1996 and 1995.............. F-49
Combined Statements of Cash Flows - Three Months Ended March 31, 1996 and 1995........................ F-50
Summary of Significant Accounting Policies............................................................ F-51
Notes to Consolidated Financial Statements............................................................ F-52
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
- - - -------------------------------------------------
Pro Forma Combined Balance Sheet - March 31, 1996..................................................... F-62
Pro Forma Combined Income Statement - Three Months Ended March 31, 1996............................... F-63
Pro Forma Combined Income Statement - Year Ended December 31, 1995.................................... F-64
Notes to Pro Forma Combined Financial Statements...................................................... F-65
</TABLE>
F-1
<PAGE> 57
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
The Americas Growth Fund, Inc.
We have audited the accompanying balance sheets of The Americas Growth Fund,
Inc. as of December 31, 1995 and 1994 and the related statements of operations,
changes in net assets and cash flows for the year ended December 31, 1995 and
for the period from inception (June 3, 1994) through December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included observation of securities held by the Company or
confirmation of other securities owned by correspondence with the custodian and
broker as of December 31, 1995 and 1994. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Americas Growth Fund, Inc.
at December 31, 1995 and 1994, the results of its operations, the changes in
its net assets and its cash flows for the year ended December 31, 1995 and for
the period from inception (June 3, 1994) through December 31, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 5, the financial statements as of December 31, 1995 and
1994, include securities valued at $150,000 (2.9% of net assets) and $100,000
(1.9% of net assets), respectively, whose values have been estimated by the
Board of Directors in the absence of readily ascertainable market values. We
have reviewed the procedures used by the Board of Directors in arriving at
their estimate of value of such securities and have inspected underlying
documentation and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly from
the values that would have been used had a ready market for the securities
existed, and the differences could be material.
ERNST & YOUNG LLP
Jacksonville, Florida
January 12, 1996
F-2
<PAGE> 58
THE AMERICAS GROWTH FUND, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
Assets: ------------ ------------
<S> <C> <C>
Investments at market or fair value:
Investments in U.S. Treasury Bills $ 4,424,800 $ 3,926,700
Investments in common stock - 100,000
Investments in notes receivable 150,700 -
----------- -----------
Total investments (amortized cost of $4,597,400
and $4,032,700 for 1995 and 1994, respectively) 4,575,500 4,026,700
Cash and cash equivalents 601,800 1,129,900
Prepaid expenses 8,000 800
Deferred tax asset 4,400 900
Furniture and equipment, net 16,700 8,100
Organizational costs, net 5,700 7,200
Deposits 1,100 1,100
----------- -----------
5,213,200 5,174,700
----------- -----------
Liabilities:
Accounts payable 15,000 7,300
Accrued payroll taxes - 8,900
Accrued directors fees 4,600 2,500
Accrued profit sharing liability 2,700 -
Income taxes payable 7,700 -
Deferred tax liability 3,200 1,100
----------- -----------
33,200 19,800
----------- -----------
$ 5,180,000 $ 5,154,900
=========== ===========
Net assets:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued $ - $ -
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,265,100 shares issued and outstanding 12,700 12,700
Capital in excess of par 5,141,300 5,141,300
Undistributed operating income (loss) and investment
gains (losses):
Accumulated operating (losses) income (300) 6,000
Realized gains on investments 44,700 -
Unrealized depreciation of investments (18,400) (5,100)
----------- -----------
26,000 900
Net assets applicable to outstanding common shares ----------- -----------
(equivalent to $4.09 and $4.07 per share for 1995
and 1994, respectively, based on outstanding
common shares of 1,265,100) $ 5,180,000 $ 5,154,900
=========== ===========
</TABLE>
Read the accompanying notes.
F-3
<PAGE> 59
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND
FROM INCEPTION (JUNE 3, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Interest income $ 288,100 $ 77,600
------------ ------------
Expenses:
Consulting fees to affiliate 36,000 12,000
Salaries 99,700 36,100
Professional fees 62,800 6,600
Board of Directors fees 13,400 2,500
Rent 16,400 5,200
Other 67,700 8,100
------------ ------------
296,000 70,500
------------ ------------
Investment (loss) income before income
tax expense (7,900) 7,100
Less income tax (benefit) expense (1,600) 1,100
------------ ------------
Net investment (loss) income (6,300) 6,000
Realized gain from sales of investments 55,800 -
Less income tax expense applicable to
realized gain from sales of investments 11,100 -
------------ ------------
44,700 -
Unrealized depreciation of investments (16,600) (6,000)
Less income tax benefit applicable
to unrealized depreciation of investments (3,300) (900)
------------ ------------
(13,300) (5,100)
------------ ------------
Net increase in net assets resulting
from operations $ 25,100 $ 900
============ ============
Per-share amounts:
Net investment (loss) income $ (0.01) $ 0.01
Net realized gains on investments 0.04 -
Net unrealized losses on investments (0.01) (0.01)
------------ ------------
$ 0.02 $ -
============ ============
Weighted average number of shares used
in per-share computations 1,265,100 722,883
============ ============
</TABLE>
Read the accompanying notes.
F-4
<PAGE> 60
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995 AND
FROM INCEPTION (JUNE 3, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ --------------
<S> <C> <C>
Net investment income (loss) $ (6,300) $ 6,000
Net realized gains from sales
of investments 44,700 -
Net increase in unrealized depreciation
of investments (13,300) (5,100)
----------- -------------
Net increase in net assets resulting
from operations 25,100 900
Capital share transactions:
Net proceeds from public offering - 5,153,500
Proceeds from initial capitalization
of Company - 500
----------- -------------
Total capital share transactions - 5,154,000
----------- -------------
Increase in net assets 25,100 5,154,900
Net assets at beginning of period 5,154,900 -
----------- -------------
Net assets at end of period
(includes undistributed net investment
(loss) income of ($300) and $6,000 at
December 31, 1995 and 1994, respectively) $ 5,180,000 $ 5,154,900
=========== =============
</TABLE>
Read the accompanying notes.
F-5
<PAGE> 61
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 AND
FROM INCEPTION (JUNE 3, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
Cash flows from operating activities: ------------ ------------
<S> <C> <C>
Sources of cash:
Interest $ 34,300 $ 16,300
----------- -----------
Uses of cash:
Payroll 105,900 27,200
Consulting fees to affiliate 36,000 12,000
Operating expenses 153,900 17,900
----------- -----------
295,800 57,100
----------- -----------
Cash used in operating activities (261,500) (40,800)
Cash flows from investing activities: ----------- -----------
Sources of cash:
Proceeds from sale of U.S. Treasury Bills 9,000,000 2,000,000
Proceeds from notes receivable 100,000 -
Proceeds from sale of common stock 242,800 -
----------- -----------
9,342,800 2,000,000
Uses of cash: ----------- -----------
Purchase of furniture and equipment 9,600 8,300
Payment of security deposits - 1,100
Payment of organizational costs - 2,500
Purchase of U.S. Treasury Bills 9,239,500 5,871,400
Purchase of common stock 87,700 100,000
Purchase of notes receivable:
Related party 22,600 -
Other 250,000 -
----------- -----------
9,609,400 5,983,300
----------- -----------
Cash used in investing activities (266,600) (3,983,300)
Cash flows from financing activities: ----------- -----------
Sources of cash:
Advance from shareholder - 115,100
Proceeds from sale of common stock - 5,502,800
Proceeds from initial capitalization of Company - 500
----------- -----------
- 5,618,400
Uses of cash: ----------- -----------
Payment of advance from shareholder - 115,100
Payment of stock issuance costs - 349,300
----------- -----------
- 464,400
----------- -----------
Cash provided by financing activities - 5,154,000
----------- -----------
(Decrease) increase in cash and cash equivalents (528,100) 1,129,900
Cash and cash equivalents at beginning of period 1,129,900 -
----------- -----------
Cash and cash equivalents at end of period $ 601,800 $ 1,129,900
=========== ===========
</TABLE>
F-6
<PAGE> 62
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995 AND
FROM INCEPTION (JUNE 3, 1994) THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Reconciliation of net increase in net assets
resulting from operations to cash used in
operating activities:
Net increase in net assets resulting from operations $ 25,100 $ 900
----------- -----------
Adjustments to reconcile net increase in net assets
resulting from operations to cash used in operating
activities:
Accretion of discount on U.S. Treasury Bills (251,900) (61,300)
Realized gain from sale of investments (55,800) -
Amortization and depreciation 2,500 500
Unrealized depreciation of investments 16,600 6,000
Provision for deferred income taxes (benefit) (1,400) 200
Changes in assets and liabilities:
Prepaid expenses (7,200) (800)
Interest receivable (700) -
Accounts payable 7,700 2,300
Accrued payroll taxes (8,900) 8,900
Accrued profit sharing liability 2,700 -
Accrued directors fees 2,100 2,500
Income taxes payable 7,700 -
----------- -----------
Total adjustments (286,600) (41,700)
----------- -----------
$ (261,500) $ (40,800)
Cash used in operating activities =========== ===========
</TABLE>
Read the accompanying notes
F-7
<PAGE> 63
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND NATURE OF OPERATIONS:
The Americas Growth Fund, Inc. (the "Company") was incorporated under
the laws of the State of Maryland on June 3, 1994. The Company is a
nondiversified, closed-end management investment company and has filed
with the Securities and Exchange Commission ("SEC") a notification of
election to be treated as a "business development company" as that
term is defined in the Investment Company Act of 1940, as amended.
The Company's primary investment objective is to achieve long-term
capital appreciation of its assets, rather than current income, by
investing in equity and debt securities of and providing managerial
assistance to, emerging and established companies that management
believes offer significant potential opportunities for growth
(individually, "portfolio company", collectively, "portfolio
companies"). The Company has and plans to continue to invest
primarily in United States based portfolio companies
"strategically-linked" to the Caribbean and Latin America. The
Company considers companies to be strategically-linked to the
Caribbean and Latin America if they derive substantial revenue (at
lease 50%) from operations or transactions in the Caribbean and Latin
America or, if in the Company's view, they are positioned to do so.
The Company considers "Caribbean and Latin American" countries to be
Argentina, Aruba, the Bahamas, Barbados, Belize, Bolivia, Brazil,
Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El
Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Netherlands
Antilles, Nicaragua, Panama, Paraguay, Peru, the Commonwealth of
Puerto Rico, Trinidad and Tobago, Uruguay and Venezuela.
The Company considers "emerging companies" to be those companies in
the early stages of development with little or no operating history,
and minimal revenue or profits, which the Company anticipates will
increase revenue and become profitable. The Company considers
"established companies" to be those with an existing revenue and
profit base. To a lesser extent, certain of the emerging and
established companies in which the Company invests may be in
"turnaround" or other restructuring situations.
2. SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION:
Investments in unrestricted securities that are traded in the
over-the-counter market are generally valued at the closing bid
price on the last day of the year. U.S. Treasury bills are valued
at market value. Restricted securities are valued at fair value as
determined by the Board of Directors. Because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be
material.
F-8
<PAGE> 64
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
USE OF ESTIMATES.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
FURNITURE AND EQUIPMENT:
Furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
ORGANIZATIONAL COSTS:
Organizational costs are stated net of accumulated amortization of
$1,800 and $300 at December 31, 1995 and 1994, respectively, and
are being amortized using the straight-line method over five years.
INCOME TAXES:
The Company is not entitled to the special treatment available to
regulated investment companies and is taxed as a regular
corporation for federal and state income tax purposes. The
aggregate cost of securities at December 31, 1995 and 1994 for
federal income tax purposes and financial reporting purposes was
the same. The aggregate gross and net unrealized depreciation for
all securities held at December 31, 1995 and 1994 is $22,600 and
$6,000, respectively.
PER SHARE AMOUNTS:
Per share amounts are computed by dividing the net investment
income (loss) and net realized and unrealized gains (losses) on
investments by the weighted average number of shares outstanding
throughout the year.
RECLASSIFICATION:
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
F-9
<PAGE> 65
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
3. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents. During the year the Company had deposits with financial
institutions which exceed the $100,000 limit covered by the Federal
Deposit Insurance Corporation. Management regularly monitors their
balances and attempts to keep this potential risk to a minimum by
maintaining their accounts with financial institutions they believe
are of good quality.
4. INITIAL PUBLIC OFFERING:
On August 30, 1994, in connection with the Registration Statement on
Form N-2 which became effective with the Securities and Exchange
Commission on August 19, 1994, the Company completed its initial
public offering of 1,100,000 shares of common stock at $5 per share
resulting in net proceeds before issuance costs to the Company of
approximately $4,785,000.
On September 21, 1994, the underwriters of the Company's initial
public offering exercised their overallotment option to purchase
165,000 shares of common stock at $5 per share resulting in additional
net proceeds before issuance costs to the Company of approximately
$717,800.
A summary of the proceeds from the initial public offering and the
exercise of the overallotment option is as follows:
<TABLE>
<S> <C> <C>
Gross offering proceeds $ 5,500,000
Less:
Underwriting discounts and commissions $ 550,000
Non-accountable expense allowance 165,000 715,000
----------- -----------
Net offering proceeds 4,785,000
-----------
Add overallotment option proceeds:
Gross overallotment proceeds $ 825,000
Less:
Underwriting discounts and commissions $ 82,500
Non-accountable expense allowance 24,700 107,200
----------- -----------
Net overallotment option proceeds 717,800
-----------
Net proceeds from Underwriter 5,502,800
Printing, legal and other offering costs 349,300
-----------
Net proceeds from initial public offering $ 5,153,500
===========
</TABLE>
F-10
<PAGE> 66
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
5. INVESTMENTS:
INVESTMENTS INCLUDE THE FOLLOWING AT DECEMBER 31, 1995 AND 1994:
<TABLE>
<CAPTION>
VALUE VALUE
PRINCIPAL TYPE OF ISSUE AND DECEMBER 31, DECEMBER 31,
AMOUNT NAME OF ISSUER 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury bills (85.4%
and 76.2% of net assets at
December 31, 1995 and 1994,
respectively)
$ 1,952,754 U.S. Treasury bill,
$2,000,000 face value,
matures March 2, 1995 $ - $ 1,981,600
$ 1,940,449 U.S. Treasury bill,
$2,000,000 face value,
matures June 8, 1995 - 1,945,100
$ 471,030 U.S. Treasury bill,
$500,000 face value,
matures January 11, 1996 499,300 -
$ 1,415,780 U.S. Treasury bill,
$1,500,000 face value,
matures February 8, 1996 1,492,000 -
$ 1,949,545 U.S. Treasury bill,
$2,000,000 face value,
matures June 6, 1996 1,955,600 -
$ 476,030 U.S. Treasury bill,
$500,000 face value,
matures November 14, 1996 477,900 -
----------- -----------
Total U.S. Treasury bills $ 4,424,800 $ 3,926,700
=========== ===========
</TABLE>
F-11
<PAGE> 67
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
5. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES VALUE VALUE
DECEMBER 31, DECEMBER 31, TYPE OF ISSUE AND DECEMBER 31, DECEMBER 31,
1995 1994 NAME OF ISSUER 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks (0.0% and
1.9% of net assets at
December 31, 1995 and
1994, respectively:
Majority owned (restricted):
80 - Americas Growth
Partners, Inc. $ - $ -
Restricted:
- 50,000 Greg Manning
Auctions, Inc. - 100,000
=========== =========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
WARRANTS WARRANTS VALUE VALUE
DECEMBER 31, DECEMBER 31, TYPE OF ISSUE AND DECEMBER 31, DECEMBER 31,
1995 1994 NAME OF ISSUER 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks warrants:
Restricted:
- 1 Greg Manning
Auctions, Inc. - -
=========== ===========
Golf Reservations
of America, Inc.
2 - Class A - -
2 - Class B - -
=========== ===========
</TABLE>
F-12
<PAGE> 68
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
5. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
OF NOTES TYPE OF ISSUE AND DECEMBER 31,
DECEMBER 31, 1995 NAME OF ISSUER 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Notes (2.9% net assets
at December 31, 1995)
$ 50,000 Golf Reservations of
America, Inc. $ 50,000
$ 100,000 Approved Financial
Corporation (including
accrued interest of $700) 100,700
$ 22,608 Americas Growth
Partners, Inc. -
----------
$ 150,700
==========
</TABLE>
In November 1994, the Company purchased in a private placement for an
aggregate consideration of $100,000, 50,000 shares of Greg Manning
Auctions, Inc. ("Manning") restricted common stock and a warrant
entitling the holder to purchase 50,000 shares of Manning restricted
common stock at $2.25 per share through November 3, 1995.
Subsequently, the number of common shares obtainable upon exercise was
increased to 56,500 and the exercise price was decreased to $1.55.
The Company received certain registration rights with respect to the
common stock and the common stock underlying the warrant. The Company
exercised the warrant and purchased the common stock on November 1,
1995. On November 16, 1995 the Company sold the common stock of Greg
Manning Auctions, Inc. for $141,200 which resulted in a realized gain
of approximately $53,500.
The Company agreed to loan up to $200,000 to Golf Reservations of
America, Inc. ("Golf") pursuant to two 10% promissory notes in January
and March, 1995. As of December 31, 1995, the outstanding balance was
$50,000 whick is due the earlier of April 1, 1996 or upon the closing
of Golf's firm underwritten public offering. In connection with the
notes, the Company received warrants to purchase an aggregate 110,907
shares of Golf's common stock at an exercise price of $1.88 per share.
As of December 31, 1995, the Board of Directors has valued the note at
$50,000 and the warrants at $0.
F-13
<PAGE> 69
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
5. INVESTMENTS (CONTINUED):
On July 6, 1995, the Company entered in to a joint venture agreement
with Approved Financial Corporation (Approved) to market commercial
loans to businesses that derive, or are in a position to derive, a
substantial portion of their revenue from the Caribbean or Latin
America. The loans are to be secured by qualified first or second
mortgages. On August 1, 1995, the Company provided Approved with a
$200,000 credit facility bearing interest at prime. As of December
31, 1995, $100,000 has been advanced to Approved under the credit
facility. In consideration for providing the credit facility and for
its management consulting services, the Company will receive a
twenty-five percent (25%) interest in the joint venture's revenue
received from points on applicable loans and an option to purchase
twenty five percent (25%) of the joint venture for $200,000. As of
December 31, 1995, the Company had not exercised this option. As of
December 31, 1995, the Board of Directors has valued the outstanding
credit facility at $100,000 and the option at $0.
During 1995, the Company has advanced funds to Americas Growth
Partners, Inc. (AGP) aggregating $22,608 pursuant to a 10% promissory
note. In addition, the Company received 80 shares of AGP common
stock, representing an 80% interest, in connection with the promissory
note. AGP is a publishing and consulting business which began
operations in January 1995. The Board of Directors has valued the
common stock and note at $0 as of December 31, 1995 and accordingly, a
reserve of $22,608 is included in the accompanying balance sheet as of
December 31, 1995. AGP's operating results for 1995 were not
significant.
6. CASH AND CASH EQUIVALENTS:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF COST AND COST AND
SHARES SHARES VALUE VALUE
DECEMBER 31, DECEMBER 31, TYPE OF ISSUE AND DECEMBER 31, DECEMBER 31,
1995 1994 NAME OF ISSUER 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
600,600 1,118,500 Money market fund,
Cortland Trust, Inc. $ 600,600 $ 1,118,500
- - Checking account
with bank 1,200 11,400
--------- ------------
Total cash and cash
equivalents (11.6 %
and 21.9% of net
assets at December 31,
1995 and 1994, respectively) $ 601,800 $ 1,129,900
========= ============
</TABLE>
F-14
<PAGE> 70
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
7. FURNITURE AND EQUIPMENT:
Furniture and equipment are comprised of the following at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Furniture and fixtures $ 1,500 $ 1,500
Computer equipment 16,400 6,800
--------- ---------
17,900 8,300
Less accumulated depreciation (1,200) (200)
--------- ---------
$ 16,700 $ 8,100
========= =========
</TABLE>
8. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The deferred tax liability is the result of an unrealized
appreciation on investments and using accelerated depreciation methods
for income tax purposes.
The significant components of deferred tax assets and liabilities on
the balance sheet at December 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Unrealized depreciation of investments $ 4,300 $ 900
Section 179 expense carryover 100 -
--------- --------
4,400 900
Deferred tax liability:
Depreciation 3,200 1,100
--------- --------
Net deferred tax asset (liability) $ 1,200 $ (200)
========= ========
</TABLE>
F-15
<PAGE> 71
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
8. INCOME TAXES (CONTINUED):
Significant components of the provision for income taxes attributable
to continuing operations in 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current:
Federal $ 5,800 $ -
State 1,900 -
--------- --------
7,700 -
--------- --------
Deferred:
Federal (benefit) (1,100) 200
State (benefit) (400) -
--------- --------
(1,500) 200
--------- --------
Provision for income taxes $ 6,200 $ 200
========= ========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
A Shareholder of the Company had advanced approximately $115,100, for
initial public offering costs. The Shareholder was repaid in full
prior to December 31, 1994.
The Company entered into a one year consulting agreement with an
entity of which a director of the Company was Chairman and President.
The agreement terminates in July, 1996. During 1995 and 1994, the
Company paid $36,000 and $12,000, respectively, under this agreement.
The Company is committed to pay $24,000 under this agreement during
1996.
The Company leased its office space pursuant to a noncancelable
operating lease which expired in September, 1995. Commencing in
October 1995, the Company is provided with free office space by a law
firm with which the Chairman is "of counsel". Rent expense for the
periods ended December 31, 1995 and 1994 amounted to approximately
$16,400 and $5,200, respectively. In addition, the Company paid the
law firm legal fees of approximately $13,000 in 1995.
F-16
<PAGE> 72
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
9. RELATED PARTY TRANSACTIONS (CONTINUED):
The Company entered into an employment agreement with the president of
the Company. The agreement is for three years expiring in July, 1997.
Compensation is $90,000 per year with cost of living increases each
year. The Company paid the president $91,500 and $33,000 pursuant to
this agreement during 1995 and 1994, respectively.
10. PROFIT SHARING PLAN:
The Company provides an employee profit sharing plan (the Plan) which
provides for a performance fee equal to twenty percent (20%) of net
income. As of December 31, 1995 and 1994, approximately $2,700 and
$0, respectively, was accrued in connection with the Plan. In 1995
and 1994 no fees were paid in connection with the Plan.
11. PENDING MERGER:
On November 21, 1995, the Company entered into a non-binding letter of
intent with Tallard Technologies B.V. (Tallard), a privately-held
company engaged in the sale and distribution of computers,
peripherals, software and services related to the information
processing industry. Under the terms of the letter of intent, the
Company will acquire all of the outstanding securities of Tallard in
exchange for the issuance of approximately 8,088,406 shares of stock
of the Company to the sole stockholder of Tallard. The contemplated
merger with Tallard is subject to the negotiation of a definitive
agreement and approval of definitive terms and conditions of the
transactions by the stockholders of the Company and Tallard, neither
of which has occurred as of December 31, 1995.
F-17
<PAGE> 73
THE AMERICAS GROWTH FUND, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Investments at market or fair value:
Investments in U.S. Treasury Bills $ 4,429,500 $ 4,363,000
Investments in common stock warrants - 5,300
Investments in notes receivable 150,700 50,000
----------- -----------
Total investments (amortized cost of $4,494,600 4,580,200 4,418,300
and $4,411,200 for 1996 and 1995, respectively)
Cash and cash equivalents 527,800 714,300
Note receivable - 20,300
Prepaid expenses 14,300 6,500
Deferred tax asset 17,000 -
Furniture and equipment, net 16,300 10,900
Organizational costs, net 5,300 6,800
Deposits 1,100 1,100
----------- -----------
5,162,000 5,178,200
----------- -----------
Liabilities:
Accounts payable 13,200 8,900
Accrued payroll taxes - 200
Accrued directors fees 4,900 4,300
Accrued profit sharing liability 2,700 -
Deferred tax liability 2,800 2,500
----------- -----------
23,600 15,900
----------- -----------
$ 5,138,400 $ 5,162,300
=========== ===========
Net assets:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued $ - $ -
Common stock, $.01 par value, 10,000,000 shares
authorized, 1,265,100 shares issued and outstanding 12,700 12,700
Capital in excess of par 5,141,300 5,141,300
Undistributed operating income (loss) and investment
gains (losses):
Accumulated operating (losses) income (37,400) 3,200
Realized gains on investments 43,500 -
Unrealized (depreciation) appreciation
of investments (21,700) 5,100
----------- -----------
Net assets applicable to outstanding common shares
(equivalent to $4.06 and $4.08 per share for 1996
and 1995, respectively, based on outstanding
common shares of 1,265,100) $ 5,138,400 $ 5,162,300
=========== ===========
</TABLE>
Read the accompanying notes.
F-18
<PAGE> 74
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income $ 65,100 $ 67,400
----------- -----------
Expenses:
Consulting fees to affiliate 9,000 9,000
Salaries 23,600 22,500
Professional fees 47,600 14,000
Board of Directors fees 3,800 2,500
Other 29,300 20,800
----------- -----------
113,300 68,800
----------- -----------
Investment loss before income tax benefit (48,200) (1,400)
Less income tax benefit 11,100 100
----------- -----------
Net investment loss (37,100) (1,300)
----------- -----------
Realized (loss) gain from sales of investments (1,500) 4,200
Less income tax benefit (expense) applicable to
realized (loss) gain from sales of investments 300 (600)
----------- -----------
(1,200) 3,600
----------- -----------
Unrealized (depreciation) appreciation
of investments (4,400) 7,100
Less income tax benefit (expense) applicable
to unrealized (depreciation) appreciation of
investments 1,100 (2,000)
----------- -----------
(3,300) 5,100
----------- -----------
Net (decrease) increase in net assets
resulting from operations $ (41,600) $ 7,400
=========== ===========
Per-share amounts:
Net investment loss $ (0.03) $ -
Net realized gains (losses) on investments - -
Net unrealized gains (losses) on investments - -
----------- -----------
$ (0.03) $ -
=========== ===========
Weighted average number of shares used
in per-share computations $ 1,265,100 1,265,100
=========== ===========
</TABLE>
Read the accompanying notes.
F-19
<PAGE> 75
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNADITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net investment loss $ (37,100) $ (1,300)
Net realized (losses) gains from sales
of investments (1,200) 3,600
Net increase in unrealized (depreciation)
appreciation of investments (3,300) 5,100
----------- -----------
Net (decrease) increase in net assets
resulting from operations (41,600) 7,400
Net assets at beginning of period 5,180,000 5,154,900
----------- -----------
Net assets at end of period $ 5,138,400 $ 5,162,300
=========== ===========
</TABLE>
Read the accompanying notes.
F-20
<PAGE> 76
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNADITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Sources of cash:
Interest $ 8,300 $ 7,800
----------- -----------
Uses of cash:
Payroll 23,600 31,200
Consulting fees to affiliate 9,000 9,000
Operating expenses 95,900 39,000
Income taxes - 200
----------- -----------
128,500 79,400
----------- -----------
Cash used in operating activities (120,200) (71,600)
----------- -----------
Cash flows from investing activities:
Sources of cash:
Proceeds from sale of U.S. Treasury Bills 2,000,000 2,000,000
Proceeds from sale of common stock - 101,600
----------- -----------
2,000,000 2,101,600
----------- -----------
Uses of cash:
Purchase of furniture and equipment - 3,000
Purchase of U.S. Treasury Bills 1,953,800 2,372,300
Advances to notes receivable:
Related party - 20,300
Other - 50,000
----------- ------------
1,953,800 2,445,600
----------- ------------
Cash provided by (used in) investing
activities 46,200 (344,000)
----------- ------------
Decrease in cash and cash equivalents (74,000) (415,600)
Cash and cash equivalents at beginning of period 601,800 1,129,900
----------- -----------
Cash and cash equivalents at end of period $ 527,800 $ 714,300
=========== ===========
</TABLE>
Read the accompanying notes.
F-21
<PAGE> 77
THE AMERICAS GROWTH FUND, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNADITED)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Reconciliation of net (decrease) increase in
net assets resulting from operations to cash
used in operating activities:
Net (decrease) increase in net assets
resulting from operations $ (41,600) $ 7,400
---------- ---------
Adjustments to reconcile net (decrease) increase
in net assets resulting from operations to
cash used in operating activities:
Accretion of discount on U.S. Treasury Bills (56,800) (59,600)
Realized loss (gain) from sale of investments 1,500 (4,200)
Amortization and depreciation 800 600
Unrealized depreciation (appreciation) of investments 4,400 (7,100)
Provision for deferred income taxes (benefit) (13,000) 2,300
Changes in assets and liabilities:
Prepaid expenses 7,600 (5,700)
Accounts payable (1,800) 1,600
Accrued payroll taxes - (8,700)
Accrued directors fees 300 1,800
Income taxes payable (21,600) -
---------- ---------
Total adjustments (78,600) (79,000)
---------- ---------
$ (120,200) $ (71,600)
Cash used in operating activities ========== =========
</TABLE>
Read the accompanying notes.
F-22
<PAGE> 78
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS:
The Americas Growth Fund, Inc. (the "Company") was incorporated
under the laws of the State of Maryland on June 3, 1994. The
Company is a non-diversified, closed-end management investment
company and has filed with the Securities and Exchange Commission
("SEC") a notification of election to be treated as a "business
development company" as that term is defined in the Investment
Company Act of 1940, as amended.
The Company's primary investment objective is to achieve long-term
capital appreciation of its assets, rather than current income, by
investing in equity and debt securities of and providing managerial
assistance to, emerging and established companies that management
believes offer significant potential opportunities for growth
(individually, "portfolio company", collectively, "portfolio
companies"). The Company has and plans to continue to invest
primarily in United States based portfolio companies
"strategically-linked" to the Caribbean and Latin America. The
Company considers companies to be strategically-linked to the
Caribbean and Latin America if they derive substantial revenue (at
least 50%) from operations or transactions in the Caribbean and
Latin America or, if in the Company's view, they are positioned to
do so. The Company considers "Caribbean and Latin American"
countries to be Argentina, Aruba, the Bahamas, Barbados, Belize,
Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican
Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras,
Jamaica, Mexico, Netherlands Antilles, Nicaragua, Panama, Paraguay,
Peru, the Commonwealth of Puerto Rico, Trinidad and Tobago, Uruguay
and Venezuela.
The Company considers "emerging companies" to be those companies in
the early stages of development with little or no operating
history, and minimal revenue or profits, which the Company
anticipates will increase revenues and become profitable. The
Company considers "established companies" to be those with an
existing revenue and profit base. To a lesser extent, certain of
the emerging and established companies in which the Company invests
may be in "turnaround" or other restructuring situations.
2. SIGNIFICANT ACCOUNTING POLICIES:
SECURITIES VALUATION:
Investments in unrestricted securities that are traded in the
over-the-counter market are generally valued at the closing bid
price on the last day of the period. U.S. Treasury bills are
valued at market value. Restricted securities are valued at fair
value as determined by the Board of Directors. Because of the
inherent uncertainty of such valuations, the estimated values may
differ significantly from the values that would have been used had
a ready market for the securities existed, and the differences
could be material.
USE OF ESTIMATES.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
F-23
<PAGE> 79
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
FURNITURE AND EQUIPMENT:
Furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets.
ORGANIZATIONAL COSTS:
Organizational costs are stated net of accumulated amortization of
$2,200 and $700 at March 31, 1996 and 1995, respectively, and are
being amortized using the straight-line method over five years.
INCOME TAXES:
The Company is not entitled to the special treatment available to
regulated investment companies and is taxed as a regular
corporation for federal and state income tax purposes. The
aggregate cost of securities at March 31, 1996 and 1995 for federal
income tax purposes and financial reporting purposes was the same.
The aggregate gross and net unrealized (depreciation) appreciation
for the three months ended March 31, 1996 and 1995 is ($4,400) and
$7,100, respectively.
PER SHARE AMOUNTS:
Per share amounts are computed by dividing the net investment
income (loss) and net realized and unrealized gains (losses) on
investments by the weighted average number of shares outstanding
throughout the year.
RECLASSIFICATION:
Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.
3. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents. During the year the Company had deposits with
financial institutions which exceeded the $100,000 limit covered by
the Federal Deposit Insurance Corporation. Management regularly
monitors their balances and attempts to keep this potential risk to
a minimum by maintaining their accounts with financial institutions
they believe are of good quality.
F-24
<PAGE> 80
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
4. INVESTMENTS:
INVESTMENTS INCLUDE THE FOLLOWING AT MARCH 31, 1996 AND 1995:
<TABLE>
<CAPTION>
VALUE VALUE
PRINCIPAL TYPE OF ISSUE AND MARCH 31, MARCH 31,
AMOUNT NAME OF ISSUER 1996 1995
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury bills (86.2%
and 84.5% of net assets at
March 31, 1996 and 1995,
respectively)
$ 1,940,449 U.S. Treasury bill,
$2,000,000 face value,
matures June 8, 1995 $ - $ 1,978,100
$ 485,580 U.S. Treasury bill,
$500,000 face value,
matures August 31, 1995 - 487,600
$ 471,030 U.S. Treasury bill,
$500,000 face value,
matures January 11, 1996 - 476,100
$ 1,415,780 U.S. Treasury bill,
$1,500,000 face value,
matures February 8, 1996 - 1,421,200
$ 1,949,545 U.S. Treasury bill,
$2,000,000 face value,
matures June 6, 1996 1,980,700 -
$ 487,890 U.S. Treasury bill,
$500,000 face value,
matures July 11, 1996 492,700 -
$ 1,465,940 U.S. Treasury bill,
$1,500,000 face value,
matures August 8, 1996 1,472,300 -
$ 476,030 U.S. Treasury bill,
$500,000 face value,
matures November 14, 1996 483,800 -
----------- -----------
Total U.S. Treasury bills $ 4,429,500 $ 4,363,000
=========== ===========
</TABLE>
F-25
<PAGE> 81
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
4. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES SHARES VALUE VALUE
MARCH 31, MARCH 31, TYPE OF ISSUE AND MARCH 31, MARCH 31,
1996 1995 NAME OF ISSUER 1996 1995
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks (0.0% and
0.0% of net assets at
March 31, 1996 and
1995, respectively:
Majority owned (restricted):
80 - Americas Growth
Partners, Inc. $ - $ -
============ ============
<CAPTION>
NUMBER OF NUMBER OF
WARRANTS WARRANTS VALUE VALUE
MARCH 31, MARCH 31, TYPE OF ISSUE AND MARCH 31, MARCH 31,
1996 1995 NAME OF ISSUER 1996 1995
- - - -------------------------------------------------------------------------------------------------
Common stocks warrants:
(0.0% and 0.1% of net
assets at March 31, 1996
and 1995, respectively)
Restricted:
1 1 Greg Manning
Auctions, Inc. $ - $ 5,300
============ ============
Golf Reservations
of America, Inc.
2 2 Class A $ - $ -
2 2 Class B $ - $ -
============ ============
</TABLE>
F-26
<PAGE> 82
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
4. INVESTMENTS (CONTINUED):
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE VALUE
OF NOTES TYPE OF ISSUE AND MARCH 31, MARCH 31,
MARCH 31, 1996 NAME OF ISSUER 1996 1995
- - - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes (2.9% and 1.0% of
net assets at March 31,
1996 and 1995, respectively)
$ 50,000 Golf Reservations of
America, Inc. $ 50,000 $ 50,000
$ 100,000 Approved Financial
Corporation (including
accrued interest of $700) 100,700 -
--------- ---------
$ 150,700 $ 50,000
========= =========
</TABLE>
In November 1994, in a private placement, the Company purchased 50,000 shares
of restricted common stock and a warrant in Greg Manning Auctions, Inc.
("Manning"). The warrant entitled the holder to purchase 50,000 shares of
Manning restricted common stock at $2.25 per share through November 3, 1995.
Subsequently, the number of common shares obtainable upon exercise was
increased to 56,500 and the exercise price was decreased to $1.55. The Company
received certain registration rights with respect to the common stock and the
common stock underlying the warrant. The Company exercised the warrant and
purchased the common stock on November 1, 1995. On November 16, 1995 the
Company sold the stock for $141,200 which resulted in a realized gain of
approximately $53,500.
The Company agreed to loan up to $200,000 to Golf Reservations of America, Inc.
("Golf") pursuant to two 10% promissory notes in January and March, 1995. At
March 31, 1996 and 1995, the outstanding balance was $50,000 which is due the
earlier of April 1, 1996 or upon the closing of Golf's firm underwritten public
offering. In connection with the notes, the Company received warrants to
purchase an aggregate 110,907 shares of Golf's common stock at an exercise
price of $1.88 per share. As of March 31, 1996 and 1995, the Board of
Directors has valued the note at $50,000 and the warrants at $0.
F-27
<PAGE> 83
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
4. INVESTMENTS (CONTINUED):
On July 6, 1995, the Company entered into a joint venture agreement
with Approved Financial Corporation (Approved) to market commercial
loans to businesses that derive, or are in a position to derive, a
substantial portion of their revenue from the Caribbean and Latin
America. The loans are to be secured by qualified first or second
mortgages. On August 1, 1995, the Company provided Approved with a
$200,000 credit facility bearing interest at prime. As of March 31,
1996, $100,000 has been advanced to Approved under the credit
facility. In consideration for providing the credit facility and for
its management consulting services, the Company will receive a
twenty-five percent (25%) interest in the joint venture's revenue
received from points on applicable loans and an option to purchase
twenty five percent (25%) of the joint venture for $200,000. As of
March 31, 1996, the Company had not exercised this option. As of
March 31, 1996, the Board of Directors has valued the outstanding
credit facility at $100,000 and the option at $0.
5. CASH AND CASH EQUIVALENTS:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF COST AND COST AND
SHARES SHARES VALUE VALUE
MARCH 31, MARCH 31, TYPE OF ISSUE AND MARCH 31, MARCH 31,
1996 1995 NAME OF ISSUER 1996 1995
- - - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
516,600 703,400 Money market fund,
Cortland Trust, Inc. $ 516,600 $ 703,400
- - Checking account
with bank 11,200 10,900
--------- ---------
Total cash and cash
equivalents (10.3 %
and 13.8% of net
assets at March 31,
1996 and 1995,
respectively) $ 527,800 $ 714,300
========= =========
</TABLE>
F-28
<PAGE> 84
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
6. FURNITURE AND EQUIPMENT:
Furniture and equipment are comprised of the following at March 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Furniture and fixtures $ 1,500 $ 1,500
Computer equipment 16,400 9,800
-------- --------
17,900 11,300
Less accumulated depreciation (1,600) (400)
-------- --------
$ 16,300 $ 10,900
======== ========
</TABLE>
7. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The deferred tax liability is the result of unrealized
appreciation (depreciation) on investments and the use of accelerated
depreciation methods for income tax purposes.
The significant components of deferred tax assets and liabilities on
the balance sheet at March 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 15,400 $ -
Unrealized depreciation of investments 1,600 -
-------- --------
17,000 -
-------- --------
Deferred tax liability:
Depreciation 2,800 1,400
Unrealized appreciation of investments - 1,100
-------- --------
2,800 2,500
-------- --------
Net deferred tax asset (liability) $ 14,200 $ (2,500)
======== ========
</TABLE>
F-29
<PAGE> 85
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
7. INCOME TAXES (CONTINUED):
Significant components of the provision for income taxes (benefits)
attributable to continuing operations in 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Current:
Federal $ - $ 200
State - -
--------- --------
- 200
--------- --------
Deferred:
Federal (benefit) (11,700) 2,300
State (benefit) (800) -
--------- --------
(12,500) 2,300
--------- --------
Provision for income
taxes (benefit) $ (12,500) $ 2,500
========= ========
</TABLE>
8. RELATED PARTY TRANSACTIONS:
The Company has entered into one year renewable consulting agreements
with an entity of which a director of the Company was Chairman and
President. The agreement terminates in July, 1996. The Company paid
$9,000 during each of the periods ended March 31, 1996 and 1995. The
Company is committed to pay $7,000 under this agreement during 1996.
The Company leased its office space pursuant to a noncancelable
operating lease which expired in September, 1995. Commencing in
October 1995, the Company is provided with free office space by a law
firm with which the Chairman is "of counsel". Rent expense for the
period ended March 31, 1995 was approximately $5,700 The Company paid
the law firm legal fees of approximately $17,900 in the three months
ended March 31, 1996.
F-30
<PAGE> 86
THE AMERICAS GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)
8. RELATED PARTY TRANSACTIONS (CONTINUED):
The Company entered into an employment agreement with the president of
the Company. The agreement is for three years expiring in July, 1997.
Compensation is $90,000 per year with cost of living increases each
year. The Company paid the president $23,600 and $22,500 pursuant to
this agreement for the three months ended March 31, 1996 and 1995,
respectively.
9. PROFIT SHARING PLAN:
The Company provides an employee profit sharing plan (the Plan) which
provides for a performance fee equal to twenty percent (20%) of net
income. As of March 31, 1996 and 1995, there was no accrual in
connection with the Plan.
10. PENDING MERGER:
On November 21, 1995, the Company entered into a non-binding letter of
intent with Tallard Technologies B.V. (Tallard), a privately-held
company engaged in the sale and distribution of computers,
peripherals, software and services related to the information
processing industry. Under the terms of the letter of intent, the
Company will acquire all of the outstanding securities of Tallard in
exchange for the issuance of approximately 8,088,406 shares of stock
of the Company to the sole stockholder of Tallard. The contemplated
merger with Tallard is subject to the negotiation of a definitive
agreement and approval of definitive terms and conditions of the
transactions by the stockholders of the Company and Tallard, neither
of which has occurred as of March 31, 1996. The Company has advised
its shareholders that there is no assurance that this merger will be
completed or completed pursuant to the terms and conditions described
above.
F-31
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
Advanced Electronic Support Products, Inc.
Miami, Florida
We have audited the accompanying combined balance sheet of Advanced Electronic
Support Products, Inc., and affiliates as of December 31, 1995, and the related
combined statements of income, stockholders' equity and cash flows for each of
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of a foreign affiliate, which statements reflect total assets of
$420,532 as of December 31, 1995, and total revenues of $845,094 and $649,968
for each of the two years then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion insofar as it
relates to the amounts included for such affiliate, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, based on our audits and report of other auditors, the combined
financial statements referred to above present fairly, in all material
respects, the financial position of Advanced Electronic Support Products, Inc.,
and affiliates as of December 31, 1995, and the results of their operations and
their cash flows for each of the two years then ended in conformity with
generally accepted accounting principles.
June 28, 1996 BDO Seidman, LLP
F-32
<PAGE> 88
<TABLE>
<CAPTION>
December 31, 1995
- - - -----------------------------------------------------------------------------
<S> <C>
Assets (Note 2)
Current
Cash $ 203,804
Accounts receivable, net of allowance for
doubtful accounts of $66,000 (Note 4) 3,015,018
Inventories 3,197,950
Prepaid expenses and other current assets 105,591
- - - -----------------------------------------------------------------------------
Total current assets 6,522,363
Property and equipment, net (Note 1) 380,667
- - - -----------------------------------------------------------------------------
$ 6,903,030
=============================================================================
</TABLE>
F-33
<PAGE> 89
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Balance Sheet
<TABLE>
<CAPTION>
December 31, 1995
- - - -----------------------------------------------------------------------------
<S> <C>
Liabilities and Stockholders' Equity
Current
Bank overdraft $ 74,889
Notes payable (Note 2) 1,117,302
Accounts payable and accrued expenses 2,258,865
Income taxes payable 46,603
- - - -----------------------------------------------------------------------------
Total current liabilities 3,497,659
- - - -----------------------------------------------------------------------------
Commitments (Notes 7, 8 and 11)
- - - -----------------------------------------------------------------------------
Stockholders' Equity (Notes 10 and 11) 3,405,371
- - - -----------------------------------------------------------------------------
$ 6,903,030
=============================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-34
<PAGE> 90
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Income
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994
- - - -----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Notes 3, 4 and 5) $ 13,721,014 $ 8,797,001
- - - -----------------------------------------------------------------------------------------
Cost of sales 8,507,520 4,905,143
Selling, general and administrative expenses 3,951,931 2,993,700
- - - -----------------------------------------------------------------------------------------
Total 12,459,451 7,898,843
- - - -----------------------------------------------------------------------------------------
Income from operations 1,261,563 898,158
Other income 73,911 88,201
- - - -----------------------------------------------------------------------------------------
Income before income taxes 1,335,474 986,359
Provision for income taxes (Note 9) 44,680 11,534
- - - -----------------------------------------------------------------------------------------
Net income $ 1,290,794 $ 974,825
=========================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-35
<PAGE> 91
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Cumulative
Foreign Total
Additional Currency Stock-
Common Paid-in Retained Treasury Translation holders'
Stock Capital Earnings Stock Adjustment Equity
- - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 39,095 $ 7,619 $ 2,148,107 $ (566,000) $ - $1,628,821
Distributions - - (193,495) - - (193,495)
Net Income - - 974,825 - - 974,825
Cumulative foreign currency translation
adjustment - - - - (1,363) (1,363)
- - - ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 39,095 7,619 2,929,437 (566,000) (1,363) 2,408,788
Distributions - - (308,682) - - (308,682)
Net Income - - 1,290,794 - - 1,290,794
Cumulative foreign currency translation
adjustment - - - - 14,471 14,471
- - - ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 39,095 $ 7,619 $ 3,911,549 $ (566,000) $ 13,108 $3,405,371
===========================================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-36
<PAGE> 92
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 1,290,794 $ 974,825
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on disposition of property and equipment - 5,290
Provision for losses on accounts receivable 5,812 2,298
Depreciation and amortization 62,548 38,177
Deferred income taxes (5,679) (2,224)
(Increase) decrease in:
Accounts receivable (1,414,312) (894,555)
Inventories (1,277,611) (183,553)
Prepaid expenses and other current assets 51,659 (62,858)
Increase in:
Bank overdraft 74,889 -
Accounts payable and accrued expenses 1,090,830 418,773
Income taxes payable 33,787 8,702
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (87,283) 304,875
- - - --------------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property equipment (362,102) (39,303)
- - - --------------------------------------------------------------------------------------------------------------
Financing Activities:
Net proceeds (payments) on borrowings 647,049 (154,286)
Loan from affiliate 46,260 73,740
Dividend distributions (308,682) (193,495)
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 384,627 (274,041)
- - - --------------------------------------------------------------------------------------------------------------
Net decrease in cash (64,758) (8,469)
Effect of exchange rate changes in cash 31,284 (113,087)
Cash, at beginning of year 237,278 358,834
- - - --------------------------------------------------------------------------------------------------------------
Cash, at end of year $ 203,804 $ 237,278
==============================================================================================================
Supplemental information:
Cash paid for interest $ 65,416 $ 24,976
==============================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-37
<PAGE> 93
Advanced Electronic Support Products, Inc.
and Affiliates
Summary of Significant Accounting Policies
Description of Advanced Electronic Support Products, Inc., (AESP) is
Business primarily a wholesaler of computer cables and accessories whose
customers are computer dealers and retailers located in the
U.S. and foreign markets. The Company grants credit to
customers without collateral.
Affiliates and Advanced Electronic Support Products Computerzubeho GMBH and
Basis of Advanced of Electronic Support Products Computertillbehor i
Presentation Sweden AB (the Affiliates) are registered and based in Germany
and Sweden, respectively, and accordingly, maintain their
primary accounting in accordance with accounting principles
generally accepted in Germany (German GAAP) and Sweden (Swedish
GAAP). These financial statements have, however, been prepared
in accordance with accounting principles generally accepted in
the United States of America.
As the Affiliates are based and operating in Germany and
Sweden, the functional and reporting currency for statutory
purposes is the German Mark and Swedish Krona, respectively.
These financial statements have been translated to United
States Dollars (U.S. $) using a methodology consistent with
Statement of Financial Accounting Standards No. 52, Foreign
Currency Translation. Shareholder's equity at January 1, 1994
was translated to U.S. $ at the rate prevailing on that date
and the income statements and statements of cash flows have
been translated from the functional currency to U.S. $ using an
average exchange rate for the applicable period, while assets
and liabilities have been translated using the exchange rate at
the end of the applicable period. Exchange gains
(approximately $64,000 in 1995 and $18,000 in 1994) are
included in other income in the accompanying combined
statements of income.
Principles of The accompanying combined financial statements include the
Combination accounts of AESP and the Affiliates (collectively, the
Company). Intercompany transactions and balances have been
eliminated in combination.
Inventories Inventories are stated at the lower of cost or market using the
last-in, first-out method for AESP and the first-in, first-out
method for the Affiliates. Inventory of AESP would be
approximately the same at December 31, 1995 had they used
the first-in, first-out method.
F-38
<PAGE> 94
Advanced Electronic Support Products, Inc.
and Affiliates
Summary of Significant Accounting Policies
Property and Property and equipment is recorded at cost. Depreciation and
Equipment amortization is computed by the straight line and accelerated
methods based on the estimated useful lives of the
related assets.
Income Taxes AESP, with the consent of its stockholders, elected to be taxed
as an S Corporation. Stockholders 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. Had AESP not made this election, it would have been
liable for income taxes of approximately $439,000 in 1995 and
$336,000 in 1994.
The Affiliates are subject to taxation in Germany and Sweden
and accordingly, calculate and report the tax charges in
accordance with applicable statutory regulations.
For the purpose of these financial statements the Company has
adopted the provisions of Statement of Financial Accounting
Standards (SFAS) 109, Accounting for Income taxes for all
periods presented. Under the asset and liability method of
SFAS 109, deferred taxes are recognized for differences arising
from the differences between financial statement and income tax
bases of assets and liabilities.
Deferred income taxes upon the repatriation of the income of
the Affiliates (approximately $33,000 at December 31, 1995)
have not been provided as any tax due would be the
responsibility of the stockholders.
Use of The preparation of the financial statements in conformity with
Estimates generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ
from estimated amounts.
F-39
<PAGE> 95
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
1. Property and As of December 31, 1995, property and equipment consist
Equipment of the following:
Leasehold improvements $ 222,529
Office equipment 82,488
Machinery and equipment 45,766
Furniture and fixtures 48,843
Vehicles 79,639
-------------------------------------------------------
Less: accumulated depreciation
and amortization 98,598
-------------------------------------------------------
$ 380,667
=======================================================
2. Notes Payable As of December 31, 1995, notes payable consist of the
following:
Prime + .75% (9.25% at December 31, 1995)
line of credit with a financial institution
in the amount of $1,850,000, payable
monthly, due July 25, 1996. $ 975,000
8.5% note payable to an entity owned by
the stockholders of the Company, payable
upon demand. 120,000
Other 22,302
---------------------------------------------------
$ 1,117,302
===================================================
The line of credit is collateralized by AESP's assets
and is personally guaranteed by the stockholders.
F-40
<PAGE> 96
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
3. Foreign Information about the Company's operations in different
Operations geographic areas for the years ended December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
Sweden
United States and Germany Elimination Combination
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Sales to unaffiliated customers $ 11,376,399 $ 2,344,615 $ - $ 13,721,014
Transfers between geographic areas 888,433 - (888,433) -
- - - --------------------------------------------------------------------------------------------------------------
Total revenue $ 12,264,832 $ 2,344,615 $ (888,433) $ 13,721,014
==============================================================================================================
Net Income $ 1,169,866 $ 131,231 $ (10,303) $ 1,290,794
==============================================================================================================
Identifiable assets $ 6,303,423 $ 1,151,056 $ (551,449) $ 6,903,030
==============================================================================================================
Year ended December 31, 1994:
Sales to unaffiliated customers $ 7,152,103 $ 1,644,898 $ - $ 8,797,001
Transfers between geographic areas 641,789 - (641,789) -
- - - --------------------------------------------------------------------------------------------------------------
Total revenue $ 7,793,892 $ 1,644,898 $ (641,789) $ 8,797,001
==============================================================================================================
Net Income $ 895,843 $ 74,701 $ 4,281 $ 974,825
==============================================================================================================
</TABLE>
Transfers between geographic areas are made at prices
which approximate prices charged to unaffiliated
customers and have been eliminated from combined
revenues.
Identifiable assets are those assets, that are identified
with the operations in each geographic area. Foreign
sales, including those of AESP, for 1995 and 1994
approximated 22% and 23% of combined revenues,
respectfully.
F-41
<PAGE> 97
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
4. Related Party The Company had sales of approximately $170,000 and
Transactions $59,000 during 1995 and 1994, respectfully, to an entity
owned by the stockholders of the Company. Accounts
receivable at December 31, 1995 include approximately
$73,000 from such entity.
5. Significant For 1995, two customers accounted for 16.5% and 12.0% of
Customers combined revenues. For 1994, no customer accounted
for 10% or more of combined revenues.
6. Financial The carrying amounts of financial instruments including
Instruments accounts receivable, accounts payable and short-term
debt approximated fair value due to the relatively short
maturity.
7. Commitments The Company rents office space under non-cancelable
leases expiring in 1998. The minimum future rental
commitment in effect at December 31, 1995
approximates the following:
Years Ending December 31,
----------------------------------------------------
[S] [C]
1996 $ 62,000
1997 $ 44,000
1998 $ 2,000
----------------------------------------------------
$ 108,000
====================================================
In addition, the Company rents office and warehouse space
on a month-to-month basis from an entity owned by the
stockholders of the Company at $3,600 per month. The
mortgage on the property has been guaranteed by the
Company. The balance outstanding at December 31, 1995
approximated $260,000.
Rent expense in 1995 and 1994 aggregated approximately
$112,000 and $102,000, respectively, including $43,200
and $46,800 to related parties.
The company is liable under a patent license agreement,
expiring in 2000, whereby it is required to pay a fee (as
defined) for each product sold subject to the agreement.
During 1995 and 1994, approximately $18,000 and $17,000,
respectively, of royalties were paid.
F-42
<PAGE> 98
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
8. Deferred Effective January 1995, the Company adopted a defined
Compensation contribution plan established pursuant to Section 401(k)
Plan of the Internal Revenue Code. Employees contribute to
the plan a percentage of their salaries, subject to
certain dollar limitations and the Company matches a
portion of the employees' contributions. The Company's
contributions to the plan for 1995 amounted to $4,300.
9. Income Taxes The following are the components of income tax expense:
Years ended December 31, 1995 1994
------------------------------------------------------
Currently payable $ 50,359 $ 13,758
Deferred (5,679) (2,224)
------------------------------------------------------
$ 44,680 $ 11,534
======================================================
The majority of the provision for income taxes relates to
the Swedish operations. The statutory tax rate in Sweden
for 1995 and 1994 is 28%.
F-43
<PAGE> 99
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
10. Stockholders' Stockholders' equity of the Company is comprised of the
Equity following:
<TABLE>
<CAPTION>
December 31, 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Advanced Electronic Support Products, Inc.:
Common stock, $1 par value; 100 shares authorized,
issued and outstanding, including 33 1/3 shares
held in treasury $ 100 $ 100
Paid-in capital 7,619 7,619
Retained earnings 3,755,597 2,894,413
Treasury stock, at cost (566,000) (566,000)
--------------------------------------------------------------------------------
3,197,316 2,336,132
--------------------------------------------------------------------------------
Advanced Electronic Support Products
Computerzubehor, GMBH (German Affiliate):
Common stock, DM$1 par value; 51,000 shares
authorized, issued and outstanding 32,874 32,874
Retained earnings (accumulated deficit) 8,816 (35,942)
Cumulative foreign currency
translation adjustment (7,584) (7,206)
--------------------------------------------------------------------------------
34,106 (10,274)
--------------------------------------------------------------------------------
Advanced Electronic Support Products
Computertillbehor i Sweden AB (Swedish affiliate):
Common stock, SEK$100 par value; 2,000 shares
authorized, 510 shares issued and outstanding 6,121 6,121
Retained earnings 153,158 66,685
Cumulative foreign currency
translation adjustment 20,692 5,843
--------------------------------------------------------------------------------
179,971 78,649
--------------------------------------------------------------------------------
Eliminating entries (6,022) 4,281
--------------------------------------------------------------------------------
Total combined stockholders' equity $ 3,405,371 $2,408,788
================================================================================
</TABLE>
F-44
<PAGE> 100
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
11. Subsequent During 1996, the Company entered into negotiations to
Event merge with The Americas Growth Fund (AGF), a Business
Development Company registered under the Investment
Company Act of 1940. The transaction will be accounted
for as a reverse acquisition of AGF by the Company.
Immediately preceding consummation of the transaction,
AGF will have approximately $3 million in cash and
equity. Subsequent to the transaction, the stockholders
of the Company will own approximately 58% of the new
entity.
In connection with the merger, the Company intends to (i)
make a distribution to its current stockholders of
approximately $1,470,000 in the form of a seven year,
prime + 1%, promissory note payable, (ii) enter into five
year employment agreements with its current stockholders
which includes a minimum annual compensation of $125,000
plus performance bonuses, (iii) establish a stock option
plan for its employees, initially providing for 400,000
options and (iv) enter into a five year lease with an
entity owned by the current stockholders of the Company
at terms similar to those currently in place (see
Note 7).
F-45
<PAGE> 101
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 1995
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 2)
Current
Cash $ 162,295 $ 656,903
Accounts receivable, net of allowance for
doubtful accounts of $39,000 in 1996 and
$67,000 in 1995 (Note 4) 2,815,415 1,531,933
Inventories 3,337,926 2,042,418
Prepaid expenses and other current assets 118,340 140,701
- - - --------------------------------------------------------------------------------------------------
Total current assets 6,433,976 4,371,955
Property and equipment, net (Note 1) 387,104 139,148
- - - --------------------------------------------------------------------------------------------------
$6,821,080 $ 4,511,103
==================================================================================================
</TABLE>
F-46
<PAGE> 102
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 1995
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current
Notes payable (Note 2) $ 1,495,000 750,000
Accounts payable and accrued expenses 1,626,498 1,029,080
Income taxes payable 83,266 53,911
- - - ---------------------------------------------------------------------------------------------------------
Total current liabilities 3,204,764 1,832,991
- - - ---------------------------------------------------------------------------------------------------------
Commitments (Notes 7, 8 and 11)
- - - ---------------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 10 and 11) 3,616,316 2,678,112
- - - ---------------------------------------------------------------------------------------------------------
$ 6,821,080 $ 4,511,103
=========================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-47
<PAGE> 103
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1996 1995
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales (Notes 3, 4 and 5) $ 3,515,931 $ 2,642,709
- - - --------------------------------------------------------------------------------------------------
Cost of sales 2,098,960 1,569,172
Selling, general and administrative expenses 996,746 743,900
- - - --------------------------------------------------------------------------------------------------
Total 3,095,706 2,313,072
- - - --------------------------------------------------------------------------------------------------
Income from operations 420,225 329,637
Other income 6,166 46,382
- - - --------------------------------------------------------------------------------------------------
Income before income taxes 426,391 376,019
Provision for income taxes (Note 9) 49,761 38,531
- - - --------------------------------------------------------------------------------------------------
Net income $ 376,630 $ 337,488
==================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-48
<PAGE> 104
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Stockholders' Equity
(Unaudited) (Note 10)
<TABLE>
<CAPTION>
Cumulative
Foreign Total
Additional Currency Stock-
Common Paid-in Retained Treasury Translation holders'
Stock Capital Earnings Stock Adjustment Equity
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 39,095 $ 7,619 $ 2,929,437 $ (566,000) $ (1,363) $ 2,408,788
Distributions - - (68,684) - - (68,684)
Net Income - - 337,488 - - 337,488
Cumulative foreign currency translation
adjustment - - - - 520 520
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 $ 39,095 $ 7,619 $ 3,198,241 $ (566,000) $ (843) $ 2,678,112
=================================================================================================================================
Balance at January 1, 1996 $ 39,095 $ 7,619 $ 3,911,549 $ (566,000) $ 13,108 $ 3,405,371
Distributions - - (164,694) - - (164,694)
Net Income - - 376,630 - - 376,630
Cumulative foreign currency translation
adjustment - - - - (991) (991)
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $ 39,095 $ 7,619 $ 4,123,485 $ (566,000) $ 12,117 $3,616,316
=================================================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-49
<PAGE> 105
Advanced Electronic Support Products, Inc.
and Affiliates
Combined Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1996 1995
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 376,630 $ 337,488
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for losses on accounts receivable 6,000 -
Depreciation and amortization 26,223 5,934
(Increase) decrease in:
Accounts receivable 197,049 71,390
Inventories (152,491) (125,472)
Prepaid expenses and other current assets (13,561) 21,381
Increase (decrease) in:
Accounts payable and accrued expenses (723,123) (110,149)
Income taxes payable 36,893 37,223
- - - ---------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (246,380) 237,795
- - - ---------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property equipment (33,520) (64,353)
- - - ---------------------------------------------------------------------------------------------------------
Financing Activities:
Net proceeds on borrowings 400,023 411,951
Dividend distributions (164,694) (68,684)
- - - ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 235,329 343,267
- - - ---------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (44,571) 516,709
Effect of exchange rate changes in cash 3,062 (97,084)
Cash, at beginning of year 203,804 237,278
- - - ---------------------------------------------------------------------------------------------------------
Cash, at end of period $ 162,295 $ 656,903
=========================================================================================================
Supplemental information:
Cash paid for interest $ 27,145 $ 11,672
=========================================================================================================
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
F-50
<PAGE> 106
Advanced Electronic Support Products, Inc.
and Affiliates
Summary of Significant Accounting Policies
(Unaudited)
Description of Advanced Electronic Support Products, Inc., (AESP) is
Business primarily a wholesaler of computer cables and
accessories whose customers are computer dealers and
retailers located in the U.S. and foreign markets.
The Company grants credit to customers without
collateral.
Affiliates and Advanced Electronic Support Products Computerzubeho GMBH
Basis of and Advanced Electronic Support Products
Presentation Computertillbehor i Sweden AB (the Affiliates) are
registered and based in Germany and Sweden, respectively,
and accordingly, maintain their primary accounting in
accordance with accounting principles generally accepted
in Germany (German GAAP) and Sweden (Swedish GAAP).
These financial statements have, however, been prepared
in accordance with accounting principles generally
accepted in the United States of America.
As the Affiliates are based and operating in Germany and
Sweden, the functional and reporting currency for
statutory purposes is the German Mark and Swedish Krona,
respectively. These financial statements have been
translated to United States Dollars (U.S. $) using a
methodology consistent with Statement of Financial
Accounting Standards No. 52, Foreign Currency
Translation. Shareholder's equity at January 1, 1995 was
translated to U.S. $ at the rate prevailing on that date
and the income statements and statements of cash flows
have been translated from the functional currency to U.S.
$ using an average exchange rate for the applicable
period, while assets and liabilities have been translated
using the exchange rate at the end of the applicable
period. Exchange gains are included in other income in
the accompanying combined statements of income.
Principles of The accompanying combined financial statements include
Combination the accounts of AESP and the Affiliates (collectively,
the Company). Intercompany transactions and balances
have been eliminated in combination.
F-51
<PAGE> 107
Advanced Electronic Support Products, Inc.
and Affiliates
Summary of Significant Accounting Policies
(Unaudited)
Inventories Year end inventories are stated at the lower of cost or
market using the last-in, first-out method for AESP and
the first-in, first-out method for the Affiliates.
Inventory of AESP would be approximately the same had
they used the first-in, first-out method. For interim
reporting purposes, the gross profit method is utilized.
Although the Company believes this method will result in
a reasonable estimate of inventory, the actual amounts
may differ from estimated amounts.
Property and Property and equipment is recorded at cost. Depreciation
Equipment and amortization is computed by the straight line and
accelerated methods based on the estimated useful
lives of the related assets.
Income Taxes AESP, with the consent of its stockholders, elected to be
taxed as an S Corporation. Stockholders 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. Had AESP not made this
election, it would have been liable for income taxes of
approximately $105,000 and $96,000 for the three months
ended March 31, 1996 and 1995, respectively.
The Affiliates are subject to taxation in Germany and
Sweden and accordingly, calculate and report the tax
charges in accordance with applicable statutory
regulations.
For the purpose of these financial statements the Company
has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) 109, Accounting for Income
taxes for all periods presented. Under the asset and
liability method of SFAS 109, deferred taxes are
recognized for differences arising from the differences
between financial statement and income tax bases of
assets and liabilities.
Deferred income taxes upon the repatriation of the income
of the Affiliates (approximately $37,000 at March 31,
1996) have not been provided as any tax due would be the
responsibility of the stockholders.
F-52
<PAGE> 108
Advanced Electronic Support Products, Inc.
and Affiliates
Summary of Significant Accounting Policies
(Unaudited)
Use of Estimates The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect
the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from estimated amounts.
Interim Financial The financial statements for the three months ended March
Statements 31, 1996 and 1995 are Statements unaudited. In the
opinion of management, such financial statements include
all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial
position and the results of operations. The results of
operations for the three months ended March 31, 1996 and
1995 and are not necessarily indicative of the results to
be expected for the full year.
F-53
<PAGE> 109
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
1. Property and Property and equipment consist of the following:
Equipment
<TABLE>
<CAPTION>
March 31, 1996 1995
------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 250,589 $ 88,090
Office equipment 86,250 72,975
Machinery and equipment 45,766 27,921
Furniture and fixtures 49,963 55,281
Vehicles 79,294 8,284
------------------------------------------------------------------
511,862 252,551
Less: accumulated depreciation
and amortization 124,758 113,403
------------------------------------------------------------------
$ 387,104 $ 139,148
==================================================================
</TABLE>
2. Notes Payable As of March 31, 1996, notes payable consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Prime + .75% (9.25% at March 31, 1996)
line of credit with a financial institution
in the amount of $1,850,000, payable monthly,
due July 25, 1996. $ 1,375,000
8.5% note payable to an entity owned by
the stockholders of the Company, payable
upon demand. 120,000
--------------------------------------------------------------
$ 1,495,000
==============================================================
</TABLE>
The line of credit is collateralized by AESP's assets
and is personally guaranteed by the stockholders.
F-54
<PAGE> 110
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
3. Foreign Information about the Company's operations in
different geographic areas for the three months ended
March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Sweden
United States and Germany Elimination Combination
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended March 31, 1996:
Sales to unaffiliated customers $ 2,748,912 $ 767,019 $ - $ 3,515,931
Transfers between geographic areas 264,920 - (264,920) -
- - - ---------------------------------------------------------------------------------------------------------------
Total revenue $ 3,013,832 $ 767,019 $ (264,920) $ 3,515,931
===============================================================================================================
Net Income $ 306,585 $ 78,919 $ (8,874) $ 376,630
===============================================================================================================
Identifiable assets $ 6,208,629 $ 1,143,061 $ (530,610) $ 6,821,080
===============================================================================================================
Three months ended March 31, 1995:
Sales to unaffiliated customers $ 2,024,612 $ 618,097 $ - $ 2,642,709
Transfers between geographic areas 307,720 - (307,720) -
- - - ---------------------------------------------------------------------------------------------------------------
Total revenue $ 2,332,332 $ 618,097 $ (307,720) $ 2,642,709
===============================================================================================================
Net Income $ 255,222 $ 74,084 $ 8,182 $ 337,488
===============================================================================================================
Identifiable assets $ 3,997,775 $ 1,214,614 $ (701,286) $ 4,511,103
===============================================================================================================
</TABLE>
Transfers between geographic areas are made at prices
which approximate prices charged to unaffiliated
customers and have been eliminated from combined
revenues.
Identifiable assets are those assets, that are identified
with the operations in each geographic area. Foreign
sales, including those of AESP, for the three months
ended March 31, 1996 and 1995 approximated 23% and 30% of
combined revenues, respectfully.
F-55
<PAGE> 111
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
4. Related Party The Company had sales of approximately $102,000 during
Transactions the three months ended March 31, 1995, to an entity owned
by the stockholders of the Company. There were no sales
for the three months ended March 31, 1996. Accounts
receivable at March 31, 1996 include approximately
$20,000 from such entity.
5. Significant For the three months ended March 31, 1996, three
Customers customers accounted for 14%, 16% and 20% of combined
revenues. For the three months ended March 31, 1995, no
customer accounted for 10% or more of combined revenues.
6. Financial The carrying amounts of financial instruments including
Instruments accounts receivable, accounts payable and short-term debt
approximated fair value due to the relatively short
maturity.
7. Commitments The Company rents office space under non-cancelable
leases expiring in 1998. The minimum future rental
commitment in effect at March 31, 1996 approximates the
following:
<TABLE>
<CAPTION>
Years Ending December 31,
------------------------------------------------
<S> <C>
1996 $ 47,000
1997 $ 44,000
1998 $ 2,000
------------------------------------------------
$ 93,000
================================================
</TABLE>
In addition, the Company rents office and warehouse space
on a month-to-month basis from an entity owned by the
stockholders of the Company at $3,600 per month. The
mortgage on the property has been guaranteed by the
Company. The balance outstanding at March 31, 1996
approximated $258,000.
Rent expense for the three months ended March 31, 1996
and 1995, aggregated approximately $30,000 and $12,000,
respectively, including $10,800 to related parties.
F-56
<PAGE> 112
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
The Company is liable under a patent license agreement,
expiring in 2000, whereby it is required to pay a fee (as
defined) for each product sold subject to the agreement.
For the three months ended March 31, 1996 and 1995,
approximately $4,000 and $6,000, respectively, of
royalties were paid.
8. Deferred Effective January 1995, the Company adopted a defined
Compensation contribution plan established pursuant to Section 401(k)
Plan of the Internal Revenue Code. Employees contribute to
the plan a percentage of their salaries, subject to
certain dollar limitations and the Company matches a
portion of the employees' contributions. The Company's
contributions to the plan for the three months ended
March 31, 1996 amounted to $4,673. No contributions
were made during the three months ended March 31, 1995.
9. Income Taxes The following are the components of income tax expense:
<TABLE>
<CAPTION>
Three months ended March 31, 1996 1995
-------------------------------------------------------------
<S> <C> <C>
Currently payable $ 49,761 $ 38,531
Deferred - -
-------------------------------------------------------------
$ 49,761 $ 38,531
=============================================================
</TABLE>
The majority of the provision for income taxes relates to
the Swedish operations. The statutory tax rate in Sweden
for 1996 and 1995 is 28%.
F-57
<PAGE> 113
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
10. Stockholders' Stockholders' equity of the Company is comprised of
Equity the following:
<TABLE>
<CAPTION>
March 31, 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C>
Advanced Electronic Support Products, Inc.:
Common stock, $1 par value; 100 shares authorized,
issued and outstanding, including 33 1/3 shares
held in treasury $ 100 $ 100
Paid-in capital 7,619 7,619
Retained earnings 3,897,488 3,080,951
Treasury stock, at cost (566,000) (566,000)
--------------------------------------------------------------------------------
3,339,207 2,522,670
--------------------------------------------------------------------------------
Advanced Electronic Support Products
Computerzubehor, GMBH (German Affiliate):
Common stock, DM$1 par value; 51,000 shares
authorized, issued and outstanding 32,874 32,874
Retained earnings (accumulated deficit) 65,475 (938)
Cumulative foreign currency
translation adjustment (8,421) (6,488)
--------------------------------------------------------------------------------
89,928 25,448
--------------------------------------------------------------------------------
Advanced Electronic Support Products
Computertillbehor i Sweden AB (Swedish affiliate):
Common stock, SEK$100 par value; 2,000 shares
authorized, 510 shares issued and outstanding 6,121 6,121
Retained earnings 175,420 105,765
Cumulative foreign currency
translation adjustment 20,538 5,645
--------------------------------------------------------------------------------
202,079 117,531
--------------------------------------------------------------------------------
Eliminating entries (14,898) 12,463
--------------------------------------------------------------------------------
Total combined stockholders' equity $ 3,616,316 $2,678,112
================================================================================
</TABLE>
F-58
<PAGE> 114
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Combined Financial Statements
(Unaudited)
11. Subsequent In July 1996, the Company signed an agreement to merge
Event with The Americas Growth Fund (AGF), a Business
Development Company registered under the Investment
Company Act of 1940. The transaction will be accounted
for as a reverse acquisition of AGF by the Company.
Immediately preceding consummation of the transaction,
AGF will have approximately $3 million in cash and
equity. Subsequent to the transaction, the stockholders
of the Company will own approximately 58% of the new
entity.
In connection with the merger, the Company intends to
(i) make a distribution to its current stockholders of
approximately $1,430,000 in the form of a seven year,
prime + 1%, promissory note payable, convertible into
shares of common stock at an exercise price of $3.60 per
share, (ii) enter into five year employment agreements
with its current stockholders which includes a minimum
annual compensation of $125,000 plus performance bonuses
of 5% of pre-tax income, (iii) establish a stock option
plan for its employees, initially providing for 400,000
options and (iv) enter into a five year lease with an
entity owned by the current stockholders of the Company
at terms similar to those currently in place.
F-60
<PAGE> 115
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Pro Forma Combined Financial Statements
(Unaudited)
The following unaudited pro forma combined financial statements aggregate the
balance sheets of The Americas Growth Fund, Inc. (AGF) and Advanced Electronic
Support Products, Inc. and Affiliates (which includes Advanced Electronic
Support Products, Inc., AESP Computerzubehor GMBH and AESP Computertillbehor i
Sweden AB, collectively known as AESP) as of March 31, 1996 and statements of
income for the three month period then ended and the year ended December 31,
1995, and give effect to the contemplated merger of AESP with AGF, which such
merger agreement was signed on July 15, 1996. The business combination will be
accounted for as a recapitalization of AESP, since AGF is not an operating
company and because AESP shareholders will acquire voting control of AGF. AGF
will issue common stock in exchange for all of the issued and outstanding
shares of ASEP. The following pro forma financial statements utilize the
assumptions described in the notes following these pro forma financial
statements and the historical financial information available for the periods
ending March 31, 1996 and December 31, 1995 of AGF and AESP.
The pro forma combined financial statements should be read in conjunction with
the separate financial statements and related notes thereto of AESP and AGF
included elsewhere in this document. These pro forma combined financial
statements are not necessarily indicative of the combined financial position
and results of operations for the period indicated or as it may be in the
future.
F-61
<PAGE> 116
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Pro Forma Combined Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
March 31, 1996 AESP AGF Adjustments Combined
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current
Cash and equivalents $ 162,295 $ 527,800 $ - $ 690,095
Investments - 4,580,200 (2,108,000) (2) 2,472,200
Accounts receivable and inventories 6,153,341 - - 6,153,341
Other current assets 118,340 37,700 (37,700) (2) 118,340
- - - --------------------------------------------------------------------------------------------------------------
Total current assets 6,433,976 5,145,700 (2,145,700) 9,433,676
- - - --------------------------------------------------------------------------------------------------------------
Property and equipment, net 387,104 16,300 (16,300) (2) 387,104
- - - --------------------------------------------------------------------------------------------------------------
$ 6,821,080 $ 5,162,000 $ (2,162,000) $ 9,821,080
==============================================================================================================
Liabilities and Stockholders' Equity
Current
Accounts payable and accrued expenses $ 1,626,498 $ 20,800 $ (20,800) (2) $ 1,766,498
140,000 (4)
Notes payable 1,495,000 - - 1,495,000
Income taxes 83,266 - 407,339 (5) 490,605
Deferred taxes - 2,800 (2,800) (2) 36,762
36,762 (5)
- - - --------------------------------------------------------------------------------------------------------------
Total current liabilities 3,204,764 23,600 560,501 3,788,865
- - - --------------------------------------------------------------------------------------------------------------
Notes payable - - 1,430,000 (1) 1,430,000
- - - --------------------------------------------------------------------------------------------------------------
Total liabilities 3,204,764 23,600 1,990,501 5,218,865
- - - --------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock 39,095 12,700 (39,095) (3) 30,170
17,470 (3)
Additional paid-in capital 7,619 5,141,300 39,095 (3) 2,876,544
(17,470) (3)
(2,154,000) (2)
(140,000) (4)
Retained earnings (deficit) 4,123,485 (15,600) 15,600 (2) 1,683,384
(1,430,000) (1)
(566,000) (3)
(444,101) (5)
Treasury stock (566,000) - 566,000 (3) -
Cumulative foreign currency translation 12,117 - - 12,117
- - - --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,616,316 5,138,400 (4,152,501) 4,602,215
- - - --------------------------------------------------------------------------------------------------------------
$ 6,821,080 $ 5,162,000 $ (2,162,000) $ 9,821,080
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
F-62
<PAGE> 117
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Pro Forma Combined Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three months ended March 31, 1996 AESP AGF Adjustments Combined
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,515,931 $ - $ - $ 3,515,931
- - - ---------------------------------------------------------------------------------------------------------------
Cost of sales 2,098,960 - - 2,098,960
Selling, general and administrative
expenses 996,746 113,300 26,000 (6) 1,136,046
- - - ---------------------------------------------------------------------------------------------------------------
Total 3,095,706 113,300 26,000 3,235,006
- - - ---------------------------------------------------------------------------------------------------------------
Income (loss) from operations 420,225 (113,300) (26,000) 280,925
Interest and other income, net 6,166 59,200 (35,000) (1) 5,366
(25,000) (2)
- - - ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 426,391 (54,100) (86,000) 286,291
Provision for income taxes (benefit) 49,761 (12,500) 84,065 (5) 121,326
- - - ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 376,630 $ (41,600) $ (170,065) $ 164,965
===============================================================================================================
Primary and fully diluted earnings
(loss) per share $ (.03) $ .06
===============================================================================================================
Weighted average
number of shares
outstanding 1,265,100 3,012,143
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
F-63
<PAGE> 118
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Pro Forma Combined Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Year ended December 31, 1995 AESP AGF Adjustments Combined
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 13,721,014 $ - $ - $ 13,721,014
- - - ---------------------------------------------------------------------------------------------------------------
Cost of sales 8,507,520 - - 8,507,520
Selling, general and administrative
expenses 3,951,931 296,000 - 4,247,931
- - - ---------------------------------------------------------------------------------------------------------------
Total 12,459,451 296,000 - 12,755,451
- - - ---------------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,261,563 (296,000) - 965,563
Interest and other income, net 73,911 327,300 (140,000) (1) 120,211
(141,000) (2)
- - - ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1,335,474 31,300 (281,000) 1,085,774
Provision for income taxes 44,680 6,200 345,757 (5) 396,637
- - - ---------------------------------------------------------------------------------------------------------------
Net income $ 1,290,794 $ 25,100 $ (626,757) $ 689,137
===============================================================================================================
Primary and fully diluted
earnings per share $ .02 $ .23
===============================================================================================================
Weighted average
number of shares
outstanding 1,265,100 3,012,143
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
F-64
<PAGE> 119
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Pro Forma Combined Financial Statements
(Unaudited)
General AGF is a Business Development Company under the
Investment Company Act of 1940. Its primary objective is
to achieve long-term capital appreciation of its assets
by investing in equity and debt securities of and
providing managerial assistance to, emerging and
established companies that management believes offer
significant potential opportunities for growth.
AESP is primarily a wholesaler of computer cables and
accessories whose customers are computer dealers and
retailers located in the U.S. and foreign markets.
Operations are located in the U.S., Germany and Sweden.
The financial statements of AESP have been prepared in
accordance with accounting principles generally accepted
in the United States of America.
In July 1996, AESP signed an agreement to merge with AGF.
For financial reporting purposes, AESP is deemed to be
the acquiring entity as the stockholders of AESP acquired
voting control of AGF. Therefore, the transaction will be
accounted for as a recapitalization of AESP. Immediately
preceding consummation of the transaction, AGF will have
approximately $3 million in cash and equity. Subsequent
to the transaction, the stockholders of AESP will own
approximately 58% of the new entity.
In connection with the merger, AESP intends to (i) make a
distribution to its current stockholders of approximately
$1,430,000 in the form of a seven year, prime + 1%,
promissory note payable, convertible into shares of
common stock at an exercise price of $3.60 per share,
(ii) enter into five year employment agreements with its
current stockholders which includes a minimum annual
compensation of $125,000 plus performance bonuses of 5%
of pre-tax income, (iii) establish a stock option plan
for its employees, initially providing for 400,000
options and (iv) enter into a five year lease with an
entity owned by the current stockholders of AESP at terms
similar to those currently in place.
Earnings Per Share Convertible debt and warrants issued in connection with
the merger are excluded from the computation of earnings
per share because the effect of their inclusion would be
anti-dilutive.
F-65
<PAGE> 120
The Americas Growth Fund, Inc.
Advanced Electronic Support Products, Inc.
and Affiliates
Notes to Pro Forma Combined Financial Statements
(Unaudited)
Pro Forma (1) In connection with the merger, AESP authorized a
Adjustments dividend in the amount of $1,430,000 to its stockholders
in the form of a convertible, prime + 1%, (9.5% for
purposes of proforma) seven year note payable.
Interest expense has been recorded as if the note payable
was outstanding for the entire period.
(2) In connection with this transaction, AESP is to receive
$3 million in cash and investments after payments by AGF
relating to the severance and non-competition
obligations, and legal, accounting and printing expenses
in connection with the consummation of the transaction.
These payments have and will have no ongoing benefit to
the combined group. The accounts relating to severance
and non-competition obligations have been treated as
pre-acquisition related costs. The legal, accounting and
printing fees have been treated as direct charges to
additional paid-in capital of the combined company. All
other assets and liabilities will be distributed to the
principal shareholder of AGF.
An adjustment has been recorded to reduce interest and
other income as if the payments referred to in the
preceding paragraph occurred at the beginning of the
period.
(3) In connection with the merger, 100% of the issued and
outstanding common stock of AESP is to be converted into
1,747,043 shares ($.01 par value) of AGF common stock.
Additionally, AESP common stock held in the treasury
will be cancelled.
(4) Accrual of acquisition related expenditures (legal,
accounting, etc.) incurred by AESP.
(5) Adjustment to record provision for income taxes
attributable to operations of AESP, on the assumption
that AESP was a C Corp. for the period and the tax effect
of pro forma adjustment.
(6) Adjustment to record additional compensation bonus
attributed to employment contract.
F-66
<PAGE> 121
APPENDIX A
AGREEMENT AND PLAN OF MERGER
among
THE AMERICAS GROWTH FUND, INC.,
AGF MERGER CORPORATION,
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.,
SLAV STEIN,
ROMAN BRISKIN,
and
LEONARD J. SOKOLOW
Dated as of July 15, 1996
<PAGE> 122
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
1.1 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 "Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Effective Time" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 "Encumbrance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Environmental Laws" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 "Exchange Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Governmental Authority" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 "Governmental Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 "Intellectual Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 "Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 "Opt-Out Time" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 "Receivables" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.18 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 "Surviving Corporation" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
ARTICLE II
THE MERGER
<TABLE>
<S> <C> <C>
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Articles of Incorporation; By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
ARTICLE III
CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES
<TABLE>
<S> <C> <C>
3.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Stock Options, Warrants and Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Issuance of AGF Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Acquisition of AESP Germany and AESP Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 123
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF AESP
<TABLE>
<S> <C>
4.1 Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Authority of each AESP Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17 Conduct of Business in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.19 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.20 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.21 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.22 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.23 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.24 Eligible Portfolio Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.25 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF AGF
<TABLE>
<S> <C>
5.1 Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Authority of AGF and AGFMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.9 Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 124
<TABLE>
<S> <C> <C>
5.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.13 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.15 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.17 Conduct of Business in the Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.19 Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.20 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.21 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.22 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.23 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.25 Tallard Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.26 Vote Required for Approval of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.27 Cash or Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.28 Compliance with 1940 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.29 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
ARTICLE VI
CONDUCT OF BUSINESSES PENDING THE MERGER
<TABLE>
<S> <C> <C>
6.1 Conduct of Respective Businesses by AESP
and AGF Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.2 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Exclusivity; Fiduciary Duty of AGF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
ARTICLE VII
ADDITIONAL COVENANTS
<TABLE>
<S> <C> <C>
7.1 Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3 Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.4 Non-Compete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5 Severance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Loan from AESP Stockholders to AESP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.9 Loan to AESP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.10 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.11 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.12 Registration Statement; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.13 Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.14 AESP Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.15 Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
iii
<PAGE> 125
<TABLE>
<S> <C> <C>
7.16 Public Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.17 Lock-Up Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.18 Further Actions; Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.19 Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.20 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.21 Transactions with Significant Stockholder
After the Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.22 Continued Exchange Act Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.23 Use of Merged Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
ARTICLE VIII
CLOSING CONDITIONS
<TABLE>
<S> <C> <C>
8.1 Conditions to Obligations of Each Party
to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 Additional Conditions to Obligations of AGF . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Additional Conditions to Obligations of AESP . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
ARTICLE IX
DELIVERIES AT CLOSING
<TABLE>
<S> <C> <C>
9.1 Deliveries by AGF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 Deliveries by AESP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
iv
<PAGE> 126
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
<TABLE>
<S> <C> <C>
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.5 Fees, Expenses and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ARTICLE XI
GENERAL PROVISIONS
<TABLE>
<S> <C>
11.1 Effectiveness of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . 43
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
v
</TABLE>
<PAGE> 127
LIST OF EXHIBITS
Exhibit No. Description
- - - ----------- -----------
3.5(b) Form of Mahoney and Sokolow Warrants
3.5(c) Form of Cohen, Engelmann, Villamil and Winter Warrants
7.3 Form of Consulting Agreement
7.4 Form of Non-Compete Agreement
7.5 Form of Severance Agreement
7.6 Form of Employment Agreements
7.8 Form of Convertible Note
7.9 Form of Note
vi
<PAGE> 128
LIST OF SCHEDULES
Schedule No. Description
- - - ------------ -----------
4.3 Capitalization - AESP
4.5 Required Filings and Consents - AESP
4.7 Financial Statements - AESP
4.8 Absence of Certain Changes and Events - AESP
4.9 Absence of Litigation - AESP
4.12(a) Taxes - AESP
4.12(b) Taxes - AESP
4.12(e) Taxes - AESP
4.13(a) Material Contracts - AESP
4.15 Receivables - AESP
4.16 Environmental Compliance - AESP
4.17 Conduct of Business in the Ordinary Course - AESP
4.19 Affiliates - AESP
4.20 Real Property - AESP
4.21 Assets - AESP
4.23 Brokers - AESP
5.3 Capitalization - AGF
5.7(b) Financial Statements - AGF
5.8 Absence of Certain Changes and Events - AGF
5.10 Employee Benefit Plans - AESP
5.11 Intellectual Property - AGF
5.13(a) Material Contracts - AGF
5.13(b) Material Contracts Exceptions - AGF
5.19 Subsidiaries and Affiliates - AGF
5.20 Real Property - AGF
5.24 Brokers - AGF
5.27 Cash or Cash Equivalents
6.2 Examples
6.2(f) Examples
6.2(g) Examples
vii
<PAGE> 129
AGREEMENT AND PLAN OF MERGER, dated as of July 15, 1996 (this
"Agreement"), among THE AMERICAS GROWTH FUND, INC., a Maryland corporation
("AGF"), AGF MERGER CORPORATION, a Florida corporation and wholly owned
subsidiary of AGF ("AGFMC"), ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC., a
Florida corporation ("AESP"), Slav Stein ("Stein"), Roman Briskin ("Briskin")
and Leonard J. Sokolow ("Sokolow").
RECITALS:
A. Upon the terms and subject to the conditions of this Agreement
and in accordance with the Florida Business Corporation Act ("Florida Law") and
the Maryland General Corporation Law ("Maryland Law"), AESP and AGF will enter
into a business combination transaction pursuant to which: (i) AGFMC will merge
with and into AESP (the "Merger"); and (ii) AGF will acquire all of the issued
and outstanding stock of each of AESP Computerzubehor Gmbh, a German
Corporation ("AESP Germany") and Advanced Electronic Support Products
Computertillbehor I Sweden Aktiebolag, a Swedish corporation ("AESP Sweden").
B. The Boards of Directors and stockholders of AESP have approved
and adopted this Agreement and AESP has approved the Merger and the other
transactions contemplated hereby.
C. The Board of Directors of AGF has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of AGF
and is in the best interests of AGF and its stockholders and has approved and
adopted this Agreement and has approved the Merger and the other transactions
contemplated hereby and recommended approval and adoption of this Agreement and
approval of the Merger by the holders of the common stock, par value $.01 per
share, of AGF (the "AGF Common Stock").
D. For federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of Section 368(a) of
the United States Internal Revenue Code of 1986, as amended.
E. The parties intend that the Merger qualify as a reverse merger
under U.S. generally accepted accounting principles ("GAAP").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings:
<PAGE> 130
1.1 "Affiliate" means any Person who or which, directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under Common Control with, any specified Person.
1.2 "Business Day" means any day other than a day on which (i)
banks in the State of Florida are authorized or obligated to be closed or (ii)
the New York Stock Exchange is closed;
1.3 "Control" (including the terms "Controlling," "Controlled by"
and "under Common Control with"), with respect to the relationship between or
among two or more Persons, means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or otherwise, including,
without limitation, the ownership, directly or indirectly, of securities having
the power to elect a majority of the board of directors or similar body
governing the affairs of such Person.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Effective Time" shall have the meaning set forth in Section
2.3.
1.6 "Encumbrance" means any security interest, pledge, mortgage,
lien (including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, option, preferential arrangement or restriction of
any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
1.7 "Environmental Laws" means any foreign, federal, state or
local statute, code, ordinance, rule, regulation, permit, consent, approval,
license, judgment, order, writ, judicial decision, common law rule, decree,
agency interpretation, injunction or other authorization or requirement
whenever promulgated, issued, or modified, including the requirement to
register underground storage tanks, relating to:
(a) emissions, discharges, spills, releases or threatened
releases of pollutants, contaminants, Hazardous Substances (as hereinafter
defined), materials containing Hazardous Substances, or hazardous or toxic
materials or wastes into ambient air, surface water, groundwater, watercourses,
publicly or privately owned treatment works, drains, sewer systems, wetlands,
septic systems or onto land;
(b) the use, treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Substances, materials
containing Hazardous Substances or hazardous and/or toxic wastes, material,
products or by-products (or of equipment or apparatus containing Hazardous
Substances) as defined in or regulated under the following statutes and their
implementing regulations: the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund
2
<PAGE> 131
Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq., and/or the
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., each as amended
from time to time; or
(c) otherwise relating to pollution or the protection of
human health or the environment.
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.9 "Exchange Ratio" shall have the meaning set forth in Section
3.1(a).
1.10 "Governmental Authority" means any federal, state or local, or
foreign government, governmental, regulatory or administrative authority (or
subdivision thereof) and any agency or commission or any court, tribunal or
judicial or arbitral body that has jurisdiction over a designated Person and
its business.
1.11 "Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
1.12 "Intellectual Property" means: (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (c) national and multinational statutory invention registrations,
patents, patent registrations and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and reexaminations)
and all rights therein provided by international treaties or conventions and
all improvements to the inventions disclosed in each such registration, patent
or application, (d) trademarks, service marks, trade dress, logos, trade names
and corporate and partnership names, whether or not registered, including all
common law rights, and registrations and applications for registration thereof,
including, but not limited to, all marks registered in trademark offices
throughout the world, and all rights therein provided by international treaties
or conventions, (e) copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein provided by
international treaties or conventions, (f) moral rights (including, without
limitation, rights of paternity and integrity), and waivers of such rights by
others, (g) computer software, including, without limitation, operating systems
and specifications, data, data bases, files, documentation and other materials
related thereto, (h) trade secrets and confidential, technical and business
information (including ideas, flow charts, logic diagrams, formulas,
compositions, patterns, devices, methods, techniques, processes, inventions,
and conceptions of inventions whether patentable or unpatentable and whether or
not reduced to practice), (i) whether or not confidential, technology
(including know-how and show-how), manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, selling, pricing and cost information or
procedures, business and marketing plans and customer and supplier lists and
information, (j) copies and tangible
3
<PAGE> 132
embodiments of all the foregoing, in whatever form or medium, (k) all rights to
obtain and rights to apply for patents, and to register trademarks and
copyrights, (l) all rights to sue or recover and retain damages and costs and
attorneys' fees for present and past infringement of any of the foregoing, and
(m) all goodwill associated with the foregoing.
1.13 "Material Adverse Effect" means any circumstance, change in,
or effect on the business of any party that: (a) is, or could reasonably be
expected to be, materially adverse to the business, operations, assets or
liabilities, results of operations or the financial condition of such party, or
(b) could reasonably be expected to adversely affect the ability of such party
to operate or conduct its business in the manner in which it is currently or
currently anticipated to be operated or conducted.
1.14 "Opt-Out Time" shall have the meaning set forth in Section
2.3.
1.15 "Person" means any individual, partnership, firm corporation,
limited liability company, association, joint venture, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Exchange Act of 1934, as
amended.
1.16 "Receivables" means any and all accounts, notes and other
receivables of a Person from third parties, including, without limitation,
customers, arising from the conduct of such Person's business or otherwise
before the date hereof, whether or not in the ordinary course, together with
all unpaid financing charges accrued thereon.
1.17 "Securities Act" means the Securities Act of 1933, as amended.
1.18 "Subsidiary" or "Subsidiaries" of a person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the board
of directors or other governing body of such corporation or other legal entity.
1.19 "Surviving Corporation" shall have the meaning set forth in
Section 2.1 hereof.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Florida Law, at the
Effective Time (as defined in Section 2.3), AGFMC shall be merged with and into
AESP. As a result of the Merger, the separate corporate existence of AGFMC
shall cease and AESP shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). As a result of the Merger, the Surviving
Corporation shall become a wholly owned subsidiary of AGF.
4
<PAGE> 133
2.2 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 10.1 and subject to the satisfaction or waiver of the conditions set
forth in Article X, the consummation of the Merger (the "Closing") will take
place as promptly as practicable (and in any event within five (5) business
days) after satisfaction or waiver of the conditions set forth in Article X at
the offices of Lucio, Mandler, Croland, Bronstein & Garbett, P.A., 701 Brickell
Avenue, Suite 2000, Miami, Florida 33131, unless another date, time or place is
agreed to in writing by the parties hereto.
2.3 Effective Time. On the same day as the Closing, the parties
hereto shall cause the Merger to be consummated by filing Articles of Merger
with the Secretary of State of the State of Florida in such form as required
by, and executed in accordance with the relevant provisions of, Florida Law
(the date and time of such filing, or such later date or time as set forth
therein, being the "Effective Time"). On the same day as, and immediately
after, the Effective Time the parties hereto shall cause Form N-54C to be filed
with the Securities and Exchange Commission ("SEC"). The date and time of the
receipt by the SEC of such filing is hereinafter referred to as the "Opt-Out
Time".
2.4 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Florida law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property, rights,
privileges, powers and franchises of AGFMC and AESP shall vest in the Surviving
Corporation, and all debts, liabilities and duties of AGFMC and AESP shall
become the debts, liabilities and duties of the Surviving Corporation.
2.5 Articles of Incorporation; By-Laws. At the Effective Time,
the Articles of Incorporation and the By-Laws of AESP, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation and the
By-Laws of the Surviving Corporation.
ARTICLE III
CONVERSION OF SECURITIES AND EXCHANGE OF CERTIFICATES
3.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of AGF, AGFMC, AESP or the
holders of any of the following securities:
(a) Each share of common stock of AESP ("AESP Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than any shares of AESP Common Stock to be canceled pursuant to Section
3.1(b)), shall be converted into the right to receive 25,605.645 (the "Exchange
Ratio") shares of AGF Common Stock. As a result of such conversion, the
current holders of AESP Common Stock will, at the Effective Time, hold the
aggregate amount of 1,707,043 shares of AGF Common Stock which will, at the
Effective Time, represent fifty seven percent (57%) of the AGF Common Stock
then issued and outstanding. However, if between the date of this Agreement
and the Effective Time the outstanding shares
5
<PAGE> 134
of AGF Common Stock or AESP Common Stock shall have been changed into a
different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. All such shares of AESP Common Stock
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously evidencing any such
shares shall thereafter represent the right to receive, upon the surrender of
such certificate in accordance with the provisions of Section 3.2, certificates
evidencing such number of whole shares of AGF Common Stock into which such AESP
Common Stock was converted in accordance with the Exchange Ratio. The holders
of such certificates previously evidencing such shares of AESP Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of AESP Common Stock except as otherwise
provided herein or by law.
(b) Each share of AESP Common Stock held in the treasury
of AESP or held by any directly or indirectly owned Subsidiary of AESP
immediately prior to the Effective Time shall automatically be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
3.2 Exchange of Certificates. At the Closing, the holders of AESP
Common Stock shall deliver certificates representing all of the issued and
outstanding AESP Common Stock to AGF. AGF shall then provide the holders of
AESP Common Stock with certificates representing all of the AGF Common Stock
issued to the holders of AESP Common Stock pursuant to Section 3.1 hereof.
3.3 Stock Transfer Books. On the date hereof, the stock transfer
books of AESP shall be closed, and there shall be no further registration of
transfers of shares of AESP Common Stock thereafter on the records of AESP.
3.4 [INTENTIONALLY OMITTED]
6
<PAGE> 135
3.5 Issuance of AGF Warrants.
(a) At the Opt-Out Time, AGF shall issue the following
number of warrants (each, a "Warrant") to the following persons:
<TABLE>
<CAPTION>
Person Number of Warrants
------ ------------------
<S> <C>
Sokolow 90,000
Sanford B. Cohen ("Cohen") 20,000
Martin C. Engelmann ("Engelmann") 20,000
Hon. J. Antonio Villamil ("Villamil") 30,000
Neil R. Winter ("Winter") 20,000
Timothy E. Mahoney ("Mahoney") 50,000
</TABLE>
(b) The form of each Warrant to be issued to Sokolow and
Mahoney is attached hereto as Exhibit 3.5(b). However, 60,000 of the Warrants
issued to Sokolow hereunder shall provide for an exercise price of $3.60 per
share, and the remaining 30,000 Warrants issued to Sokolow hereunder shall
provide for an exercise price of $5.00 per share.
(c) The form of each Warrant to be issued to Cohen,
Engelmann, Villamil and Winter is attached hereto as Exhibit 3.5(c).
3.6 Acquisition of AESP Germany and AESP Sweden. Stein and
Briskin shall, at the Closing, deliver certificates representing all of the
issued and outstanding stock of AESP Germany and AESP Sweden to AGF or its
designee. Such certificates shall be duly endorsed in favor of AGF. In
consideration of such transfer, Stein and Briskin shall each receive 20,000
shares of AGF Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AESP
As of the date hereof and the Closing, AESP hereby represents and
warrants to AGF as follows:
4.1 Organization and Qualification. Each of AESP, AESP Germany
and AESP Sweden (each, an "AESP Entity" and collectively, the "AESP Entities")
is a corporation, partnership or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite power and
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authority and all necessary governmental approvals to own, lease and operate
its properties and assets and to carry on its business as it has been, is
currently and is currently anticipated to be conducted, except where the
failure to be so organized, existing or in good standing or to have such power,
authority and governmental approvals does not have, or could not reasonably be
expected to have a Material Adverse Effect. Each AESP Entity is duly qualified
or licensed as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect.
4.2 Articles of Incorporation and By-Laws. Each AESP Entity has
heretofore made available to AGF a complete and correct copy of its Articles of
Incorporation and By-Laws or equivalent organizational documents, each as
amended to date. Such Articles of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Each AESP Entity is not
in violation of any provision of its Articles of Incorporation, By-Laws or
equivalent organizational documents, except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
4.3 Capitalization.
(a) Schedule 4.3 accurately: (a) sets forth, as of the
Closing, the names of the holders of all of the outstanding capital stock of
each AESP Entity and the number of shares owned by each such stockholder; and
(b) describes any preferences in distributions to which each such stockholder
is entitled. There are now and, as of the Closing, will be no preemptive
rights with respect to any capital stock of any AESP Entity and, except as set
forth on Schedule 4.3, there are now and, as of the Closing, will be no
outstanding options, subscriptions, warrants, calls, contracts, convertible
securities, or other rights, agreements, arrangements or commitments of any
character under which any AESP Entity is or may become obligated to issue,
assign or transfer any shares of capital stock of any AESP Entity or purchase,
redeem or otherwise acquire any outstanding shares of capital stock of any AESP
Entity. Each outstanding share of capital stock of each AESP Entity has been
duly and validly authorized and issued and is fully paid and owned,
beneficially and of record, by the stockholder(s) listed on Schedule 4.3.
Neither any AESP Entity nor any stockholder listed on Schedule 4.3 has granted
any option or other right to purchase any capital stock of any AESP Entity or
any interest therein from any such stockholder.
(b) Briskin and Stein jointly and severally warrant and
represent to AGF that, as of the date hereof and as of the Closing: (i) Briskin
and Stein have good and marketable title to and beneficial ownership of all of
the outstanding securities (collectively, the "AESP Entity Shares") of the AESP
Entities; and (ii) Briskin and Stein have full right, power and authority to
sell, assign, transfer and deliver the AESP Entity Shares to AGF, free and
clear of any Encumbrance. Furthermore, Briskin and Stein waive any right of
first refusal that either of them may have with regard to the AESP Entity
Shares.
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4.4 Authority of Each AESP Entity. Each AESP Entity has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each AESP Entity and
the consummation by each AESP Entity of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action and no
other corporate action on the part of each AESP Entity is necessary to
authorize this Agreement or to consummate the transactions contemplated herein.
This Agreement has been duly and validly executed and delivered by each AESP
Entity and, assuming the due authorization, execution and delivery by AGF,
constitutes a legal, valid and binding obligation of each AESP Entity,
enforceable against such AESP Entity in accordance with its terms, subject to
the effect of any applicable bankruptcy, reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4.5 No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 4.5, the execution
and delivery of this Agreement by each AESP Entity do not, and each AESP
Entity's performance of the transactions contemplated herein will not:
(i) conflict with or violate the Articles of
Incorporation or By-Laws or equivalent organizational documents of any AESP
Entity;
(ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to any AESP Entity or by which
any property or asset of any AESP Entity is bound or affected, except for any
such conflicts, violations, breaches, defaults or other occurrences which would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent each AESP Entity from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Material Adverse Effect; or
(iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material benefit under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of any AESP Entity pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which any AESP Entity is a party or by which any AESP Entity or any property
or asset of any AESP Entity is bound or affected, except for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or delay consummation of the Merger in any material respect, or
otherwise prevent an AESP Entity from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Material Adverse Effect.
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(b) The execution and delivery of this Agreement by the
AESP Entities do not, and the performance of this Agreement by the AESP
Entities will not, require any consent, approval, authorization or permit of,
or filing with or notification to any Governmental Authority, except for:
(i) applicable requirements, if any, of the
Exchange Act, the Securities Act and state securities or "blue sky" laws ("Blue
Sky Laws");
(ii) filing and recordation of appropriate merger
documents as required by Florida Law; and
(iii) any non-United States competition, antitrust
and investment laws;
and where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent the
AESP Entities from performing their obligations under this Agreement in any
material respect, and could not, individually or in the aggregate, have a
Material Adverse Effect.
4.6 Compliance. Each AESP Entity is not in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to such AESP Entity or by which any property or asset of such
AESP Entity is bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which such AESP Entity is a party or by which such AESP Entity or
any property or asset of such AESP Entity is bound or affected, except for any
such conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
4.7 Financial Statements.
(a) The AESP combined financial statements for the twelve
month period ended December 31, 1995, including all notes thereto,
(collectively, the "AESP Financial Statements") provided to AGF were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated and each fairly presented the
financial position, results of operations and cash flows of the AESP Entities,
as the case may be, as at the respective dates thereof and for the respective
periods indicated therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to be material in amount).
(b) Except as set forth in Schedule 4.7 or the AESP
Financial Statements, the AESP Entities do not have any liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise) other than
liabilities and obligations which would not, individually or in the aggregate,
have a Material Adverse Effect. Without limiting the generality of the
foregoing, the AESP Financial Statements reflect the annual costs of all real
estate leases between any AESP Affiliate and the AESP Entities.
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4.8 Absence of Certain Changes or Events. Since the date of the
AESP Financial Statements, each AESP Entity has conducted its business only in
the ordinary course and in a manner consistent with past practice and, except
as set forth in Schedule 4.8, there has not been:
(a) any damage, destruction or loss (whether or not
covered by insurance) with respect to any property or asset of any AESP Entity
and having, individually or in the aggregate, a Material Adverse Effect;
(b) any change by any AESP Entity in its accounting
methods, principles or practices;
(c) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of any AESP Entity or
any redemption, purchase or other acquisition of any of its securities;
(d) other than as set forth in Section 4.3 and pursuant
to the plans, programs or arrangements referred to in Section 4.10 and other
than in the ordinary course of business consistent with past practice, any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of any AESP Entity.
4.9 Absence of Litigation. Except as disclosed on Schedule 4.9
hereof, there is no claim, action, proceeding or investigation pending or
overtly threatened against any AESP Entity, or any property or asset of any
AESP Entity, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which, individually or in
the aggregate, could have a Material Adverse Effect. Neither any AESP Entity
nor any property or asset of any AESP Entity is subject to any order, writ,
judgment, injunction, decree, determination or award which could have,
individually or in the aggregate, a Material Adverse Effect.
4.10 Employee Benefit Plans.
(a) With respect to all the employee benefit plans,
programs and arrangements maintained or contributed to by the AESP Entities for
the benefit of any current or former employee, officer or director of the AESP
Entities (the "AESP Plans"), and except as would not, individually or in the
aggregate, have a Material Adverse Effect:
(i) each AESP Plan intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service (the
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"IRS") that it is so qualified and nothing has occurred since the date of such
letter that could reasonably be expected to affect the qualified status of such
AESP Plan;
(ii) each AESP Plan has been operated in all
material respects in accordance with its terms and the requirements of
applicable law;
(iii) the AESP Entities have not incurred any
direct or indirect liability under, arising out of or by operation of Title IV
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
in connection with the termination of, or withdrawal from, any AESP Plan or
other retirement plan or arrangement, and no fact or event exists that could
reasonably be expected to give rise to any such liability; and
(iv) the AESP Entities have not incurred any
liability under, and have complied in all material respects with, the Worker
Adjustment Retraining Notification Act ("WARN"), and no fact or event exists
that could give rise to liability under such act.
(b) None of the AESP Plans currently maintained by or
contributed to by any of the AESP Entities nor any Plan maintained by any
entity that together with the AESP Entities would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA (a "AESP Affiliate Plan") is
subject to Title IV of ERISA. No AESP Plan or AESP Affiliate Plan has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived as of the most recently
completed plan year of such plan.
4.11 Intellectual Property.
(a) AGF heretofore has been provided a true and complete
list of all Intellectual Property which each AESP Entity owns or has the right
to use. Each AESP Entity has full ownership thereof or the right to use all
such rights, in each case except to the extent heretofore disclosed in writing
to AGF, and the AESP Entities have no knowledge that the conduct of their
respective businesses as now operated, as of the date hereof, conflicts with,
misappropriates or infringes, or has been alleged to infringe, any Intellectual
Property rights or franchises of any person (including patents, trade secrets
or other proprietary rights of any third party). AGF heretofore has been
provided with a true and complete copy of every material license or other
material agreement, including all amendments thereto, pursuant to which an AESP
Entity agreed to grant or has granted rights with respect to the Intellectual
Property, or pursuant to which an AESP Entity enjoys rights in any Intellectual
Property of any person. No current or former consultant, employee or Affiliate
of the AESP Entities or any of their respective shareholders, officers or
directors has any right, title or interest in any of the Intellectual Property
used and/or owned by the AESP Entities. Furthermore, no AESP Entity has any
royalty obligations to Stein, Briskin or any Affiliate of AESP.
(b) Each AESP Entity has the right to use all
Intellectual Property which is used in its business.
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(c) To the best knowledge of the AESP Entities, none of
the Intellectual Property owned by or licensed to the AESP Entities is being
infringed by any person.
4.12 Taxes.
(a) Except as set forth in Schedule 4.12(a) and except as
regards taxes which are not yet due, the AESP Entities have timely filed all
federal, state, local and foreign tax returns and reports required to be filed
by them through the date hereof and shall timely file all returns and reports
required on or before the Effective Time, except for such returns and reports
the failure of which to file timely would not, individually or in the
aggregate, have a Material Adverse Effect. Such reports and returns are and
will be true, correct and complete, except for such failures to be true,
correct and complete as would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) Except as set forth in Schedule 4.12(b), the AESP
Entities or, where appropriate, the stockholders of the AESP Entities, have
paid and discharged all federal, state, local and foreign taxes due from the
activities of the AESP Entities, other than such taxes that are being contested
in good faith by appropriate proceedings and are adequately reserved as shown
in the audited combined balance sheet of AESP dated December 31, 1995 (the
"AESP 1995 Balance Sheet") and its most recent combined quarterly financial
statements, except for such failures to so pay and discharge which would not,
individually or in the aggregate, have a Material Adverse Effect.
(c) Neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or threatening to assert against
any AESP Entity or any stockholder of an AESP Entity, any deficiency or
material claim for additional taxes or interest thereon or penalties in
connection therewith which, if such deficiencies or claims were finally
resolved against such AESP Entity or stockholder of an AESP Entity would,
individually or in the aggregate, have a Material Adverse Effect.
(d) The accruals and reserves for taxes (including
interest and penalties, if any, thereon) reflected in the AESP 1995 Balance
Sheet and the most recent quarterly financial statements are adequate in
accordance with generally accepted accounting principles, except where the
failure to be adequate would not have a Material Adverse Effect.
(e) Except as set forth on Schedule 4.12(e), the AESP
Entities and, where appropriate, each stockholder of the AESP Entities, have
withheld or collected and paid over to the appropriate Governmental Authorities
or are properly holding for such payment all taxes required by law to be
withheld or collected, except for such failures to have so withheld or
collected and paid over or to be so holding for payment which would not,
individually or in the aggregate, have a Material Adverse Effect.
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(f) There are no liens for taxes upon the assets of the
AESP Entities, other than liens for current taxes not yet due and payable and
liens for taxes that are being contested in good faith by appropriate
proceedings.
(g) No AESP Entity has agreed to or is required to make
any adjustment under Section 481(a) of the Code. No AESP Entity has made an
election under Section 341(f) of the Code.
(h) For purposes of this Section, where a determination
of whether a failure by an AESP Entity to comply with the representations
herein has a Material Adverse Effect is necessary, such determination shall be
made on an aggregate basis with all other failures within this Section 4.12.
4.13 Material Contracts.
(a) Each AESP Entity has, or has caused to be, made
available to AGF for review and duplication, correct and complete copies (or in
the case of oral contracts, accurate summaries thereof) of all of the following
contracts and agreements of each AESP Entity (solely for purposes of this
Section 4.13, all references to AESP shall be deemed to include each AESP
Entity), together with all material contracts, agreements, leases and subleases
to which AESP is a party concerning the management or operation of any real
property and all material agreements relating to Intellectual Property (such
material contracts and agreements listed on Schedule 4.13(a) are collectively
referred to as the "Material Contracts"):
(i) each contract and agreement for the
purchase of inventory or personal property with any supplier or for the
furnishing of services to AESP, or otherwise related to AESP's business under
the terms of which AESP: (A) is reasonably anticipated to pay or otherwise give
consideration of more than $20,000 in the aggregate over the remaining term of
such contract or (B) cannot cancel without penalty or further payment and
without more than 30 days' notice;
(ii) each contract and agreement for the
sale of inventory or other personal property or for the furnishing of services
by AESP which: (A) is reasonably anticipated to involve consideration of more
than $100,000 in the aggregate during the fiscal year ending December 31, 1996
or in any fiscal year thereafter, (B) is reasonably anticipated to involve
consideration of more than $100,000 in the aggregate over the remaining term of
the contract or (C) cannot be canceled by AESP without penalty or further
payment and without more than 30 days' notice;
(iii) all broker, distributor, dealer,
manufacturer's representative, franchise, agency, sales promotion, market
research, marketing, consulting and advertising contracts and agreements to
which AESP is a party;
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(iv) all management contracts and
contracts with independent contractors, consultants or other persons (including
Affiliates) (or similar arrangements) involving exclusive rights or requiring
payments in excess of $20,000 individually to which AESP is a party and which
are not cancelable without penalty or further payment on 30 days' or less
notice;
(v) all contracts and agreements
relating to indebtedness of AESP in excess of $20,000 individually or in the
aggregate;
(vi) all contracts and agreements with
any Governmental Authority to which AESP is a party;
(vii) all contracts and agreements that
limit or purport to limit the ability of AESP to compete in any line of
business, or with any person, or in any geographic area or during any period of
time;
(viii) all contracts and agreements between
or among AESP on the one hand and any Affiliate of AESP on the other hand;
(ix) all leases and subleases for
tangible personal property having a value in excess of $20,000; for purposes of
this Agreement, the term "lease" shall include any and all leases, subleases,
sale/leaseback agreements or similar arrangements; and
(x) all contracts relating to
Intellectual Property and all contracts relating to real property owned, leased
or used by AESP.
(b) Each Material Contract: (i) is valid and binding on
the respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated hereby shall continue in full
force and effect without penalty or other adverse consequence. AESP is not,
and no other party to any Material Contract is, to AESP's knowledge, in breach
of or default under any Material Contract, which breach or default would have a
Material Adverse Effect on AESP.
(c) There is no contract, agreement or other arrangement
granting any person any preferential right to purchase, other than in the
ordinary course of business consistent with past practice, any of the
properties, assets or services of AESP.
(d) Except as set forth in Schedule 4.13, there is not
now outstanding any guarantee or agreement for indemnity or for suretyship
either given by or for the benefit of AESP.
4.14 Books and Records. The books of account and other financial
records of each AESP Entity: (a) reflect all items of income and expense and
all assets and liabilities required to be reflected therein, except to the
extent that the omission to reflect such items could not, individually or in
the aggregate, have a Material Adverse Effect on the business of each AESP
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Entity, (b) are complete and correct, not misleading and do not contain or
reflect any inaccuracies or discrepancies, except as could not, individually or
in the aggregate, have a Material Adverse Effect on the business of each AESP
Entity, and (c) have been maintained in accordance with good business and
accounting practices.
4.15 Receivables. Except as set forth in Schedule 4.15 and to the
extent, if any, provided for on the balance sheets included in the AESP
Financial Statements, all Receivables reflected on the balance sheets included
in the AESP Financial Statements arose from, and the Receivables existing as of
the Effective Time will have arisen from, the sale of goods or services to
persons who are not Affiliates of an AESP Entity and in the ordinary course of
its business consistent with past practice and, except as provided against on
the balance sheets included in the AESP Financial Statements, constitute or
will constitute, as the case may be, only valid, undisputed claims of an AESP
Entity not subject to valid claims of set-off, off-set or other defenses or
counterclaims. The AESP Financial Statements make full provision for all
doubtful debts and all bad debts have been written off, except for doubtful
debts and bad debts that, individually or in the aggregate, would not have a
Material Adverse Effect on the AESP Entities or their respective businesses.
4.16 Environmental Compliance. Except as disclosed on Schedule
4.16, each AESP Entity is, and at all times has been, in compliance with all
applicable Environmental Laws.
4.17 Conduct of Business in the Ordinary Course. Except as
disclosed on Schedule 4.17, since the date of the AESP Financial Statements,
each AESP Entity has conducted business only in the ordinary course and
consistent with past practice.
4.18 Compliance with Laws. Each AESP Entity has conducted and
continues to conduct its business in all material respects in accordance with
all applicable laws and all Governmental Orders entered by or with any
Governmental Authorities, and each AESP Entity is in compliance with all such
laws or Governmental Orders, except to the extent that the failure to so
conduct or comply therewith would not, in the aggregate, have a Material
Adverse Effect on any AESP Entity, the businesses of any AESP Entity or on the
transactions contemplated hereby.
4.19 Affiliates. Schedule 4.19 contains a true and complete list
of all Affiliates of each of the AESP Entities, as of the date hereof, and as
of the date of the Closing. For each such Affiliate, Schedule 4.19 sets forth:
(a) the entity's name; (b) the entity's state of place of incorporation or
organization; (c) a brief description of the entity's principal business; and
(d) with regard to each beneficial or legal owner of equity in such entity,
such owner's name, address and percentage of equity held.
4.20 Real Property. The particulars of the real property set forth
on Schedule 4.20 attached hereto (the "Real Property") are true and correct in
all respects and each AESP Entity has good and marketable title to the Real
Property free from Encumbrances and other adverse rights. The Real Property
comprises all the real property owned, used or occupied by each AESP
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Entity in connection with its business and no AESP Entity has ever owned any
interest in any other real property other than the Real Property. There is no
violation of any applicable law (including, without limitation, any building,
planning, zoning law or environmental law) or any covenants, stipulations or
conditions relating to any of the Real Property and each AESP Entity is in
peaceful and undisturbed possession of each parcel of Real Property. There are
no contractual or legal restrictions that preclude or restrict in any material
manner the ability to use any of the Real Property in the manner in which they
are currently being used and the Real Property has all rights and easements
reasonably necessary for their use and enjoyment for the purposes of its
business. None of AESP Entities are leasing or subleasing (or has leased or
sublet) any parcel or any portion of any parcel of Real Property to any other
Person, nor has any AESP Entity assigned its interest under any lease or
sublease for any leased Real Property to any third party. There are no
outstanding material disputes with any Person relating to the Real Property or
its use and no notices have been given or received by any AESP Entity which
would adversely affect the use and enjoyment of the Real Property.
4.21 Assets. Except as set forth on Schedule 4.21, each AESP
Entity owns, leases or has the legal right to use all the properties and assets
used or intended to be used or required in the conduct of its business and
which are material and, with respect to contract rights, is a party to and
enjoys the right to the benefits of all material contracts and agreements used
and/or intended to be used by each AESP Entity or required in or relating to
the conduct of its business (such properties, assets and contract rights
collectively referred to as the "Assets"). Each AESP Entity has good title to
or, in the case of leased or subleased Assets, valid and subsisting leasehold
interests in, all the Assets, free and clear of all Encumbrances. All the
Assets are in good operating condition and repair, ordinary wear and tear
excepted, and are suitable for the purposes for which they are used and
intended. Each Asset including without limitation, the benefit of any
licenses, leases or other agreements or arrangements) acquired since the date
of the AESP Financial Statements has been acquired for consideration and on
terms no less favorable to each AESP Entity than otherwise would have been
available in a comparable arms' length transaction on the date of such
acquisition.
4.22 Suppliers. No AESP Entity has received any notice, nor is any
AESP Entity aware, that any supplier will not sell supplies and other goods or
provide services to it at any time after the date hereof on terms and
conditions substantially similar to those used in its current sales to the AESP
Entity, subject only to general and customary price increases.
4.23 Brokers. Except as set forth on Schedule 4.23, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated herein based
upon arrangements made by or on behalf of any AESP Entity.
4.24 Eligible Portfolio Company.
(a) AESP:
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(i) is organized under the laws of, and has its
principal place of business in, Florida;
(ii) is neither an "investment company, as defined
in the Investment Company Act of 1940 (the "1940 Act"), nor a company which
would be an investment company except for the exclusion from the definition of
investment company in Section 3(c) of the 1940 Act; and
(iii) does not have any class of securities with
respect to which a member of a national securities exchange, broker, or dealer
may extend or maintain credit to or for a customer pursuant to rules or
regulations adopted by the Board of Governors of the Federal Reserve System
under Section 7 of the Exchange Act.
(b) For purposes of Section 55 of the 1940 Act, the value
of AESP's assets represent at least seventy percent (70%) of the total assets
of the AESP Entities on a combined basis.
4.25 Full Disclosure. No representation or warranty with respect
to AESP contained in this Agreement and no written statement contained in any
financial or operating data or certificate furnished to AGF pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, contains any untrue statement of a material fact, or omits to state
a material fact necessary to make the statements contained herein or therein
not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AGF
As of the date hereof and the Closing, AGF hereby represents and
warrants to AESP as follows:
5.1 Organization and Qualification; Subsidiaries. Each of AGF and
each Subsidiary of AGF (each, an "AGF Subsidiary") is a corporation,
partnership or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and assets and
to carry on its business as it has been, is currently and is currently
anticipated to be conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and governmental
approvals does not have, or could not reasonably be expected to have a Material
Adverse Effect. AGF and each AGF Subsidiary are duly qualified or licensed as
foreign corporations to do business, and are in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
them or the nature of their business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Material
Adverse Effect.
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5.2 Articles of Incorporation and By-Laws. AGF has heretofore
made available to AESP a complete and correct copy of the Articles of
Incorporation and the By-Laws or equivalent organizational documents, each as
amended to date, of AGF and each AGF Subsidiary. Such Certificates of
Incorporation, By-Laws and equivalent organizational documents are in full
force and effect. Neither AGF nor any AGF Subsidiary is in violation of any
provision of its Articles of Incorporation, By-Laws or equivalent
organizational documents, except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect.
5.3 Capitalization. AGF has provided to AESP a list, as of
February 12, 1996, of the names of the record holders of all of the outstanding
capital stock of AGF and each AGF Subsidiary and the number of shares owned by
each such stockholder. Schedule 5.3 accurately describes any preferences in
distributions to which each such stockholder is entitled. There are now and,
as of the Closing, will be no preemptive rights with respect to any capital
stock of AGF or any AGF Subsidiary and, except as set forth on Schedule 5.3,
there are now and, as of the Closing, will be no outstanding options,
subscriptions, warrants, calls, contracts, convertible securities, or other
rights, agreements, arrangements or commitments of any character under which
AGF or any AGF Subsidiary is or may become obligated to issue, assign or
transfer any shares of capital stock of AGF or any AGF Subsidiary or purchase,
redeem or otherwise acquire any outstanding shares of capital stock of AGF or
any AGF Subsidiary. Each outstanding share of capital stock of AGF and each
AGF Subsidiary has been duly and validly authorized and issued and is fully
paid and was held, as of February 12, 1996, in the name of the stockholder(s)
listed on Schedule 5.3. AGF has not granted any option or other right to
purchase any capital stock of any AGF Subsidiary or any interest therein from
AGF.
5.4 Authority of AGF and AGFMC. Subject to the conditions set
forth in Article VIII and the approval of AGF's stockholders: (a) AGF and AGFMC
have all necessary power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby; (b) the execution and delivery of this Agreement by AGF
and AGFMC and the consummation by AGF and AGFMC of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate action on the part of AGF and AGFMC is
necessary to authorize this Agreement or to consummate the transactions
contemplated herein; and (c) this Agreement has been duly and validly executed
and delivered by AGF and AGFMC and, assuming the due authorization, execution
and delivery by AGF and AGFMC, constitutes a legal, valid and binding
obligation of AGF and AGFMC, enforceable against AGF and AGFMC in accordance
with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to the effect of general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
5.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by AGF
and AGFMC do not, and the performance by AGF and AGFMC of the transactions
contemplated herein will not:
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(i) conflict with or violate the Articles of
Incorporation or By-Laws or equivalent organizational documents of AGF or any
AGF Subsidiary;
(ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to AGF or any AGF Subsidiary
or by which any property or asset of AGF or any AGF Subsidiary is bound or
affected, except for any such conflicts, violations, breaches, defaults or
other occurrences which would not prevent or delay consummation of the Merger
in any material respect, or otherwise prevent AGF or AGFMC from performing
their respective obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Material Adverse Effect; or
(iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material benefit under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of AGF or any AGF Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which AGF or any AGF Subsidiary is a party or by which AGF or any
AGF Subsidiary or any property or asset of AGF or any AGF Subsidiary is bound
or affected, except for any such conflicts, violations, breaches, defaults or
other occurrences which would not prevent or delay consummation of the Merger
in any material respect, or otherwise prevent AGF or AGFMC from performing
their respective obligations under this Agreement in any material respect, and
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by AGF
and AGFMC do not, and the performance of this Agreement by AGF and AGFMC will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, except for:
(i) applicable requirements, if any, of the
Exchange Act, the 1940 Act, the Securities Act and state securities or "blue
sky" laws ("Blue Sky Laws");
(ii) filing and recordation of appropriate merger
documents as required by Florida Law; and
(iii) any non-United States competition, antitrust
and investment laws;
and where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent AGF or
AGFMC from performing their respective obligations under this Agreement in any
material respect, and could not, individually or in the aggregate, have a
Material Adverse Effect.
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5.6 Compliance. Neither AGF nor any AGF Subsidiary is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to AGF or any AGF Subsidiary or by which
any property or asset of AGF or any AGF Subsidiary is bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which AGF or any AGF
Subsidiary is a party or by which AGF or any AGF Subsidiary or any property or
asset of AGF or any AGF Subsidiary is bound or affected, except for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
5.7 Financial Statements.
(a) The AGF consolidated financial statements for the
twelve month period ended December 31, 1995 and the three month period ended
March 31, 1996, including all notes thereto (collectively, the "AGF Financial
Statements") provided to AESP were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated and each fairly presented the financial position, results of
operations and cash flows of AGF and the consolidated AGF Subsidiaries, as the
case may be, as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to be material in amount).
(b) Except as set forth in the AGF Financial Statements,
AGF and the AGF Subsidiaries do not have any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise) other than
liabilities and obligations which would not, individually or in the aggregate,
have a Material Adverse Effect. Without limiting the generality of the
foregoing and except as set forth on Schedule 5.7(b), the AGF Financial
Statements reflect the costs of any transaction between AGF or the AGF
Subsidiaries and any Affiliate of AGF, including any leases or other agreements
relating to real property.
5.8 Absence of Certain Changes or Events. Since the date of the
AGF Financial Statements, AGF and the AGF Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and there has not been:
(a) any damage, destruction or loss (whether or not
covered by insurance) with respect to any property or asset of AGF or any AGF
Subsidiary and having, individually or in the aggregate, a Material Adverse
Effect;
(b) any change by AGF in its accounting methods,
principles or practices;
(c) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of AGF or any AGF
Subsidiary or any redemption, purchase or other acquisition of any of their
respective securities other than dividends by an AGF Subsidiary to AGF;
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(d) other than as set forth in Section 5.3 or Schedule
5.8, and pursuant to the plans, programs or arrangements referred to in Section
5.10 and other than in the ordinary course of business consistent with past
practice, any increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
AGF or any AGF Subsidiary.
5.9 Absence of Litigation. There is no claim, action,
proceeding or investigation pending or threatened against AGF or any AGF
Subsidiary, or any property or asset of AGF or any AGF Subsidiary, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, which, individually or in the aggregate, could have
a Material Adverse Effect. Neither AGF nor any AGF Subsidiary nor any property
or asset of AGF or any AGF Subsidiary is subject to any order, writ, judgment,
injunction, decree, determination or award which could have, individually or in
the aggregate, a Material Adverse Effect.
5.10 Employee Benefit Plans. Except as set forth on Schedule
5.10, AGF has no employee benefit plans, programs and arrangements maintained
or contributed to by AGF or any AGF Subsidiary for the benefit of any current
or former employee, officer or director of AGF or any AGF Subsidiary.
5.11 Intellectual Property.
(a) AESP heretofore has been provided a true and complete
list of all Intellectual Property which AGF or any AGF Subsidiary owns or has
the right to use. AGF and each AGF Subsidiary has full ownership thereof or
the right to use all such rights, in each case except to the extent heretofore
disclosed in writing to AESP, and AGF has no knowledge that the conduct of the
businesses of AGF and each AGF Subsidiary as now operated, as of the date
hereof, conflicts with, misappropriates or infringes, or has been alleged to
infringe, any Intellectual Property rights or franchises of any person
(including patents, trade secrets or other proprietary rights of any third
party). AESP heretofore has been provided with a true and complete copy of
every material license or other material agreement, including all amendments
thereto, pursuant to which AGF or any AGF Subsidiary agreed to grant or has
granted rights with respect to the Intellectual Property, or pursuant to which
AGF or any AGF Subsidiary enjoys rights in any Intellectual Property of any
person. Except as set forth on Schedule 5.11, no current or former consultant,
employee or Affiliate of AGF, any AGF Subsidiary, or any of their respective
shareholders, officers or directors has any right, title or interest in any of
the Intellectual Property used and/or owned by AGF or any AGF Subsidiary.
(b) To the best of AGF's knowledge, none of the
Intellectual Property owned by or licensed to AGF or any AGF Subsidiary is
being infringed by any person.
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5.12 Taxes.
(a) AGF and the AGF Subsidiaries have timely filed all
federal, state, local and foreign tax returns and reports required to be filed
by them through the date hereof and shall timely file all returns and reports
required on or before the Effective Time, except for such returns and reports
the failure of which to file timely would not, individually or in the
aggregate, have a Material Adverse Effect. Such reports and returns are and
will be true, correct and complete, except for such failures to be true,
correct and complete as would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) AGF and the AGF Subsidiaries have paid and discharged
all federal, state, local and foreign taxes due from them, other than such
taxes that are being contested in good faith by appropriate proceedings and are
adequately reserved as shown in the audited consolidated balance sheet of AGF
dated December 31, 1995 (the "AGF 1995 Balance Sheet") and its most recent
quarterly financial statements, except for such failures to so pay and
discharge which would not, individually or in the aggregate, have a Material
Adverse Effect.
(c) Neither the IRS nor any other taxing authority or
agency, domestic or foreign, is now asserting or threatening to assert against
AGF or any AGF Subsidiary any deficiency or material claim for additional taxes
or interest thereon or penalties in connection therewith which, if such
deficiencies or claims were finally resolved against AGF and the AGF
Subsidiaries would, individually or in the aggregate, have a Material Adverse
Effect.
(d) The accruals and reserves for taxes (including
interest and penalties, if any, thereon) reflected in the AGF 1995 Balance
Sheet and the most recent quarterly financial statements are adequate in
accordance with generally accepted accounting principles, except where the
failure to be adequate would not have a Material Adverse Effect.
(e) AGF and the AGF Subsidiaries have withheld or
collected and paid over to the appropriate Governmental Authorities or are
properly holding for such payment all taxes required by law to be withheld or
collected, except for such failures to have so withheld or collected and paid
over or to be so holding for payment which would not, individually or in the
aggregate, have a Material Adverse Effect.
(f) There are no liens for taxes upon the assets of AGF
or the AGF Subsidiaries, other than liens for current taxes not yet due and
payable and liens for taxes that are being contested in good faith by
appropriate proceedings.
(g) Neither AGF nor any AGF Subsidiary has agreed to or
is required to make any adjustment under Section 481(a) of the Code. Neither
AGF nor any AGF Subsidiary has made an election under Section 341(f) of the
Code.
(h) For purposes of this Section, where a determination
of whether a failure by AGF or a AGF Subsidiary to comply with the
representations herein has a Material Adverse
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Effect is necessary, such determination shall be made on an aggregate basis
with all other failures within this Section 5.12.
5.13 Material Contracts.
(a) AGF has, or has caused to be, made available to AESP
for review and duplication, correct and complete copies (or in the case of oral
contracts, summaries thereof) of all of the following contracts and agreements
of AGF and each AGF Subsidiary (solely for purposes of this Section 5.13, all
references to AGF shall be deemed to include each AGF Subsidiary), together
with all material contracts, agreements, leases and subleases to which AGF is a
party concerning the management or operation of any real property and all
material agreements relating to Intellectual Property (such material contracts
and agreements listed on Schedule 5.13(a), are collectively referred to as the
"Material Contracts"):
(i) each contract and agreement for the
purchase of inventory or personal property with any supplier or for the
furnishing of services to AGF, or otherwise related to AGF's business under the
terms of which AGF; (A) is reasonably anticipated to pay or otherwise give
consideration of more than $20,000 in the aggregate over the remaining term of
such contract or (B) cannot cancel without penalty or further payment and
without more than 30 days' notice;
(ii) each contract and agreement for the
sale of inventory or other personal property or for the furnishing of services
by AGF which: (A) is reasonably anticipated to involve consideration of more
than $100,000 in the aggregate during the fiscal year ending December 31, 1996
or in any fiscal year thereafter, (B) is reasonably anticipated to involve
consideration of more than $100,000 in the aggregate over the remaining term of
the contract or (C) cannot be canceled by AGF without penalty or further
payment and without more than 30 days' notice;
(iii) all broker, distributor, dealer,
manufacturer's representative, franchise, agency, sales promotion, market
research, marketing, consulting and advertising contracts and agreements to
which AGF is a party;
(iv) all management contracts and
contracts with independent contractors, consultants or other persons (including
Affiliates) (or similar arrangements) involving exclusive rights to which AGF
is a party and which are not cancelable without penalty or further payment on
30 days' or less notice;
(v) all contracts and agreements
relating to indebtedness of AGF;
(vi) all contracts and agreements with
any Governmental Authority to which AGF is a party;
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(vii) all contracts and agreements that
limit or purport to limit the ability of AGF to compete in any line of
business, or with any person, or in any geographic area or during any period of
time;
(viii) all contracts and agreements between
or among AGF on the one hand and any Affiliate of AGF on the other hand;
(ix) all leases and subleases for
tangible personal property having a value in excess of $20,000; for purposes of
this Agreement, the term "lease" shall include any and all leases, subleases,
sale/leaseback agreements or similar arrangements; and
(x) all contracts relating to
Intellectual Property and all contracts relating to real property owned, leased
or used by AGF.
(b) Except as set forth on Schedule 5.13(b), each
Material Contract: (i) is valid and binding on the respective parties thereto
and is in full force and effect and (ii) upon consummation of the transactions
contemplated hereby shall continue in full force and effect without penalty or
other adverse consequence. AGF is not, and no other party to any Material
Contract is, to AGF's knowledge, in breach of or default under any Material
Contract, which breach or default would have a Material Adverse Effect on AGF.
(c) There is no contract, agreement or other arrangement
granting any person any preferential right to purchase, other than in the
ordinary course of business consistent with past practice, any of the
properties, assets or services of AGF.
(d) There is not now outstanding any guarantee or
agreement for indemnity or for suretyship either given by or for the benefit of
AGF.
5.14 Books and Records. The books of account and other financial
records of AGF: (a) reflect all items of income and expense and all assets and
liabilities required to be reflected therein, except to the extent that the
omission to reflect such items could not, individually or in the aggregate,
have a Material Adverse Effect on AGF's business, (b) are complete and correct,
not misleading and do not contain or reflect any inaccuracies or discrepancies,
except as could not, individually or in the aggregate, have a Material Adverse
Effect on AGF's business, and (c) have been maintained in accordance with good
business and accounting practices.
5.15 Receivables. Except to the extent, if any, provided for on
the balance sheet included in the AGF Financial Statements, all Receivables
reflected on the balance sheets included in the AGF Financial Statements arose
from, and the Receivables existing as of the Effective Time will have arisen
from, the sale of services to persons who are not Affiliates of AGF and in the
ordinary course of its business consistent with past practice and, except as
provided against on the balance sheets included in the AGF Financial
Statements, constitute or will constitute, as the case may be, only valid,
undisputed claims of AGF not subject to valid claims of set-off, off-set or
other defenses or counterclaims. The AGF Financial Statements make
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full provision for all doubtful debts and all bad debts have been written off,
except for doubtful debts and bad debts that, individually or in the aggregate,
would not have a Material Adverse Effect on AGF or its business.
5.16 Environmental Compliance. AGF and each AGF Subsidiary is, and
at all times has been, in compliance with all applicable Environmental Laws.
5.17 Conduct of Business in the Ordinary Course. Since the date of
the 1995 AGF Financial Statement, AGF and each AGF Subsidiary has conducted
business only in the ordinary course and consistent with past practice.
5.18 Compliance with Laws. AGF and each AGF Subsidiary has
conducted and continues to conduct its business in all material respects in
accordance with all applicable laws and all Governmental Orders entered by or
with any Governmental Authorities, and AGF and each AGF Subsidiary is in
compliance with all such laws or Governmental Orders, except to the extent that
the failure to so conduct or comply therewith would not, in the aggregate, have
a Material Adverse Effect on AGF, each AGF Subsidiary, the respective
businesses of AGF and each AGF Subsidiary or on the transactions contemplated
hereby.
5.19 Subsidiaries and Affiliates. Schedule 5.19 contains a true
and complete list of all of AGF's Subsidiaries, as of the date hereof, and as
of the date of the Closing. For each such Subsidiary, Schedule 5.19 sets
forth: (a) the entity's name; (b) the entity's state of place of incorporation
or organization; (c) a brief description of the entity's principal business;
and (d) with regard to each beneficial or legal owner of equity in such entity,
such owner's name, address and percentage of equity held.
5.20 Real Property. The particulars of the real property set forth
on Schedule 5.20 attached hereto (the "Real Property") are true and correct in
all respects and AGF and each AGF Subsidiary has good and marketable title to
the Real Property free from Encumbrances and other adverse rights. The Real
Property comprises all the real property owned, used or occupied by AGF and
each AGF Subsidiary in connection with their respective businesses and neither
AGF nor any AGF Subsidiary has ever owned any interest in any other real
property other than the Real Property. There is no violation of any applicable
law (including, without limitation, any building, planning, zoning law or
environmental law) or any covenants, stipulations or conditions relating to any
of the Real Property and AGF and each AGF Subsidiary is in peaceful and
undisturbed possession of each parcel of Real Property. There are no
contractual or legal restrictions that preclude or restrict in any material
manner the ability to use any of the Real Property in the manner in which they
are currently being used and the Real Property has all rights and easements
reasonably necessary for their use and enjoyment for the purposes of the
Business. Neither AGF nor any of the AGF Subsidiaries are leasing or
subleasing (or has leased or sublet) any parcel or any portion of any parcel
of Real Property to any other Person, nor has AGF or any AGF Subsidiary
assigned its interest under any lease or sublease for any leased Real Property
to any third party. There are no outstanding material disputes with any Person
relating to the
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Real Property or its use and no notices have been given or received by AGF or
any AGF Subsidiary which would adversely affect the use and enjoyment of the
Real Property.
5.21 Assets. AGF and each AGF Subsidiary owns, leases or has the
legal right to use all the properties and assets used or intended to be used or
required in the conduct of their respective businesses and which are material
and, with respect to contract rights, is a party to and enjoys the right to the
benefits of all material contracts and agreements used and/or intended to be
used by AGF and each AGF Subsidiary or required in or relating to the conduct
of their respective businesses (such properties, assets and contract rights
collectively referred to as the "Assets"). AGF and each AGF Subsidiary has
good title to or, in the case of leased or subleased Assets, valid and
subsisting leasehold interests in, all the Assets, free and clear of all
Encumbrances. All the Assets are in good operating condition and repair,
ordinary wear and tear excepted, and are suitable for the purposes for which
they are used and intended. Each Asset including without limitation, the
benefit of any licenses, leases or other agreements or arrangements) acquired
since the date of the AGF Financial Statements has been acquired for
consideration and on terms no less favorable to AGF and each AGF Subsidiary
than otherwise would have been available in a comparable arms' length
transaction on the date of such acquisition.
5.22 Suppliers. Neither AGF nor any AGF Subsidiary has received
any notice, nor is AGF or any AGF Subsidiary aware, that any supplier will not
sell supplies and other goods or provide services to AGF or any AGF Subsidiary
at any time after the date hereof on terms and conditions substantially similar
to those used in its current sales to AGF or any AGF Subsidiary, subject only
to general and customary price increases.
5.23 Securities and Exchange Commission Filings; Financial
Statements.
(a) AGF has filed all forms, reports and documents
required to be filed by it with the SEC since August 19, 1994, and has
heretofore made available to AESP, in the form filed with the SEC collectively,
all such forms, reports and documents (the "AGF SEC Reports").
(b) The AGF SEC Reports and any other forms, reports and
other documents filed by AGF (i) were prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations thereunder and (ii) did not at the time they were
filed, and presently do not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Material AGF Subsidiary is
required to file any form, report or other document with the SEC.
(c) Each of the financial statements (including, in each
case, any notes thereto) contained in the AGF SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be indicated
in the notes thereto) and each fairly presented the consolidated financial
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position, results of operations and cash flows of AGF and the consolidated AGF
Subsidiaries, as the case may be, as at the respective dates thereof and for
the respective periods indicated therein (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which were not and are
not expected, individually or in the aggregate, to be material in amount).
(d) Except as and to the extent set forth in this
Agreement and the AGF SEC Reports filed with the SEC prior to the date of this
Agreement, AGF and the AGF Subsidiaries do not have any liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise) other than
liabilities and obligations which would not, individually or in the aggregate,
have a Material Adverse Effect.
5.24 Brokers. Except as set forth on Schedule 5.24, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated herein based
upon arrangements made by or on behalf of AGF.
5.25 Tallard Transaction. AGF has terminated its merger
negotiations with Tallard Technologies, B.V. ("Tallard") and Tallard has
advised AGF that AGF has no liability to Tallard as a result of the termination
of such negotiations.
5.26 Vote Required for Approval of Merger. The affirmative vote
of more than fifty percent (50%) of the AGF Common Stock is required for the
approval of the Merger.
5.27 Cash or Cash Equivalents. At the Effective Time, and after
giving effect to all of the payments listed on Schedule 5.27, AGF shall have no
liabilities (as determined in accordance with GAAP) and at least $3,000,000,
in: (a) cash or cash equivalents (as determined in accordance with GAAP); (b)
treasury bills with maturity dates on or prior to December 31, 1996 (such bills
to be valued at face value); (c) treasury bills with maturity dates after
December 31, 1996 (such bills to be valued at market value); (d) and including
the principal amount of the Note.
5.28 Compliance with 1940 Act. Since its formation, AGF has
complied in all respects with all applicable requirements of the 1940 Act,
including all applicable rules and regulations relating to the operation of a
business development company under the 1940 Act, except where the failure to
comply with such requirements, rules and regulations would not, individually or
in the aggregate, have a Material Adverse Effect.
5.29 Full Disclosure. No representation or warranty with respect
to AGF contained in this Agreement and no written statement contained in any
financial or operating data or certificate furnished to AGF pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, contains any untrue statement of a material fact, or omits to state
a material fact necessary to make the statements contained herein or therein
not misleading.
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ARTICLE VI
CONDUCT OF BUSINESSES PENDING THE MERGER
6.1 Conduct of Respective Businesses by AESP and AGF Pending the
Merger. Each of AESP and AGF covenants and agrees that, between the date of
this Agreement and the Effective Time, unless the other party shall have
consented in writing (such consent not to be unreasonably withheld):
(a) the businesses of each of AESP and AGF and their
respective Subsidiaries shall, in all material respects, be conducted in, and
each of AESP and AGF and their respective Subsidiaries shall not take any
material action except in, the ordinary course of business, consistent with
past practice;
(b) each of AESP and AGF shall use its reasonable best
efforts to preserve substantially intact its business organization, to keep
available the services of its and its Subsidiaries' current officers, employees
and consultants and to preserve its and its Subsidiaries' relationships with
customers, suppliers and other persons with which it or any of its Subsidiaries
has significant business relations.
6.2 Examples. By way of example and not limitation, except (a) as
contemplated by this Agreement or (b) as set forth on Schedule 6.2, neither AGF
nor AESP nor any of their respective Subsidiaries shall, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose or
agree to do, any of the following without the prior written consent of the
other (provided that the following restrictions shall not apply to any
Subsidiaries which AESP or AGF, as the case may be, do not Control):
(a) amend or otherwise change the Articles of
Incorporation or By-Laws, or other corporate governing instruments of AGF, AESP
or any of their respective Subsidiaries;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (a)
any shares of capital stock of any class of it or any of its Subsidiaries, 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
(including, without limitation, any phantom interest), of it or any of its
Subsidiaries or (b) any assets of it or any of its Subsidiaries, except for
sales in the ordinary course of business or which, individually, do not exceed
$100,000 or which, in the aggregate, do not exceed $100,000;
(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, or enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock, consistent with applicable securities laws,
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or enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) acquire (for cash or shares of stock including,
without limitation, by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, other business organization or any
division thereof or any assets, or enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(f) except as set forth on Schedule 6.2(f), 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, except borrowings
under existing bank lines of credit in the ordinary course of business, the
Note and the Convertible Note, or enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(g) except as set forth in Schedule 6.2(g), increase the
compensation payable or to become payable to its executive officers or
employees, except for increases in the ordinary course of business in
accordance with past practice, or grant any severance or termination pay to, or
enter into any employment or severance agreement with any director or executive
officer of it or any of its Subsidiaries, or establish, adopt, enter into or
amend in any material respect or take action to accelerate any rights or
benefits under any collective bargaining, bonus, profit sharing, thrift,
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 director, executive
officer or employee; or
(h) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures.
6.3 Exclusivity; Fiduciary Duty of AGF.
(a) From the date of this Agreement through to the date
that the holders of the AGF Common Stock vote on the matters set forth in
Section 7.12, neither AGF nor any of its directors, officers, financial
advisors, attorneys or accountants shall solicit or initiate the submission of
any proposal or offer from any Person relating to any transaction involving the
capital stock or assets of AGF including, but not limited to, any assets, joint
venture, lease, licensing agreement, dividend, tender offer, merger,
consolidation, acquisition or other business combination. However, AGF shall
remain free to participate in any discussions or negotiations, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner, any unsolicited proposal by any person or entity to do or seek
any of the actions described in Sections 6.1 and 6.2, if: (a) counsel to AGF's
board of directors (the "AGF Board") advises the AGF Board that the failure to
participate in such discussions or negotiations or provide any information
could involve the members of the AGF Board in a breach of their fiduciary
duties to the stockholders of AGF, or (b) the Board determines at its
discretion, after consultation with
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its financial advisors, that any such proposal may be more favorable to the
stockholders of AGF from a financial point of view than the Merger and other
transactions contemplated in this Agreement.
(b) If: (i) AGF terminates this Agreement based on
Sections 6.3(a) and 10.1(c), (ii) AESP has not breached any of the terms of
this Agreement, (iii) AGF has concluded a merger or other business combination
with a third party, then AGF shall pay AESP, within ten (10) Business Days of
the closing of such transaction between AGF and the third party, $250,000 in
immediately available funds to compensate AESP for the costs it incurred in
attempting to consummate the Merger.
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, each of
AESP and AGF shall (and shall cause its Subsidiaries and officers, directors,
employees, auditors and agents to) afford the officers, employees and agents of
the other party (the "Respective Representatives") reasonable access at all
reasonable times to its officers, employees, agents, properties, offices,
plants and other facilities, books and records, and shall furnish such
Respective Representatives with all financial, operating and other data and
information as may be reasonably requested. All information and documents
received by a party pursuant to this Section 7.1 are hereinafter collectively
referred to as the "Confidential Information". Confidential Information shall
not include any information which is, or becomes, publicly available
information, other than due to the wrongful disclosure of a party or its
Respective Representatives.
(b) Each of AESP and AGF shall, and shall cause their
Respective Representatives to: (i) hold all Confidential Information in
confidence, unless compelled to disclose such Confidential Information by
judicial or administrative process, or in the opinion of such party's counsel,
by other requirements of law; (ii) not release or disclose the Confidential
Information to any other person except, solely in connection with this
Agreement, to its auditors, attorneys, financial advisors and other consultants
and advisors; and (iii) not use any Confidential Information for any purpose
other than its consideration and evaluation of the transactions contemplated by
this Agreement. If this Agreement is terminated for any reason, AESP and AGF
shall promptly return or destroy all documents containing Confidential
Information obtained from the other party, as well as any copies made of such
documents and any summaries, analyses or compilations made therefrom.
(c) No investigation pursuant to this Section 7.1 shall
affect any representation or warranty in this Agreement of any party hereto or
any condition to the obligations of the parties hereto.
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7.2 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, AGF shall
indemnify and hold harmless each person who is an officer or director of AGF on
the date of this Agreement (each, an "Indemnified Person") from and against all
damages, liabilities, judgements, claims and related expenses (including
attorneys' fees and amounts paid in settlement) based upon or arising out of
the transactions contemplated by this Agreement or based upon or arising from
his capacity as an officer or director of AGF, to the same extent he would have
been indemnified under the Articles of Incorporation or Bylaws of AGF as such
documents were in effect on the date of this Agreement. Subject to the
requirements of Maryland Law, AGF shall advance all litigation costs reasonably
incurred by an Indemnified Person.
(b) The rights granted hereunder to Indemnified Persons
shall be contractual rights inuring to the benefit of all Indemnified Persons
and shall survive this Agreement and any merger, consolidation or
reorganization of AGF.
(c) The rights to indemnification granted by this Section
7.2 are subject to the following limitations: (i) amounts otherwise required to
be paid to an Indemnified Person by AGF pursuant to this Section 7.2 shall be
reduced by any amounts that such Indemnified Person has recovered by virtue of
the claim for which indemnification is sought and the Indemnified Person shall
reimburse AGF for any amounts received from AGF that such Indemnified Person
subsequently recovers by virtue of such claim; (ii) any claim for
indemnification pursuant to this Section 7.2 must be submitted in writing to
AGF's Chief Executive Officer promptly upon such Indemnified Person becoming
aware of such claim, unless the failure to advise promptly has no prejudicial
effect on AGF; and (iii) an Indemnified Person shall not settle any claim for
which indemnification is provided herein, without the prior written consent of
AGF (such consent not to be unreasonably withheld).
7.3 Consulting Agreement. At the Opt-Out Time, AGF shall enter
into a Consulting Agreement (the "Consulting Agreement"), in the form of
Exhibit 7.3, with Sokolow.
7.4 Non-Compete Agreement. At the Opt-Out Time, AGF shall enter
into a Non-Compete Agreement (the "Non- Compete Agreement") with Sokolow, in
the form of Exhibit 7.4.
7.5 Severance Agreement. At the Opt-Out Time, AGF shall enter
into a Severance Agreement (the "Severance Agreement") with Sokolow, in the
form of Exhibit 7.5.
7.6 Employment Agreements. At the Opt-Out Time, the Surviving
Corporation shall enter into employment agreements (each an "Employment
Agreement"), in the form of Exhibit 7.6, with Stein and Briskin.
7.7 Board of Directors. AGF's Board of Directors shall not,
between the Effective Time and the Opt-Out Time, take any actions other than
those contemplated herein. At the Opt-Out Time, all members of AGF's Board of
Directors, except Sokolow, shall tender their written
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resignation. At the same time, Sokolow shall vote to elect Stein and Briskin
(and any other designees of Stein and Briskin) to AGF's Board of Directors.
Thereafter Stein and Briskin shall vote their shares in AGF to ensure that
Sokolow remains on AGF's Board of Directors until the termination of his Class
3 Directorship, which shall terminate at AGF's annual meeting in April of 1998.
7.8 Loan from AESP Stockholders to AESP. The parties acknowledge
that due to AESP's status as an 'S' corporation under the Code, Stein and
Briskin have personally paid, and will personally pay, taxes on undistributed
profits of AESP. Consequently, in order to reimburse Stein and Briskin for the
payment of such taxes, at the Opt-Out Time, AESP shall execute a convertible
promissory note (the "Convertible Note"), in the form of Exhibit 7.8 hereto, in
favor of Stein and Briskin for the principal amount of $1,430,000, as increased
by the amount of taxes owed by Stein and Briskin on the pre-merger 1996 net
pre-tax income of AESP, in accordance with the following formula:
Amount of increase = Net pre-tax income of AESP from 1/1/96 to
Effective Time x 42%
The amount outstanding under the Note shall be convertible, at the
option of the holder, into AGF Common Stock at an exercise price of $3.60 per
share.
7.9 Loan to AESP. If the Interim Financial Statements meet the
financial requirements of Section 7.14(b), or notwithstanding AGF agrees to
proceed with this transaction, then AESP shall execute a promissory note (the
"Note"), in the form of Exhibit 7.9 hereto, in favor of AGF in the principal
amount of $100,000 and AGF shall loan such amount to AESP in accordance
therewith.
7.10 Notification of Certain Matters. AESP shall give prompt
notice to AGF, and AGF shall give prompt notice to AESP, of:
(a) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause (a) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (b) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied; and
(b) any failure of AESP or AGF, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder.
However, the delivery of any notice pursuant to this Section 7.10 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
7.11 Tax Treatment. Each of AESP and AGF will use its reasonable
best efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368(a) of the Code.
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7.12 Registration Statement; Proxy Statement.
(a) As soon as reasonably practicable after the execution
of this Agreement, AGF shall use its best efforts to prepare and file with the
SEC a proxy statement (together with any amendments thereof or supplements
thereto, the "Proxy Statement") relating to the meeting of AGF's stockholders
to be held in connection with the solicitation of approval of: (i) the Merger;
(ii) the withdrawal, after the Effective Time, of AGF's election as a Business
Development Company under the 1940 Act; and (iii) such other matters as are
deemed appropriate by the AGF Board.
(b) Each of AESP and AGF shall take all or any action
required under any applicable federal or state securities laws in connection
with the issuance of shares of AGF Common Stock and Warrants pursuant to the
Merger. AESP shall use its best efforts furnish all information concerning
itself to AGF as AGF may reasonably request in connection with such actions and
the preparation of the Proxy Statement. The Proxy Statement shall include the
recommendation of the Board of Directors of AGF in favor of the Merger.
(c) Within six (6) months after the Closing, AGF shall,
at its sole cost and expense, prepare and file with the SEC a registration
statement (the "Registration Statement") on the applicable form, in connection
with the registration under the Securities Act of the shares of AGF Common
Stock and the Warrants (and underlying AGF Common Stock) to be issued pursuant
to the Merger. In connection with the Registration Statement, AGF shall: (i)
comply with all applicable state and federal securities laws, rules and
regulations; and (ii) shall prepare and file with the SEC such amendments and
post-effective amendments and supplements to the Registration Statement or any
prospectus as may be necessary to keep the Registration Statement effective for
a period of two (2) years following the effective date of the Registration
Statement. Notwithstanding the foregoing, AGF shall not be responsible for the
payment of any brokerage commissions or legal expenses of any stockholder,
which are incurred in connection with the registration of such AGF Common
Stock.
(d) The information supplied by AESP for inclusion in the
Proxy Statement shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading: (i) at the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of AGF, (ii) the time of the Stockholders' Meeting (as defined
in Section 9.13), and (iii) the Effective Time. If at any time prior to the
Effective Time any event or circumstance relating to any AESP Entity, or their
respective officers or directors, should be discovered by AESP which should be
set forth in an amendment or a supplement to the Proxy Statement, AESP shall
promptly inform AGF.
(e) AGF will submit the proposed Proxy Statement to AESP,
for AESP's comments, as soon as possible, but not later than five (5) calendar
days before AGF proposes to file such Proxy Statement with the SEC.
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7.13 Stockholders' Meeting. AGF shall call and hold a meeting of
the holders of the AGF Common Stock (the "Stockholders' Meeting") as promptly
as practicable for the purpose of, among other things, voting upon the approval
of: (a) the Merger; (b) an amendment of the Articles of Incorporation to change
the name of AGF to Advanced Electronic Support Products, Inc.; and (c) the
withdrawal of AGF's Business Development Company election under the 1940 Act.
AGF shall use its reasonable best efforts to hold the Stockholders' Meeting as
soon as practicable after the date of this Agreement.
7.14 AESP Financial Statements.
(a) At or before the Effective Time, AESP shall cause its
accountants, BDO Seidman, LLP, to provide AESP with audited financial
statements of AESP for the fiscal years 1994 and 1995. The audited financial
statements for fiscal year 1995 shall reflect a minimum after tax earnings of
$850,000.
(b) Prior to August 15, 1996, AESP shall provide to AGF
AESP unaudited combined financial statements (the "AESP Interim Financial
Statements") for the six month period ended June 30, 1996, including all notes
thereto. The AESP Interim Financial Statements shall be subject to the
representations and warranties hereof (including, without limitation, Section
4.7 hereof) and AESP shall accordingly update the schedules to this Agreement.
If the AESP Interim Financial Statements reflect minimum after tax earnings
that are less than the after tax earnings for the comparable six month period
of 1995, then AGF may terminate this Agreement, without penalty, within three
(3) Business Days after AGF's receipt of the Interim Financial Statements and,
in such event: (i) neither AESP nor AGF shall have any liability to each other;
and (ii) AESP shall not be entitled to borrow any money from AGF under the
Note.
7.15 Stock Option Plan. At the Effective Time and subject to
shareholder approval as required by applicable law, AGF shall establish a stock
option plan (the "Stock Option Plan") which shall permit AGF's board of
directors to grant options to purchase AGF Common Stock (each, an "Employee
Option") to the Surviving Corporation's employees as compensation for
exceptional performance by such employees. The Stock Option Plan shall
initially have no more than 400,000 Employee Options.
7.16 Public Relations. As soon as reasonably after the Effective
Time, AGF shall retain a financial public relations firm on terms acceptable to
AGF's board of directors.
7.17 Lock-Up Letters. At the Effective Time, Stein and Briskin
shall each enter into "lock-up" letters (each, a "Lock-Up Letter"), whereby
Stein and Briskin agree not to dispose of the shares of AGF Common Stock which
they receive as a result of the Merger, for a period of one (1) year from the
Effective Time.
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7.18 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use its reasonable best efforts to take, or
cause to be taken, all appropriate action, 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 reasonable best efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Authorities and parties to contracts with AGF and AESP and their
respective Subsidiaries as are necessary for the consummation of the
transactions contemplated herein.
(b) If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their reasonable best efforts to take all such action.
(c) Each party shall use its best efforts not to take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or
result in a breach of any covenant made by it in this Agreement.
7.19 Debt Instruments. Prior to or at the Effective Time, each of
the AESP Entities shall use its reasonable best efforts to prevent the
occurrence, as a result of the Merger and the other transactions contemplated
by this Agreement, of a change in control or any event which constitutes a
default (or an event which with notice or lapse of time or both would become a
default) under any of its debt instruments.
7.20 Public Announcements. AGF and AESP shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated
herein and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld. However, a party may, without the prior consent of the
other party, issue such press release or make such public statement as may be
required by law or any listing agreement with a national securities exchange if
it has used all reasonable efforts to consult with the other party and to
obtain such party's consent but has been unable to do so in a timely manner.
7.21 Transactions with Significant Stockholder After the Effective
Time. From and after the Effective Time and until the third anniversary of the
Effective Time, AGF shall not enter into any agreement with any stockholder
(the "Significant Stockholder") who beneficially owns more than 20% of the then
outstanding securities entitled to vote at a meeting of the stockholders of AGF
that would constitute a Rule 13e-3 (as such rule is in effect today)
transaction under the Exchange Act with respect to any class of common stock of
AGF (any such transaction being a "Going Private Transaction"), unless AGF
provides in any agreement pursuant to which such Going Private Transaction
shall be effected that, as a condition to the consummation of such Going
Private Transaction, (a) the holders of a majority of the shares not
beneficially owned by
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the Significant Stockholder that are voted and present (whether in person or by
proxy) at the meeting of stockholders called to vote on such Going Private
Transaction shall have voted in favor thereof and (b) a special committee (the
"Special Committee") of AGF's Board comprised solely of the independent
directors of AGF shall have (i) approved the terms and conditions of the Going
Private Transaction and shall have recommended that the stockholders vote in
favor thereof and (ii) received from its financial advisor a written opinion
addressed to the Special Committee, for inclusion in the proxy statement to be
delivered to the stockholders, and dated the date thereof, substantially to the
effect that the consideration to be received by the stockholders (other than
the majority stockholder) in the Going Private Transaction is fair to them from
a financial point of view.
7.22 Continued Exchange Act Registration. From and after the
Effective Time, and until the third anniversary of the Effective Time, AGF
shall cause the AGF Common Stock to continue to be registered under the
Exchange Act and shall use its best efforts to timely file all periodic reports
and other documents required to be filed by AGF thereunder.
7.23 Use of Merged Working Capital. After the Effective Time, and
subject to the good faith exercise of the business judgement of the boards of
directors of AGF and the Surviving Corporation, AGF and the Surviving
Corporation shall only use its available working capital to satisfy their
corporate obligations and to pursue business opportunities which their
respective boards of directors consider to be in the best interests of AGF, the
Surviving Corporation and their respective stockholders. However, the
Surviving Corporation may use such working capital to make payments under the
Convertible Note and to pay the tax obligations of Briskin and Stein arising
from Stein and Briskin's status as stockholders of AESP prior to the Effective
Time.
ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement and the
Merger (including the withdrawal of AGF's Business Development Company election
under the 1940 Act) shall have been approved and adopted by the requisite vote
of the stockholders of AGF. However, if the Proxy Statement has been
distributed to the AGF Stockholders and the AGF Stockholders do not approve
this Agreement and the Merger (including the withdrawal of AGF's Business
Development Company election under the 1940 Act), AGF shall, at the request of
AESP, forgive all principal and interest due to AGF under the Note.
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(b) No Order. No Governmental Authority or federal
or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which materially restricts, prevents or
prohibits consummation of the Merger or any transaction contemplated by this
Agreement. However, the parties shall use their reasonable best efforts to
cause any such decree, judgment, injunction or other order to be vacated or
lifted.
(c) Approvals. Other than the filing of merger
documents in accordance with Florida Law and the filing of Form N-54C with the
SEC, all authorizations, consents, waivers, orders or approvals required to be
obtained, and all filings, notices or declarations required to be made, by AGF
and AESP prior to the consummation of the Merger and the transactions
contemplated hereunder shall have been obtained from, and made with, all
required Governmental Authorities except for such authorizations, consents,
waivers, orders, approvals, filings, notices or declarations which the failure
to obtain or make would not have a material adverse effect, at or after the
Effective Time, on the financial condition (as existing immediately prior to
the consummation of the Merger) of (i) AESP Entities, taken as a whole, or (ii)
AGF and the AGF Subsidiaries, taken as a whole.
8.2 Additional Conditions to Obligations of AGF. The obligations
of AGF to effect the Merger and the transactions contemplated herein are also
subject to the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of AESP contained in this Agreement, without
giving effect to any notification to AGF delivered pursuant to Section 7.10,
shall be true and correct as of the Effective Time as though made on and as of
the Effective Time, except (i) for changes specifically permitted by 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, except in any case for such failures to be true and correct which would
not, individually or in the aggregate, have a Material Adverse Effect. AGF
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of AESP to such effect.
(b) Agreement and Covenants. AESP shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time or, as the case may be, the Opt-Out Time. AGF shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of AESP to that effect.
(c) Fairness Opinion. AGF shall have received an
opinion, which is acceptable to the AGF Board, from Advanced Business
Valuations, Inc. as to the fairness of the Merger from a financial point of
view.
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8.3 Additional Conditions to Obligations of AESP. The obligation
of AESP to effect the Merger and the other transactions contemplated in this
Agreement are also subject to the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of AGF contained in this Agreement, without
giving effect to any notification made by AGF to AESP pursuant to Section 7.10,
shall be true and correct as of the Effective Time, as though made on and as of
the Effective Time, except (i) for changes specifically permitted by 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, except in any case for such failures to be true and correct that would
not, individually or in the aggregate, have a Material Adverse Effect. AESP
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of AGF to such effect.
(b) Agreements and Covenants. AGF shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time or, as the case may be, the Opt-Out Time. AESP shall have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of AGF to that effect.
(c) No 1940 Act Obligations. AESP shall have reasonably
determined that AGF will have no further obligations under the 1940 Act after
the Opt Out Time. In order for any such determination to be reasonable, AESP
shall have delivered to AGF a legal opinion from an AV rated law firm to the
effect that: (i) it is more likely than not that AGF will have further
obligations under the 1940 Act after the Opt Out Time; and (ii) such
obligations result from AGF's status and operations as a business development
company under the 1940 Act, or otherwise under the 1940 Act, and do not include
those general obligations under the 1940 Act that are applicable to all
companies, wherever situated.
ARTICLE IX
DELIVERIES AT CLOSING
9.1 Deliveries by AGF. On or prior to the Closing, AGF shall
execute or cause to be executed and deliver or cause to be delivered to AESP
the following documents, certificates and agreements:
(a) Representations and Warranties. A certificate
executed by a duly authorized officer of AGF certifying that the
representations and warranties of AGF contained in this Agreement are true and
correct in all material respects as of the Closing, except for any
representations or warranties that relate solely to an earlier date (in which
case such representations and warranties were true and correct as of such
earlier date);
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(b) Resolutions. A true and complete copy, certified by
the Secretary of AGF, of the resolutions duly and validly adopted by the board
of directors of AGF evidencing its authorization of the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby;
(c) Incumbency Certificate. A certificate of the
Secretary of AGF certifying the names and signatures of the officers of AGF
authorized to sign this Agreement and the other documents to be delivered
hereunder on its behalf;
(d) Legal Opinions. The following legal opinions:
(i) an opinion of AGF's Florida counsel, Lucio,
Mandler, Croland, Bronstein & Garbett, P.A., in such form as AGF and AESP shall
agree upon;
(ii) an opinion of AGF's Maryland counsel,
Venable, Baetjer and Howard, LLP, in such form as AGF and AESP shall agree
upon; and
(iii) an opinion of AGF's 1940 Act counsel,
Stradley, Ronon, Stevens & Young, in such form as AGF and AESP shall agree
upon.
(e) Other Documents. A copy of each of the following
documents, each executed by all of the parties thereto: (i) the Consulting
Agreement with Sokolow, (ii) the Severance Agreement, (iii) the Non-Compete
Agreement, (iv) each of the Employment Agreements, and (v) the Stock Option
Plan;
9.2 Deliveries by AESP. On or prior to the Closing, AESP shall
execute or cause to be executed and deliver or cause to be delivered to AGF the
following documents, certificates and agreements:
(a) Stock Certificates. Certificates (or such other
documents as are necessary to vest ownership in ) representing all of the
issued and outstanding shares of AESP Common Stock, AESP Germany common stock
and AESP Sweden common stock.
(b) Representations and Warranties. A certificate
executed by a duly authorized officer of AESP certifying that the
representations and warranties relating to AESP, AESP Germany and AESP Sweden
contained in this Agreement are true and correct in all material respects as of
the Closing, except for any representations or warranties that relate solely to
an earlier date (in which case such representations and warranties were true
and correct as of such earlier date);
(c) Resolutions of AESP. A true and complete copy,
certified by the Secretary of AESP, of the resolutions duly and validly adopted
by the board of directors of AESP evidencing its authorization of the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby;
40
<PAGE> 169
(d) Incumbency Certificate of AESP A certificate of the
Secretary of AESP certifying the names and signatures of the officers of AESP
authorized to sign this Agreement and the other documents to be delivered
hereunder on behalf of AESP;
(e) Legal Opinion. The following legal opinions:
(i) an opinion of AESP's Florida counsel,
Akerman, Senterfitt & Eidson, P.A., in such form as AGF and AESP shall agree
upon;
(ii) an opinion of AESP's German counsel, in such
form as AGF and AESP shall agree upon; and
(iii) an opinion of AESP's Swedish counsel, in such
form as AGF and AESP shall agree upon.
(f) Other Documents. A copy of each of the following
documents, each executed by all of the parties thereto: (i) each of the
Employment Agreements, (ii) the Convertible Note; and (iii) each of the Lock-Up
Letters.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER.
10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of AGF:
(a) by mutual consent of AESP and AGF;
(b) by AGF, upon a breach of any representation,
warranty, covenant or agreement on the part of AESP set forth in this
Agreement, or if any representation or warranty of AESP shall have become
untrue;
(c) by AGF, if the Interim Financial Statements do not
meet the financial requirements of Section 7.14(b) hereof and AGF determines to
terminate this Agreement and the Merger;
(d) by AGF, if the AGF Board exercises its fiduciary
duties to the AGF stockholders and terminates this Agreement pursuant to
Section 6.3;
(e) by AESP, upon a breach of any representation,
warranty, covenant or agreement on the part of AGF set forth in this Agreement,
or if any representation or warranty of AGF shall have become untrue;
41
<PAGE> 170
(f) by either AGF or AESP, if any permanent injunction or
action by any Governmental Authority preventing the consummation of the Merger
shall have become final and nonappealable;
(g) by either AGF or AESP, if the Merger or the Opt Out
Time shall not have been consummated or shall not have occurred before December
31, 1996; or
(h) by either AGF or AESP, if this Agreement and the
Merger shall fail to receive the requisite vote for approval and adoption by
the stockholders of AGF.
The right of any party hereto to terminate this Agreement
pursuant to this Section shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers or
directors, whether prior to or after the execution of this Agreement.
10.2 Effect of Termination. Except as provided in Section 10.5, in
the event of the termination of this Agreement pursuant to Section 10.1, this
Agreement shall forthwith become void, there shall be no liability on the part
of AESP or AGF or any of their respective officers or directors to the other
and all rights and obligations of any party hereto shall cease. However,
nothing herein shall relieve any party from liability for the wilful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
10.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time. However, after approval of the Merger
by the stockholders of AGF, no amendment, which under applicable law may not be
made without the approval of the stockholders of AGF, may be made without such
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
10.4 Waiver. At any time prior to the Effective Time, either party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto; (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto; and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension
or waiver shall be valid only if set forth in an instrument in writing signed
by the party or parties to be bound thereby.
10.5 Fees, Expenses and Other Payments. All out-of-pocket costs
and expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred by the parties hereto shall be
borne solely and entirely by the party which has incurred such costs and
expenses (with respect to such party, its "Expenses"). However, all costs and
expenses related to printing, filing and mailing the Proxy Statement and all
SEC and other regulatory filing fees incurred in connection with the Proxy
Statement shall be borne solely by AGF.
42
<PAGE> 171
ARTICLE XI
GENERAL PROVISIONS
11.1 Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 11.1(b) the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party
or any of their officers or directors, whether prior to or after the execution
of this Agreement.
(b) The representations and warranties in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 10.
11.2 Notices. All notices, requests, claims, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been given or made upon the earliest to occur of: (a) receipt, if made by
personal service, (b) two (2) days after dispatch, if made by reputable
overnight courier service, (c) upon the delivering party's receipt of a written
confirmation of a transmission made by cable, by telecopy, by telegram or by
telex, or (d) seven (7) days after being mailed by registered mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a Party as shall be specified in a
notice given in accordance with this Section):
to AGF: The Americas Growth Fund, Inc.
701 Brickell Avenue
Suite 2000
Miami, Florida 33131
Attention: Leonard J. Sokolow, President
Telefax: (800) 696-9597
with a copy to: Lucio, Mandler, Croland, Bronstein & Garbett, P.A.
701 Brickell Avenue
Suite 2000
Miami, Florida 33131
Attention: Leslie J. Croland, Esq.
Telefax: (305) 579-4722
to AESP: Advanced Electronic Support Products, Inc.
1810 N.E. 144 Street
North Miami, Florida 33181
Attn: Slav Stein, General Manager
Telefax: (305) 652-8489
43
<PAGE> 172
with a copy to: Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue
28th Floor
Miami, Florida 33131
Attn: Philip B. Schwartz, Esq.
Telefax: (305) 374-5095
11.3 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
11.5 Entire Agreement. This Agreement together with the attached
schedules, exhibits and other documents delivered pursuant hereto) and the
Confidentiality Agreement constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter hereof.
11.6 Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
11.7 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
11.8 Governing Law. Except to the extent that Maryland Law is
mandatorily applicable to the Merger and the rights of the stockholders of AGF,
this Agreement shall be governed by, and construed in accordance with, the laws
of the State of Florida, regardless of the laws that might otherwise govern
under applicable principles of conflicts of law.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
44
<PAGE> 173
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
<TABLE>
<CAPTION>
ATTEST: THE AMERICAS GROWTH FUND, INC.
<S> <C>
By: /s/ John C. Hamlin By: /s/ Leonard J. Sokolow
------------------ ----------------------
Name: John C. Hamlin Name: Leonard J. Sokolow
------------------ ----------------------
Title: Title: President
------------------ ----------------------
ATTEST: ADVANCED ELECTRONICS
SUPPORT PRODUCTS, INC.
By: /s/ Roman Briskin By: /s/ Slav Stein
------------------ ----------------------
Name: Roman Briskin Name: Slav Stein
------------------ ----------------------
Title: Secretary Title: President
------------------ ----------------------
/s/ Slav Stein /s/ Roman Briskin
- - - ------------------------------------------- ----------------------------------------------
Slav Stein, solely for purposes of Sections Roman Briskin, solely for purposes of Sections
3.6, 4.3(b), 7.7, and 7.17 hereof 3.6, 4.3(b), 7.7, and 7.17 hereof
/s/ Leonard J. Sokolow
- - - ------------------------------------------
Leonard J. Sokolow, solely for purposes of
Section 7.7 hereof
ATTEST: AGF MERGER CORPORATION
By: /s/ John C. Hamlin By: /s/ Leonard J. Sokolow
------------------ ----------------------
Name: John C. Hamlin Name: Leonard J. Sokolow
------------------ ----------------------
Title: Title:
------------------ ----------------------
</TABLE>
45
<PAGE> 174
APPENDIX B
[LETTERHEAD]
ADVANCED BUSINESS VALUATIONS, INC.
FAIRNESS OPINION
July 15, 1996
Board of Directors
The Americans Growth Fund, Inc.
701 Brickell Avenue, Suite 2000
Miami, FL 33131
Gentlemen:
Advanced Business Valuations was retained by the Americas Growth Fund, Inc.
("AGF") to express an opinion as to the fairness from a financial point of view
to AGF's common stock shareholders of a proposed merger transaction, whereby all
the outstanding stock of Advanced Electronic Support Products, Inc. and
Affiliates ("AESP") will be acquired by AGF. AGF will have approximately
$3,000,000 of cash and cash equivalents or liquid investments at the time of
the merger and its current common stock shareholders will retain forty-two
(42%) percent of all of AGF's total outstanding common stock post merger.
Advanced Business Valuations principal business is the valuation of businesses
and business interests, including mergers and acquisitions, divestitures, public
offerings, gift and estate taxes, Employee Stock Ownership Plans, corporate and
partnership recapitalizations, dissolution and other objectives.
In arriving at our option, we have met separately with the senior management of
AGF and AESP to discuss their respective operations, financial statements, and
future prospects and we toured AGF and AESP's facilities. Additionally, we
have considered and analyzed the nature of the business and history of the
enterprises, the economic outlook in general, the outlook of the technology
industry in particular, the companies' historical earnings and cash flow, the
outlook for future earnings, the book value of the stock, the companies'
financial condition, its dividend-paying capacity, past transactions in the
companies' stock, and prices at which other public companies in related lines of
business are selling both on a minority and a control basis.
<PAGE> 175
Board of Directors
July 15, 1996
Page 2
Specific documents relied upon in arriving at our opinion included the
preliminary Agreement and Plan of Merger among AGF, AGF Merger Corporation &
AESP; In connection with AGF the Securities and Exchange Commission Form 10-KSB
and audited financial statements for the year ended December 31, 1995 and the
period from inception (June 3, 1994) through December 31, 1994; Securities and
Exchange Commission Form 10-QSB and unaudited financial statements for the
three months ended March 31, 1996; company Articles of Incorporation and
Bylaws; common stock trading prices from September 1994 through June 1996; In
connection with AESP the audited financial statements for the years ended
December 31, 1995 and December 31, 1994; Federal income tax returns for the
years ended December 31, 1994, 1993, 1992, and 1991; projections for the year
ending December 31, 1996; various other current company documents, including but
not limited to current marketing literature, accounts receivable aging schedule,
fixed asset schedule and property tax assessments. We also analyzed financial
statements and other material regarding comparative public companies,
acquisition data for the technology industry, required rates of return on
common stocks in general, material discussing the economic outlook and the
technology industry outlook and such other material as we deemed appropriate.
In rendering this opinion we have relied, without independent verification, on
the accuracy, completeness, and fairness of all financial and other information
that was publicly available or furnished to us by AGF and AESP.
Based on our analysis of the factors deemed relevant, it is our opinion that
the proposed merger of AESP is fair from a financial point of view to the
common stock shareholders of AGF.
/s/ Advanced Business Valuations
- - - ----------------------------------
Advanced Business Valuations, Inc.
<PAGE> 176
APPENDIX C
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1996 STOCK OPTION PLAN
<PAGE> 177
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- - - ----------- ----
<S> <C> <C>
1. Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Shares Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Section 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Terms of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Term of Option Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) ISO Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) NQSO Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Expiration of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Number of Shares to be Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(g) Rights as Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(h) Transfer of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(i) Vesting of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(j) Fair Market Value for ISOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(k) Reload Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Death, Termination of Employment, or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Termination of Employment or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Death . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Exercise of Vested Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Termination Subsequent to Tender/Exchange Offer or Change in Control . . . . . . . . . . . . . . . . . 6
7. Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. Adjustment Upon Changes in Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. Further Conditions of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Delivery of Shares by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 178
<TABLE>
<S> <C> <C>
10. Termination, Modification and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Modification by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Modification by Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) Affect on Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12. Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Other Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 179
ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC.
1996 STOCK OPTION PLAN
1. Purposes.
The ADVANCED ELECTRONIC SUPPORT PRODUCTS, INC. 1996 STOCK OPTION PLAN
(the "Plan") is intended to provide the employees (including employees who are
also directors), independent contractors and consultants of ADVANCED ELECTRONIC
SUPPORT PRODUCTS, INC. (the "Company") with an added incentive to provide their
services to the Company and to induce them to exert their maximum efforts
toward the Company's success. By thus encouraging employees, directors,
independent contractors and consultants and promoting their continued
association with the Company, the Plan may be expected to benefit the Company
and its stockholders. The Plan allows the Company to grant Incentive Stock
Options ("ISOs") (as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code")), and Non-Qualified Stock Options ("NQSOs"), not
intended to qualify under Section 422(b) of the Code (ISOs and NQSOs
hereinafter collectively the "Options"), to employees, directors, independent
contractors and consultants of the Company.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.01 par
value per share, that may be subject to Options granted under the Plan shall be
400,000 shares of the Company's common stock (the "Common Stock"), subject to
adjustment as provided in Section 8 hereunder. The Company shall at all
times while the Plan is in force reserve such number of shares of Common Stock
as will be sufficient to satisfy the requirement of outstanding Options granted
under the Plan, except as otherwise provided below. In the event any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject thereto shall again be available for
the granting of Options under the Plan.
In a given fiscal year, the maximum number of Options that can be
granted hereunder to a single person shall be limited to 200,000 Options, as
adjusted for future stock dividends and/or stock splits. Further, such
limitation shall not be deemed exceeded in the event subsequent to the date of
grant of Options under the Plan, the Company effectuates a stock split and/or
stock dividend which results in an adjustment to the number of Options
previously granted. The aforesaid limitation is intended to comply with
Section 162(m) of the Code. To the extent any provision of the Plan or action
by the Board of Directors or Committee, as hereinafter defined, fails to comply
with Section 162(m), it shall be deemed null and void to the extent required by
statute and to the extent deemed advisable by the Board of Directors and/or
such Committee.
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<PAGE> 180
3. Eligibility.
ISOs may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as
the quoted terms are defined within Section 424 of the Code. An Officer of the
Company is an employee for the above purposes. NQSOs may be granted from time
to time under the Plan to one or more employees of the Company, Officers,
members of the Board of Directors, independent contractors, consultants and
other individuals who are not employees of, but are involved in the continuing
development and success of the Company and/or of a subsidiary of the Company.
4. Administration of the Plan.
(a) Compensation Committee. The Plan shall be administered by a
Compensation Committee of the Board of Directors of the Company (the
"Committee") comprised of at least two outside directors (as described under
Rule 16b-3, promulgated under the Securities Exchange Act of 1934 (the "1934
Act")), and in accordance with the requirement of Section 162(m) of the Code,
appointed by the Board of Directors of the Company. In the event such
Committee is not comprised of said outside directors, any Option granted
hereunder shall not be deemed automatically null and void, except as otherwise
provided below. Within the limits of the express provisions of the Plan, the
Committee shall have the authority, in its discretion, to determine the
individuals to whom, and the time or times at which, Options shall be granted,
the character of such Options (whether ISOs or NQSOs), and the number of shares
of Common Stock to be subject to each Option, and to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of option agreements that may be entered
into in connection with Options (which need not be identical), subject to the
limitation that option agreements granting ISOs must be consistent with the
requirements for the ISOs being qualified as "incentive stock options" as
provided in Section 422 of the Code, and to make all other determinations and
take all other actions necessary or advisable for the administration of the
Plan. In making such determinations, the Committee may take into account the
nature of the services rendered by such individuals, their present and
potential contributions to the Company's success, and such other factors as the
Committee, in its discretion, shall deem relevant. The Committee's
determinations on the matters referred to in this Section shall be conclusive.
(b) Section 16. Notwithstanding anything contained herein to the
contrary, the Committee shall have the exclusive right to grant Options to
persons subject to Section 16 of the 1934 Act and set forth the terms and
conditions thereof. With respect to persons subject to Section 16 of the 1934
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3, as amended from time to time (and its successor
provisions, if any), under the 1934 Act. To the extent any provision of the
Plan or action by the Board of Directors or Committee fails to so comply, it
shall be deemed null and void to the extent required by law and to the extent
deemed advisable by the Board of Directors and/or such Committee.
2
<PAGE> 181
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Committee
may grant either ISOs or NQSOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Common Stock at a specified price (the "Option
Price"). The character and terms of each Option granted under the Plan shall
be determined by the Committee consistent with the provisions of the Plan,
including the following:
(a) Term of Option Granted. An Option granted under the Plan must
be granted within 10 years from the date the Plan is adopted, or the date the
Plan is approved by the stockholders of the Company, whichever is earlier.
(b) ISO Option Price. The Option Price of the shares of Common
Stock subject to each ISO shall not be less than the fair market value of such
shares of Common Stock as of the time such ISO is granted. Such fair market
value shall be determined by the Committee and if the shares of Common Stock
are listed as of such date on any national securities exchange or traded on the
over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the closing bid and asked prices of the shares of
Common Stock on the over-the-counter market, as reported by Nasdaq, the
National Association of Securities Dealers OTC Bulletin Board or the National
Quotation Bureau, Inc., as the case may be, on the day on which the Option is
granted or, if there is no closing price or bid or asked price on that day, the
closing price or mean of the closing bid and asked prices on the most recent
day preceding the day on which the Option is granted for which such prices are
available. If an ISO is granted to an individual who, immediately before the
ISO is to be granted, owns directly or through attribution) more than 10% of
the total combined voting power of all classes of capital stock of the Company
or a subsidiary or parent of the Company, the Option Price of the shares of
Common Stock subject to such ISO shall not be less than 110% of the fair market
value per share of the shares of Common Stock at the time such ISO is granted.
(c) NQSO Option Price. The Option Price of the shares of Common
Stock subject to an NQSO granted pursuant to the Plan shall be determined by
the Committee, in its sole discretion.
(d) Expiration of Options. In no event shall any Option granted
under the Plan have an expiration date later than ten (10) years from the date
of its grant, and all Options granted under the Plan shall be subject to
earlier termination as expressly provided in Section 6 hereof. If an ISO is
granted to any individual who, immediately before the ISO is granted, owns
(directly or through attribution) more than 10% of the total combined voting
power of all classes of capital stock of the Company or of a subsidiary or
parent of the Company, such ISO shall by its terms expire and shall not be
exercisable after the expiration of five (5) years from the date of its grant.
3
<PAGE> 182
(e) Number of Shares to be Exercised. Unless otherwise provided
in any option agreement under the Plan, and except as otherwise provided below,
an Option granted under the Plan shall become exercisable, in whole at any time
or in part from time to time, but in no case may an Option (i) be exercised as
to less than one hundred (100) shares of Common Stock at any one time, or the
remaining shares of Common Stock covered by the Option if less than one hundred
(100), and (ii) become fully exercisable more than ten years from the date of
its grant.
(f) Manner of Exercise. An Option granted under the Plan shall be
exercised by the delivery by the holder thereof to the Company at its principal
office (to the attention of the Secretary of the Company) of written notice of
the number of full shares of Common Stock with respect to which the Option is
being exercised, accompanied by payment in full, in cash or by certified or
bank check payable to the order of the Company, of the Option Price for such
shares of Common Stock, or, by the delivery of unexercised Options and/or
shares of Common Stock having a fair market value equal to the Option Price, or
by a combination of cash and such unexercised Options and/or shares held by an
optionee that have a fair market value equal to the Option Price, and, in the
case of a NQSO, by having the Company withhold from the shares of Common Stock
to be issued upon exercise of the Option that number of shares having a fair
market value equal to the tax withholding amount due, or otherwise provide for
withholding as set forth in Section 9(c) hereof. The Option Price may also be
paid in full by a broker-dealer to whom the optionee has submitted an exercise
notice consisting of a fully endorsed Option, or through any other medium of
payment as the Committee, in its discretion, shall authorize.
(g) Rights as Stockholder. The holder of an Option shall have
none of the rights of a stockholder with respect to the shares of Common Stock
covered by such holder's Option until such shares of Common Stock shall be
issued to such holder upon the exercise of the Option.
(h) Transfer of Options. All Options granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution, and any Option granted under the Plan may be exercised during the
lifetime of the holder thereof only by the holder. No Option granted under the
Plan shall be subject to execution, attachment or other process.
(i) Vesting of Options. Subject to the provisions of Section 6
hereof, or unless otherwise determined by the Committee, each Option shall
become exercisable with respect to one third of the total number of shares of
Common Stock subject to the Option on the date of its grant and with respect to
each additional one-third at the end of each one-year period thereafter during
the succeeding two years. Notwithstanding the foregoing, the Committee may in
its discretion (i) specifically provide for another time or times of exercise
at the time the Option is granted; (ii) accelerate the exercisability of any
Option subject to such terms and conditions as the Committee deems necessary
and appropriate; or (iii) at any time prior to the expiration or termination of
any Option previously granted, extend the term of any Option for such
additional period as the Committee in its discretion shall determine. In no
event, however, shall the aggregate term of any Option, including the original
term of the Option and any extensions thereof, exceed ten years. Subject to
the foregoing, and except as otherwise provided herein, all
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or any part of the shares underlying the Option with respect to which the
Option is exercisable may be purchased commencing at the time and to the extent
such Option became exercisable or at any time or times thereafter during the
term of the Option.
(j) Fair Market Value for ISOs. The aggregate fair market value,
determined as of the time any ISO is granted and in the manner provided for by
Subsection (b) of this Section 5, of the shares of Common Stock with respect to
which ISOs granted under the Plan are exercisable for the first time during any
calendar year and under incentive stock options qualifying as such in
accordance with Section 422 of the Code granted under any other incentive stock
option plan maintained by the Company or its parent or subsidiary corporations,
shall not exceed $100,000. Any grant of Options in excess of such amount shall
be deemed a grant of a NQSO. In addition, and notwithstanding anything
contained herein to the contrary, in the event an ISO granted hereunder does
not, for any reason, at the time of grant or during the term of the ISO satisfy
all of the conditions under the Code with respect to being deemed an ISO, then
said ISO shall be deemed a NQSO, but only to the extent, if applicable, said
ISO exceeds any such conditions, and any said determination that said ISO is
deemed an NQSO shall not be deemed the grant of a new Option hereunder.
(k) Reload Options. Whenever an optionee holding any Option
outstanding under this Plan (including Reload Options, as hereinafter defined,
previously granted under this Section 5(k)), exercises the Option and makes
payment of the Option Price pursuant to Section 5(b) hereof, in whole or in
part, by tendering shares of Common Stock previously held by the optionee, then
the Company shall grant to the optionee a Reload Option ("Reload Option"), for
the number of shares of Common Stock that is equal to the number of shares of
Common Stock tendered by the optionee in payment of the Option Price of the
Option being exercised. The Reload Option Price per share shall be an amount
equal to the fair market value per share of the Company's Common Stock, as
determined as of the date of receipt by the Company of the notice by the
optionee to exercise the option, and as determined in accordance with Section
5(b) above. Subject to Section 6 hereof, the term of the Reload Option shall
expire and the Reload Option shall no longer be exercisable, on the later to
occur of (i) the expiration date of the originally exercised Option or (ii) ten
years from the date of grant of the Reload Option. Any Reload Option granted
under this Section 5(b) shall vest immediately upon grant. All other terms of
the Reload Options granted hereunder shall be identical to the terms and
conditions of the original Option, the exercise of which gives rise to the
grant of the Reload Option. Notwithstanding anything contained herein to the
contrary, no Reload Options should be granted hereunder if an optionee is no
longer employed and/or retained by the Company as of the date of the exercise
of the Options giving rise to the grant of Reload Options hereunder. In
addition, and notwithstanding anything contained herein to the contrary, in the
event there is not a sufficient number of shares of Common Stock authorized for
issuance upon exercise of Reload Options under the Plan, the Company shall use
its best efforts to cause such number of authorized shares of Common Stock
underlying the Plan to be increased, provided, however, that if the Company is
unable to so cause such increase in the authorized number of shares of Common
Stock underlying the Plan to be effectuated, the ability of the optionee to
exercise such Reload Options
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<PAGE> 184
may be delayed indefinitely until such time as the requisite number of shares
of Common Stock is so authorized.
6. Death, Termination of Employment, or Disability.
(a) Termination of Employment or Disability. Except as otherwise
provided herein, upon termination of employment or retention with the Company,
a holder of an Option under the Plan may exercise such Options to the extent
such Options were exercisable as of the date of termination at any time within
three (3) months after the date of such termination, subject to the provisions
of Subsection (c) of this Section 6. For purposes hereof, termination of
employment or retention shall include, but shall not be limited to, termination
due to retirement, layoffs, or the permanent disability of the optionee.
Notwithstanding anything contained herein to the contrary, any Options granted
hereunder to an optionee and then outstanding shall immediately terminate in
the event the optionee is convicted of a felony committed against the Company,
and the provisions of this Subsection (a) shall not be applicable thereto. In
addition, and anything contained herein to the contrary notwithstanding, the
term during which an optionee may exercise Options subsequent to the date of
termination may, in the Committee's discretion, be modified, subject to
applicable law and regulation, from the term specified above, as of the date of
grant and as specified in an option agreement evidencing the grant of Options
under the Plan.
(b) Death. If the holder of an Option granted under the Plan dies
(i) while employed by the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's employment or
retention, such Options may, subject to the provisions of Subsection (c) of
this Section 6, be exercised by a legatee or legatees of such Option under such
individual's last will or by such individual's personal representatives or
distributees at any time within six (6) months after the individual's death, to
the extent, except as otherwise provided herein, such Options were exercisable
as of the date of death or date of termination of employment, whichever date is
earlier.
(c) Exercise of Vested Options. An Option may not be exercised
pursuant to this Section 6 except to the extent that the holder was entitled to
exercise the Option at the time of termination of employment or retention or
death, and in any event may not be exercised after the original expiration date
of the Option.
(d) Termination Subsequent to Tender/Exchange Offer or Change in
Control. Notwithstanding anything in this Plan to the contrary, any Options
granted hereunder and then outstanding shall become immediately exercisable in
full in the event the optionee's employment with the Company is terminated by
the Company subsequent to the consummation of a tender offer or exchange offer
made by any "person" within the meaning of Section 14(d) of the 1934 Act or
subsequent to a Change in Control, as defined below. For purposes of this
Subsection, a "Change in Control" shall have occurred if:
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<PAGE> 185
(1) any "person" (other than Slav Stein and Roman
Briskin) within the meaning of Section 14(d) of the 1934 Act becomes
the "beneficial owner" as defined in Rule 13d-3 thereunder, directly
or indirectly, of more than 20% of the Company's Common Stock.
(2) any "person" (other than Slav Stein and Roman
Briskin) acquires by proxy or otherwise the right to vote more than
20% of the Company's Common Stock for the election of Directors, other
than solicitation of proxies by the Incumbent Board (as hereinafter
defined), for any merger or consolidation of the Company or for any
other matter or question.
(3) during any two-year period, individuals who
constitute the Board of Directors of the Company (the "Incumbent
Board") as of the beginning of the period cease for any reason to
constitute at least a majority thereof, provided that any person
becoming a Director during such period whose election or nomination
for election by the Company's stockholders was approved by a vote of
at least three quarters of the Incumbent Board (either by specific
vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for Director without objection to
such nomination) shall be, for purposes of this clause (3), considered
as though such person were a member of the Incumbent Board.
(4) the Company's stockholders have approved the sale of
all or substantially all of the assets of the Company.
(e) Automatic Vesting Upon Death. In addition, and
notwithstanding anything contained herein to the contrary, in the event an
optionee dies during such time as the optionee is employed or retained by the
Company, then fifty percent (50%) of any outstanding Options which have not
vested and are not exercisable by the optionee as of the date of death shall be
automatically deemed vested and exercisable by the optionee's estate and/or his
legatees in accordance with Subsection 6(b) hereof.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period
as such individual's right to re-employment is guaranteed either by statute or
by contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are
hereafter changed by reason of recapitalization, reclassification, stock split,
combination or exchange of shares of
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<PAGE> 186
Common Stock or the like, or by the issuance of dividends payable in
shares of Common Stock, an appropriate adjustment shall be made by the
Committee, in the aggregate number of shares of Common Stock available
under the Plan, in the number of shares of Common Stock issuable upon
exercise of outstanding Options, and the Option Price per share. In
the event of any consolidation or merger of the Company with or into
another company, or the conveyance of all or substantially all of the
assets of the Company to another company, each then outstanding Option
shall upon exercise thereafter entitle the holder thereof to such
number of shares of Common Stock or other securities or property to
which a holder of shares of Common Stock of the Company would have
been entitled to upon such consolidation, merger or conveyance; and in
any such case appropriate adjustment, as determined by the Committee
shall be made as set forth above with respect to any future changes in
the capitalization of the Company or its successor entity. In the
event of the proposed dissolution or liquidation of the Company, all
outstanding Options under the Plan will automatically terminate,
unless otherwise provided by the Board of Directors of the Company or
any authorized committee thereof.
(b) Any adjustment in the number of shares of Common Stock shall
apply proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. Further Conditions of Exercise.
(a) Restricted Securities. Unless the shares of Common Stock
issuable upon the exercise of an Option under the Plan have been registered
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, prior to the exercise of the Option, an optionee must represent in
writing to the Company that such shares of Common Stock are being acquired for
investment purposes only and not with a view towards the further resale or
distribution thereof, and must supply to the Company such other documentation
as may be required by the Company, unless in the opinion of counsel to the
Company such representation, agreement or documentation is not necessary to
comply with said Act.
(b) Delivery of Shares by Company. The Company shall not be
obligated to deliver any shares of Common Stock until they have been listed on
each securities exchange on which the shares of Common Stock may then be listed
or until there has been qualification under or compliance with such state or
federal laws, rules or regulations as the Company may deem applicable. The
Company shall use reasonable efforts to obtain such listing, qualification and
compliance.
(c) Withholdings. The Committee may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of any
taxes that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not limited to, (i)
the withholding of delivery of shares of Common Stock upon exercise of Options
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<PAGE> 187
until the holder reimburses the Company for the amount the Company is required
to withhold with respect to such taxes, (ii) the cancelling of any number of
shares of Common Stock issuable upon exercise of such Options in an amount
sufficient to reimburse the Company for the amount it is required to so
withhold, or (iii) withholding the amount due from any such person's wages or
compensation due such person.
10. Termination, Modification and Amendment.
(a) Termination. The Plan (but not Options previously granted
under the Plan) shall terminate ten (10) years from the earliest of the date of
its adoption by the Board of Directors, or the date the Plan is approved by the
stockholders of the Company, or such date of termination, as hereinafter
provided, and no Option shall be granted after termination of the Plan.
(b) Modification by Shareholders. The Plan may from time to time
be terminated, modified or amended by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company voting as a
single class, and entitled to vote thereon.
(c) Modification by Directors. The Board of Directors of the
Company may at any time, prior to ten (10) years from the earlier of the date
of the adoption of the Plan by such Board of Directors or the date the Plan is
approved by the stockholders, terminate the Plan or from time to time make such
modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board of Directors shall not, without approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company, voting as a single class, and entitled to vote
thereon, increase (except as provided by Section 8) the maximum number of
shares of Common Stock as to which Options may be granted under the Plan,
materially change the standards of eligibility under the Plan or materially
increase the benefits which may accrue to participants under the Plan. Any
amendment to the Plan which, in the opinion of counsel to the Company, will be
deemed to result in the adoption of a new Plan, will not be effective until
approved by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company, voting as a single class,
and entitled to vote thereon.
(d) Affect on Rights. No termination, modification or amendment
of the Plan may adversely affect the rights under any outstanding Option
without the consent of the individual to whom such Option shall have been
previously granted and/or awarded.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of
Directors of the Company. The Plan shall be subject to approval by the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon within one year before or
after adoption of the Plan by the Board of Directors.
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<PAGE> 188
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of the Company
or of a subsidiary or parent of the Company or in any way limit the right of
the Company, or of any parent or subsidiary thereof, to terminate the
employment of any employee, or to terminate any other relationship with an
Optionee, including that of independent contractor or consultant.
Notwithstanding anything contained herein to the contrary, and except as
otherwise provided at the time of grant, all references hereunder to
termination of employment shall with respect to consultants and independent
contractors mean the termination of retention of their services with or for the
Company.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
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APPENDIX D
THE AMERICAS GROWTH FUND, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS - _______, 1996
The undersigned hereby appoints Leonard J. Sokolow and the Hon. J.
Antonio Villamil, or either of them, with full power of substitution, as proxy
for the undersigned, at the Special Meeting of Stockholders of The Americas
Growth Fund, Inc. (the "Company"), to be held on ____________________________,
at 10:00 a.m. local time, or at any adjournment thereof, to vote shares,
execute consents, and otherwise act for the undersigned in the same manner as
if the undersigned were personally present, for the proposals below and any
other matter properly brought before the meeting or any adjournment thereof,
all as set forth in the Proxy Statement dated, _________________, 1996.
PROPOSALS 1, 2 AND 3 ARE RELATED. UNLESS ALL 3 PROPOSALS ARE APPROVED, THE
MERGER WILL NOT BE CONSUMMATED AND NO SUCH PROPOSALS WILL BE APPROVED.
<TABLE>
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger. FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Proposal to withdraw the Company's election as a business development FOR [ ] AGAINST [ ] ABSTAIN [ ]
company under the Investment Company Act of 1940 (the "1940 Act").
3. Proposal to approve the amendments to the Company's Articles of FOR [ ] AGAINST [ ] ABSTAIN [ ]
Incorporation to change the name of the Company from The Americas Growth
Fund, Inc. to Advanced Electronic Support Products, Inc. and to delete
all provisions and references therein related to the 1940 Act.
4. Proposal to approve the Company's 1996 Stock Option Plan. FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
(continued and to be signed on reverse side)
<PAGE> 190
(CONTINUED FROM OTHER SIDE)
Number of Shares:_________________
Dated: _____________________, 1996
_____________________________________________
Signature
_____________________________________________
Signature, if held jointly
Please sign exactly as your name(s) appear(s)
on this proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If
a corporation, please sign in full corporate
name by the President or other authorized
officer. If a partnership, please sign in
partnership name by any authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS GIVEN ON THE OTHER SIDE. IF NO DIRECTIONS ARE MADE, THIS
PROXY WILL BE VOTED FOR THE LISTED PROPOSALS.
