<PAGE>
As filed with the Securities and Exchange Commission on June 18, 1996
Registration Statement No. ______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ENSEC INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 1731 65-0654330
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
------------------------------
751 Park of Commerce Drive, Suite 104
Boca Raton, Florida 33487
(561) 997-2511
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
----------------
CHARLES N. FINKEL, PRESIDENT
ENSEC INTERNATIONAL, INC.
751 Park of Commerce Drive
Boca Raton, Florida 33487
(561) 997-2511
(Name, Address and Telephone
Number of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<C> <C>
JEFFREY A. STOOPS, ESQ. CHARLES P. GREENMAN, ESQ.
Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. TIMOTHY I. KAHLER, ESQ.
777 South Flagler Drive, Suite 500 East Tower Parker Chapin Flattau & Klimpl, LLP
West Palm Beach, Florida 33401 1211 Avenue of the Americas
(561) 655-1980 New York, New York 10036
Facsimile (561) 655-5677 (212) 704-6000
Facsimile (212) 704-6288
</TABLE>
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective. If any
of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [X]
- --------------------------------------------------------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
<PAGE>
- --------------------------------------------------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- --------------------------------------------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered to be Offering Price Aggregate Offering Registration Fee
Registered Per Unit(1) Price(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01(2)......... 1,840,000 $ 6.50 $11,960,000 $ 4,124.14
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(3)......... 1,840,000 7.00 12,880,000 4,441.38
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(4)......... 250,000 .10 25,000 8.62
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase 1,840,000 .10 184,000 63.45
Warrants(5)............................
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to purchase 160,000 .00005 8.00 (7)
one share of Common Stock(6)...........
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to purchase 160,000 .00005 8.00 (7)
one Redeemable Warrant.................
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share(8) 160,000 10.725 1,716,000 591.72
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants, each to purchase one 160,000 .165 26,400 9.10
share of Common Stock(8)...............
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share(9) 160,000 7.00 1,120,000 386.21
- ------------------------------------------------------------------------------------------------------------------------------------
Total: $9,624.62
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes an aggregate 240,000 shares of Common Stock to cover over-
allotments, if any, pursuant to an over-allotment option granted to the
Underwriter.
(3) Shares of Common Stock issuable upon exercise of the Redeemable Warrants
to be sold to the public.
(4) Shares of Common Stock to be issued by the Company concurrently with the
closing of this Offering pursuant to a bridge financing completed on May
14, 1996.
(5) Includes an aggregate 240,000 Redeemable Warrants to cover over-
allotments, if any, pursuant to an over-allotment option granted to the
Underwriter.
(6) To be issued to the Underwriter at the time of delivery and acceptance
of the securities to be sold to the public hereunder.
(7) No fee due pursuant to Rule 457(g) under the Securities Act of 1933, as
amended (the "Securities Act").
(8) Issuable upon exercise of the Underwriter's Warrants.
(9) Issuable upon exercise of the Redeemable Warrants underlying the
Underwriter's Warrants.
Also registered hereunder pursuant to Rule 416 are an indeterminate number of
shares of Common Stock which may be issued pursuant to the anti-dilution
provisions applicable to the Redeemable Warrants.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
This Registration Statement, including exhibits (See Exhibit Index on page ),
consists of __ sequentially numbered pages.
<PAGE>
ENSEC INTERNATIONAL, INC.
Cross-Reference Sheet Showing Location in Prospectus of
Information Required by Items required by Part 1 of Form SB-2
<TABLE>
<CAPTION>
Item Title of Item Caption in Prospectus
- ---- --------------------------- ---------------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside
Front Cover Page of
Prospectus................. Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front Cover Page
3. Summary Information and
Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds............ Use of Proceeds
5. Determination of Offering
Price...................... Underwriting
6. Dilution................... Dilution
7. Selling Security Holders... Principal and Selling Stockholders
8. Plan of Distribution....... Front Cover Page; Underwriting
9. Legal Proceedings.......... Business
10. Directors, Executive
Officers, Promoters and
Control Persons............ Management
11. Security Ownership of
Certain Beneficial Owners
and Management............. Principal and Selling Stockholders
12. Description of Securities.. Description of Securities; Dividend Policy
13. Interest of Named Experts
and Counsel................ Legal Matters; Experts
14. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Description of Securities
15. Organization Within Last
Five Years................. Certain Relationships and Related
Transactions
16. Description of Business.... Business
17. Management's Discussion
and Analysis or Plan of
Operation.................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property.... Business
19. Certain Relationships and
Related Transactions....... Certain Relationships and Related
Transactions
20. Market for Common Equity
and Related Stockholder
Matters.................... Description of Securities; Shares Eligible
for Future Sale
21. Executive Compensation..... Management
22. Financial Statements....... Financial Statements
23. Changes in and Disagreements
With Accountants on
Accounting and Financial
Disclosure................. Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The
first Prospectus will be used in connection with an underwritten offering of
Common Stock and Warrants by the Company (the "Company Prospectus"). The second
Prospesctus will be used in connection with the sale of Common Stock by certain
persons from time to time in open market transactions (the "Bridge Investors
Prospectus"). The Company Prospectus and the Bridge Investors Prospectus are
substantially identical, except for the alternate pages for the Bridge Investors
Prospectus included herein which are labeled "Alternate Page for Bridge
Investors Prospectus." In addition, what is referred to as "the Offering" in the
Company Prospectus will be changed to "the Company Offering" throughout the
Bridge Investors Prospectus.
After this Registration Statement becomes effective, both Prospectuses will
be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
<PAGE>
- --------------------------------------------------------------------------------
Preliminary Prospectus, Subject to Completion, Dated June 18, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
ENSEC INTERNATIONAL, INC.
1,600,000 Shares of Common Stock and
1,600,000 Redeemable Common Stock Purchase Warrants
This Prospectus relates to an offering (the "Offering") by Ensec
International, Inc. (the "Company") of 1,600,000 shares of common stock, par
value $.01 per share (the "Common Stock"), and 1,600,000 redeemable Common Stock
purchase warrants (the "Redeemable Warrants") (sometimes hereinafter referred to
as the "Securities") through Rickel & Associates, Inc. (the "Underwriter"). The
shares of Common Stock and the Redeemable Warrants offered hereby may be
purchased separately and will be transferable separately immediately after
issuance. The Common Stock is being offered at a range of $6.00 to $6.50 per
share and the Redeemable Warrants at $.10 per Warrant.
Each Redeemable Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $7.00 per share,
subject to adjustment in certain events, at any time commencing 12 months after
the date of this Prospectus (or earlier with the prior written consent of the
Underwriter) and expiring on the fifth anniversary of the date of this
Prospectus. The Redeemable Warrants are subject to redemption by the Company at
$.10 per Redeemable Warrant at any time commencing 12 months after the date of
this Prospectus (or earlier with the prior written consent of the Underwriter),
on not less than 30 days prior written notice to the holders of the Redeemable
Warrants, provided the average closing bid quotation of the Common Stock as
reported on the NASDAQ SmallCap Market ("Nasdaq-SCM"), if traded thereon, or if
not traded thereon, the average closing bid quotation of the Common Stock if
listed on a national securities exchange (or other reporting system that
provides last sale prices), has been at least 150% of the then current exercise
price of the Redeemable Warrants (initially, $10.50 per share), for a period of
20 consecutive trading days ending on the third day prior to the date on which
the Company gives notice of redemption. The Redeemable Warrants will be
exercisable until the close of business on the day immediately preceding the
date fixed for redemption. See "Description of Securities--Redeemable
Warrants."
The Company has applied for quotation of the Common Stock and the
Redeemable Warrants on Nasdaq-SCM under the trading symbols "ENSC" and "ENSW,"
respectively. The Company has also applied for listing of the Common Stock and
the Redeemable Warrants on the Boston Stock Exchange under the trading symbols
"___" and "___," respectively.
Concurrently with this Offering, the Company has registered the
offering of 250,000 shares of Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), on behalf of certain persons (the "Bridge
Investors") pursuant to a Bridge Investors Prospectus included within the
Registration Statement of which this Prospectus forms a part. The Bridge
Investors' shares are not part of this Offering, however, and may not be sold
prior to the expiration of 12 months after the date of this Prospectus without
the prior written consent of the Underwriter. The Company will not receive any
of the proceeds from the sale of the shares by the Bridge Investors. See
"Concurrent Registration of Common Stock."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING
AN INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE
"RISK FACTORS" (PAGE 7) AND "DILUTION" (PAGE 17).
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Underwriting
Discounts
Price to and Proceeds to
public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ 6.25(3) $ .625 $ 5.625
- -------------------------------------------------------------------------------
Per Redeemable Warrant.......... $ .10 $ .01 $ .09
- -------------------------------------------------------------------------------
Total(4)........................ $10,160,000 $1,016,000 $9,144,000
- -------------------------------------------------------------------------------
(cover page continues on page (ii))
</TABLE>
- --------------------------------------------------------------------------------
Rickel & Associates, Inc.
-----------------------------------------------
The date of this Prospectus is , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OR THE REDEEMABLE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
No dealer, salesperson or other person is authorized to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Underwriter or the
Selling Stockholder. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, by any person in any jurisdiction in which it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
Until ______________, 1996 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their solicitations to purchase the securities offered hereby.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................................................................... 1
Risk Factors............................................................................................................ 7
Use of Proceeds......................................................................................................... 15
Dilution................................................................................................................ 17
Capitalization.......................................................................................................... 18
Dividend Policy......................................................................................................... 18
Selected Consolidated Financial Data.................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 21
Business................................................................................................................ 26
Management.............................................................................................................. 33
Principal and Selling Stockholders...................................................................................... 38
Certain Relationships and Related Transactions.......................................................................... 39
Description of Securities............................................................................................... 40
Shares Eligible for Future Sale......................................................................................... 42
Concurrent Registration of Common Stock................................................................................. 44
Underwriting............................................................................................................ 44
Legal Matters........................................................................................................... 46
Experts................................................................................................................. 46
Available Information................................................................................................... 47
Index to Consolidated Financial Statements.............................................................................. F-1
</TABLE>
________________
As of the date of this Prospectus, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information can be inspected and copied at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: New York Regional
Office, Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511, and copies of such material may also be obtained from the Public Reference
Section of the Commission at prescribed rates. The Commission maintains a World
Wide Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file such
information electronically. The Company's Common Stock and Redeemable Warrants
will be quoted on the Nasdaq-SCM and such reports and other information can also
be inspected at the offices of Nasdaq Operations, 1735 K Street N.W.,
Washington, D.C., 20006. The Company intends to furnish its stockholders with
annual reports containing audited consolidated financial statements and such
other reports as the Company deems appropriate or as may be required by law.
(i)
<PAGE>
(1) Does not include additional compensation to the Underwriter consisting of
(i) a non-accountable expense allowance equal to 3% of the gross proceeds
of the Offering, of which $50,000 has been paid by the Company to date,
(ii) warrants (the "Underwriter's Warrants") entitling the Underwriter to
purchase up to 160,000 shares of the Common Stock and 160,000 Redeemable
Warrants, and (iii) a financial consulting agreement with the Underwriter
for 24 months from the closing of the Offering at an annual fee of $30,000,
all of which ($60,000) is payable at the closing of the Offering. The
Company has agreed to pay to the Underwriter, under certain circumstances,
a Redeemable Warrant solicitation fee of 5% of the exercise price for each
Redeemable Warrant exercised. The Company has also agreed to indemnify the
Underwriter against certain civil liabilities, including those arising
under the Securities Act. See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance
($304,800, or $350,520 if the Underwriter's Over-allotment Option (as
defined below) is exercised in full), the other expenses of the Offering
payable by the Company (estimated at $375,000) and the consulting fee
($60,000). See "Underwriting."
(3) Represents the average of the range of the estimated initial public
offering price per share.
(4) The Company and the Selling Stockholder (as defined herein) have granted
the Underwriter an option, exercisable for a period of 45 days after the
closing of the Offering, to purchase up to an additional 15% of the amount
of shares of the Common Stock offered hereunder (the first 50,000 of which
will be sold by the Selling Stockholder) and/or 15% of the amount of
Redeemable Warrants offered hereunder, upon the same terms and conditions
solely for the purpose of covering over-allotments, if any (the
"Underwriter's Over-allotment Option"). If the Underwriter's Over-
allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholder will be $11,684,000, $1,168,400, $10,234,350 and
$281,250, respectively. See "Principal and Selling Stockholders" and
"Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock or the Redeemable Warrants, and there can be no assurance that any such
market for the Common Stock or the Redeemable Warrants will develop after the
closing of the Offering or that, if developed, it will be sustained. The
offering price of the Common Stock and the Redeemable Warrants and the initial
exercise price and other terms of the Redeemable Warrants were established by
negotiation between the Company and the Underwriter and do not necessarily bear
any direct relationship to the Company's assets, earnings, book value per share
or other generally accepted criteria of value. See "Underwriting."
The Common Stock and the Redeemable Warrants are being offered by the
Underwriter on a firm commitment basis, subject to prior sale, when, as and if
delivered to the Underwriter and subject to certain conditions. Subject to the
provisions of the underwriting agreement between the Underwriter and the
Company, the Underwriter reserves the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of certificates will be made against payment therefor at the office of
the Underwriter, 875 Third Avenue, New York, New York 10022, on or about
_______________________________________________, 1996.
(ii)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, the
information in this Prospectus (i) reflects the formation of the Company and its
organization as the holding company for Ensec, S.A. and Ensec Inc. as if such
formation and organization had occurred as of the earliest date presented, (ii)
does not reflect the issuance by the Company in April and May 1996 of $2,500,000
of 10% senior subordinated notes (the "Bridge Financing") to persons ("Bridge
Investors") who also received in connection therewith warrants to purchase
250,000 shares of Common Stock with an exercise price of $.10 per share (the
"Bridge Warrants") which are mandatorily exercisable upon the consummation of
the sale of the securities in this Offering, and (iii) does not give effect to
the exercise of (a) the Underwriter's Over-allotment Option, (b) the Redeemable
Warrants, (c) the Underwriter's Warrants and (d) other outstanding options and
warrants to purchase an aggregate of 543,040 shares of Common Stock. The
initial public offering price per share of Common Stock is assumed to be $6.25,
the average of the estimated range of $6.00 to $6.50 per share.
The Company
The Company designs, develops, assembles, sells, installs and services
high-end integrated security systems based on the Company's proprietary software
and controlling hardware which permits multiple mechanisms to be combined into a
single enterprise-wide system of access control, surveillance and data security.
The Company's security systems are typically found in large commercial or
governmental facilities, including office buildings, military bases, museums,
correctional facilities and airports. Since its inception, the Company has
installed approximately 400 systems, primarily in Brazil, including systems for
many large corporations (such as Bosch Caterpillar, General Motors, IBM,
Eastman Kodak, Microsoft and Texaco) and government agencies (such as the
Brazilian Bureau of Mint & Engraving and the Central Bank of Brazil). The
Company derives its revenue primarily from sales and installation of its
security systems and service of such systems and security-related equipment.
The Company believes that the worldwide integrated security systems
market is currently $1.5 billion and has been growing at a rate of approximately
15% per annum from 1992 to 1995. The Company is attempting to expand its focus
from operations based primarily in Brazil, marketing its products primarily to
Brazilian customers, to a company with a global market focus and a particular
emphasis on sales to U.S. customers. To facilitate this shift, the Company has
entered into strategic alliances with Electronic Data Systems ("EDS") and
Lockheed Martin IMS ("Lockheed Martin") to joint-market Company systems and
services. The Company is in the process of moving its research and development
activities and finance and executive functions from Brazil to the United States.
Examples of some of the Company's completed projects include: (i) an
integrated security system for the Brazilian Bureau of Mint & Engraving; (ii) an
access control, time and attendance, closed-circuit television ("CCTV") and
fleet management system for Companhia Vale do Rio Doce, a large Brazilian iron
ore mining company with over 65,000 employees; and (iii) a postal tracking and
tracing system for the Brazilian Postal Service. The installations described
above involved prior versions of the Company's systems.
In 1995, the Company completed the development of its third-generation
system, the EnWorks(TM) product family, consisting of state-of-the-art, real
time, integrated electronic security systems. The Company invested four years
and over $5 million in the development of the flagship product in the
EnWorks(TM) family: the En2000(TM) system. The Company began marketing this
system in 1995 and in early 1995 the Company was selected by the Port Authority
of New York and New Jersey through a competitive bid process to provide the new
integrated access control for the parking facilities located in the World Trade
Center. In 1995, the Company entered into contracts to install eight additional
En2000(TM) systems, including a contract from EDS to install the En2000(TM) in
EDS's corporate headquarters in Plano, Texas. In the first fiscal quarter of
1996, the Company entered into contracts to install four En2000(TM) systems. In
addition, the Company currently has 55 service and maintenance contracts with
customers who have purchased Company products, covering 150 installations.
The foundation of the Company's systems is proprietary software which
permits the integration of various security mechanisms into a unified system
operating through the use of graphical user interfaces ("GUI"s) and distributive
intelligence. Distributive intelligence is a means by which individual
components of integrated security system can process information independently
so that such components may continue to operate even when a particular component
elsewhere in the system malfunctions or is rendered inoperative. In addition, an
integrated security system which implements distributive intelligence can
operate more efficiently because individual components are able to complete
independent tasks simultaneously. The Company's systems have the ability to
integrate the following functions based on the customer's specific needs: access
control, alarm monitoring, vehicle tracking, postal tracking and tracing, time
and attendance, guard tours, restaurant revenue reporting, elevator control,
facilities management, parking facility control, CCTV and video badging. To
provide these functions, the Company's systems integrate and enable
communication between security components obtained from third parties such as
identification devices, entry devices, surveillance devices, fire alarms, CCTV,
video imaging and data security software.
1
<PAGE>
Pursuant to a Share Escrow Agreement between the Underwriter and
Charles N. Finkel, the Company's President, Chief Executive Officer and
beneficial owner of all shares of Common Stock outstanding immediately prior to
the Offering, Mr. Finkel agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of any of his shares for a period of 18
months after the date of this Prospectus, without the Underwriter's consent. In
addition, Mr. Finkel has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of 800,000 shares of Common Stock
beneficially owned by him for a period of ten years after the date of this
Prospectus, without the Underwriter's consent; provided, however, that such
restrictions will be released with respect to 500,000 of such shares if the
Company reports income before income taxes in excess of $7,000,000 in fiscal
1997 and with respect to the remaining 300,000 shares if the Company reports
income before income taxes in excess of $13,000,000 in fiscal 1998. The
Underwriter may, in its sole discretion, and at any time without notice, release
all or any portion of the shares owned by Mr. Finkel from such restrictions. See
"Shares Eligible for Future Sale."
The Company, a Florida corporation, was formed in April 1996 as a
holding company for Ensec Inc., a Florida corporation ("Ensec Inc."), and Ensec-
Engenharia Sistemas de Seguranca, S.A., a Brazilian corporation ("Ensec, S.A.").
Ensec, S.A. was founded in 1983 by Charles N. Finkel, the Company's President
and Chief Executive Officer. In 1991, Ensec, S.A. established its U.S.
operations with the formation of Ensec Inc. The Company's principal
administrative offices are located in Boca Raton, Florida and Sao Paulo, Brazil.
The Company maintains a regional sales office in New York City. The Company's
principal executive offices are located at 751 Park of Commerce Drive, Suite
104, Boca Raton, Florida 33487, telephone number (561) 997-2511.
2
<PAGE>
<TABLE>
<CAPTION>
The Offering
<S> <C>
Securities offered......... 1,600,000 shares of Common Stock and Redeemable
Warrants to purchase 1,600,000 shares of Common
Stock. See "Description of Securities" and
"Underwriting."
Offering price(1).......... $6.25 per share of Common Stock and $.10 per
Redeemable Warrant.
Common Stock outstanding:
Prior to the Offering...... 3,500,000 shares of Common Stock
After the Offering(2)...... 5,350,000 shares of Common Stock
Redeemable Warrants
outstanding after the
Offering(3)............... 1,600,000 Redeemable Warrants.
Exercise price of Redeemable $7.00 per share, subject to adjustment in certain
Warrants offered hereby.... circumstances. See "Description of
Securities--Redeemable Warrants."
Exercise period of The four-year period commencing one year after the
Redeemable Warrants date of this Prospectus (or earlier with the prior
offered hereby written consent of the Underwriter).
Redemption of Redeemable
Warrants................. Redeemable by the Company at any time commencing
12 months after the date of this Prospectus (or
earlier with the prior written consent of the
Underwriter) on not less than 30 days prior
written notice to the holders of the Redeemable
Warrants, provided the average closing bid
quotation of the Common Stock as reported on the
Nasdaq-SCM, if traded thereon, or if not traded
thereon, the average closing sale price of the
Common Stock if listed on a national securities
exchange (or other reporting system that provides
last sale prices), has been at least 150% of the
then current exercise price of the Redeemable
Warrants (initially, $10.50 per share), for a
period of 20 consecutive trading days ending on
the third day prior to the date on which the
Company gives notice of redemption. The Redeemable
Warrants will be exercisable until the close of
business on the day immediately preceding the date
fixed for redemption. See "Description of
Securities--Redeemable Warrants."
Use of Proceeds............ The net proceeds to the Company, aggregating
approximately $8,489,000, will be applied to repay
short-term indebtedness, including that incurred
in the Bridge Financing, in the amount of
$3,874,000, research and development activities,
increasing sales and marketing effort and the
balance for working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors............... The securities offered hereby involve a high
degree of risk and substantial immediate dilution
to new investors. Only investors who can bear the
risk of their entire investment should invest.
See "Risk Factors" and "Dilution."
Proposed NASDAQ symbols.... Common Stock -- "ENSC"
Redeemable Warrants -- "ENSW"
</TABLE>
- ----------
(1) Represents the average of the range of the estimated initial public
offering price per share.
(2) Includes 1,600,000 shares of Common Stock offered hereby and 250,000 shares
of Common Stock issuable upon the consummation of this Offering upon
exercise of the Bridge Warrants. Excludes (i) 190,000 shares of Common
Stock issuable by the Company and 50,000 shares of Common Stock to be sold
by the Selling Stockholder upon exercise of the Underwriter's
3
<PAGE>
Over-allotment Option in full; (ii) 1,840,000 shares of Common Stock
reserved for issuance upon exercise of the Redeemable Warrants, including
those issuable upon exercise of the Underwriter's Over-allotment Option;
(iii) 320,000 shares of Common Stock reserved for issuance upon exercise of
the Underwriter's Warrants and the Redeemable Warrants included therein;
(iv) 173,040 shares reserved for issuance pursuant to warrants issued to
Corporate Builders, L.P. (the "Corporate Builders Warrants"); and (v)
450,000 shares issuable upon the exercise of stock options which may be
granted pursuant to the Company's 1996 Stock Option Plan (the "Plan"). See
"Management--1996 Stock Option Plan," "Certain Relationships and Related
Transactions," and "Underwriting."
(3) Includes 1,600,000 Redeemable Warrants offered hereby. Excludes (i)
160,000 Underwriter's Warrants, (ii) 160,000 Redeemable Warrants issuable
upon exercise of the Underwriter's Warrants and (iii) 240,000 Redeemable
Warrants issuable upon exercise of the Underwriter's Over-allotment Option.
4
<PAGE>
Summary Consolidated Financial Information
(in thousands of U.S. dollars, except per share data)
The summary financial data set forth below is derived from and should be read in
conjunction with the audited financial statements, including the notes thereto,
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------------------------------- -------------------------------
1994 1995 1995 1995 1996
Pro Forma(8)
------- ------- ------------ ------------ ------------
(Unaudited) (Unaudited)
Consolidated Operating Data:
<S> <C> <C> <C> <C> <C>
Sales $ 11,119 $ 11,457 $ 8,561 $ 3,467 $ 3,391
----------- ----------- ----------- ----------- -----------
Gross profit 7,486 3,793 2,215 1,207 1,041
Selling, general and
administrative expenses 5,094 6,272 5,376 1,893 1,088
Translation loss (gain) 2,046 1,268 1,268 (676) (124)
Other (income) expenses
Interest income (1,614) (648) (648) (219) (41)
Interest expense 508 2,520 2,520 251 349
Net other (income) expense 593 395 395 145 10
Gain on sale of division ---- (1,491) ---- ---- ----
----------- ----------- ----------- ----------- -----------
Net earnings (loss) $ 234 $ (2,764) $ (5,287) $ (212) $ (283)
=========== =========== =========== =========== ===========
Net earnings (loss) per share(1) $ .06 $ (.96) $ (1.33) $ (.05) $ (.07)
=========== =========== =========== =========== ===========
Supplemental pro forma
net loss(2) $ (2,764) $ (20)
=========== ===========
Supplemental pro forma
net loss per share(2) $ (.65) $ (.01)
=========== ===========
<CAPTION>
December 31, March 31, 1996 (unaudited)
----------------------------------- -------------------------------------------
1994 1995 Actual Pro forma(3) As Adjusted(4)(5)(6)(7)
----------- ----------- ------------ ------------ -----------------------
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 1,489 $ (1,505) $ (2,547) $ (2,199) $ 5,590
Total assets 12,123 11,346 12,036 12,957 17,155
Current liabilities 3,783 6,015 7,530 7,887 4,512
Long-term debt,
less current portion 1,696 3,209 2,624 2,542 2,542
Stockholders' equity 5,621 1,803 1,520 2,166 9,739
</TABLE>
5
<PAGE>
(1) Net loss per share is computed based on the weighted average number of
shares of Common Stock outstanding for each period. For purposes of
computing net loss per share and pursuant to Commission requirements,
options, warrants and Common Stock granted or issued by the Company during
the 12 month period preceding the date of the Offering at a price below
the anticipated Offering Price to Public of $6.25 per share have been
included in the determination of the weighted average number of shares
outstanding using the treasury stock method.
(2) The supplemental pro forma net loss and loss per share reflect the issuance
of shares necessary to retire $1,877,000 of short-term notes payable and
the resulting decrease in net loss in the amounts of $1,054,000 and
$264,000 for the year ended 1995 and three months ended March 31, 1996,
respectively, as of the beginning of the period presented. The calculation
is based on the weighted average shares outstanding used in the calculation
of earnings per share, adjusted for the number of estimated shares that
would be issued by the Company, i.e., 300,320 shares at $6.25 per share, to
retire these obligations. See Note A in Notes to Consolidated Financial
Statements.
(3) Pro forma financial information gives effect to the $2,500,000 Bridge
Financing completed in May 1996, net of discount of $725,000 and offering
costs of $270,297, of which $78,400 were attributable to the Bridge
Warrants and $191,897 were attributable to the 10% Senior Subordinated
Notes. The discount is attributable to the deemed value of the Bridge
Warrants as of the date of the Bridge Financing. The Bridge Financing is
expected to be repaid from the proceeds of this Offering and the Bridge
Warrants will be exercised in conjunction with such repayment. See "Use of
Proceeds."
(4) Adjusted to reflect the sale of 1,600,000 shares of Common Stock and
1,600,000 Redeemable Warrants offered hereby and the exercise of the Bridge
Warrants. See "Use of Proceeds" and "Capitalization."
(5) Does not include up to (i) 190,000 shares of Common Stock issuable by the
Company and 50,000 shares of Common Stock to be sold by the Selling
Stockholder upon exercise of the Underwriter's Over-allotment Option in
full; (ii) 1,840,000 shares of Common Stock reserved for issuance upon
exercise of the Redeemable Warrants, including those issuable upon exercise
of the Underwriter's Over-allotment Option in full; (iii) 320,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the Redeemable Warrants included therein; (iv) 173,040 shares
reserved for issuance pursuant to warrants issued to Corporate Builders,
L.P. (the "Corporate Builders Warrants"); and (v) 450,000 shares issuable
upon the exercise of stock options granted pursuant to the Plan. See
"Management--1996 Stock Option Plan," "Certain Relationships and Related
Transactions," and "Underwriting."
(6) After giving effect to (i) the Underwriter's discount ($1,016,000); (ii) a
non-accountable expense allowance ($304,800), of which $50,000 has been
paid by the Company to date; and (iii) an estimated $375,000 of other fees
and expenses incurred in connection with this Offering, including printing,
professional and other miscellaneous fees.
(7) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount on the Bridge Financing which will be recognized as
interest expense upon the repayment thereof.
(8) Adjusted to reflect the sale and discontinuance of operations of the
Company's currency sorting equipment division net of tax effect as if it
occurred on December 31, 1994. See Note M in Notes to Consolidated
Financial Statements.
6
<PAGE>
RISK FACTORS
THE PURCHASE OF COMMON STOCK AND/OR REDEEMABLE WARRANTS IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE
RISK FACTORS DESCRIBED BELOW. COMMON STOCK OR REDEEMABLE WARRANTS SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND CONSIDER THE FOLLOWING RISKS
AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
1. Potential for Future Losses; Accumulated Deficit
For the fiscal year ended December 31, 1995, the Company experienced a net
loss of $3,818,000, and as of March 31, 1996 had an accumulated deficit of
$1,950,000. The Company anticipates continued losses for the foreseeable
future. The Company's operating results for future periods are subject to
numerous uncertainties. The Company anticipates significant expenses in its
foreseeable future, including research and development expenses, marketing
costs, general administrative expenses and capital expenditures. Because the
Company anticipates incurring significant expenses in connection with the
continued development and marketing of its products, there can be no assurance
that the Company will achieve sufficient revenues to offset anticipated
operating costs. Inasmuch as the Company will continue to have high levels of
operating expenses and will be required to make significant expenditures in
connection with its continued research and development activities, the Company
may experience significant operating losses that could continue until such time,
if ever, that the Company is able to generate sufficient revenues to support its
operations. There can be no assurance that the Company's technology and products
will be able to compete successfully in the marketplace and/or generate
significant revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2. Working Capital Deficit; Banking Relationships
The Company's capital requirements in connection with its development and
marketing activities will continue to be significant. As of March 31, 1996, the
Company had a working capital deficit of $2,547,000. While the application of
the anticipated net proceeds from this Offering will eliminate such working
capital deficit, the Company has no current arrangements with respect to sources
of additional financing. Ensec, S.A. maintains various credit facilities with a
number of Brazilian banks, and relies in large part on those credit facilities
for its current working capital. All of Ensec, S.A.'s borrowings with respect
to its working capital credit facilities are of a short-term nature. Ensec,
S.A.'s lenders have, in the past, renewed the credit facilities on a regular
basis on substantially similar terms and conditions as existing credit
facilities. Due to the current instability of the Brazilian economy and the
Brazilian banking system, however, there can be no assurance that Ensec, S.A.'s
lenders will continue to renew Ensec, S.A.'s credit facilities, under any
conditions. To the extent certain existing lenders may determine not to renew
or may determine to reduce any line of credit extended to Ensec, S.A.,
management believes that lines of credit with other banks can be negotiated to
replace any lost credit availability. However, there can be no assurance that
additional financing will be available to the Company or to Ensec, S.A. on
commercially reasonable terms, or at all. The inability to obtain additional
financing, when needed, could have a material adverse effect on Ensec, S.A. and
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
3. Dependence on Significant Customers and Suppliers
Although the composition of the Company's largest customers has changed
from year to year, historically the Company's revenues have been materially
dependent on a limited number of customers. The number of customers which each
accounted for five percent or more of the Company's revenues was 17 in 1994 and
15 in 1995. See Note A in Notes to Consolidated Financial Statements. While
management expects the Company's customer base to continue to expand, a limited
number of large orders may continue to account for a significant portion of the
Company's sales during any given period for the foreseeable future. As such,
the Company's financial condition and results of operations may be adversely
affected by a delay, reduction or cancellation of orders from one or more of its
significant customers or the loss of one or more of such customers.
The Company currently relies on a limited number of suppliers of components
and other parts for its security systems. Failure or delay by the Company's
suppliers in fulfilling its anticipated needs would adversely affect the
Company's ability to deliver and market its products. The Company may have
difficulty in obtaining alternative contractual agreements with the suppliers of
such materials due to, among other things, possible material shortages or
possible lack of adequate purchasing power. However, management believes that
the Company's component and parts needs are available from multiple sources.
7
<PAGE>
4. Product Concentration
Sales of the EnWorks(TM) family of products and enhancements represented
63.5% of Company revenues in 1995 and are expected to continue to account for a
substantial portion of the Company's sales for the foreseeable future. The
remaining revenues were generated from sales and service of other products. Any
factors materially adversely affecting the Company's EnWorks(TM) family of
products, such as the introduction of superior competitive products or shifts in
the needs of the marketplace, would have a material adverse effect on the
Company's financial condition and results of operations. See "Business--Products
and Services."
5. Evolving Market; New Product Development; Technological Obsolescence
The markets for the technology and products being developed by the Company
are characterized by evolving industry requirements which may result in product
or technology obsolescence. As a result, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar, or superior, to some or all of those being developed by
the Company. As a result of all of the above, the ability of the Company to
compete will depend on its ability to develop and introduce to the marketplace
in a timely and cost-competitive manner its products and technology, and to
continually enhance and improve such products and technology, and to adapt its
products to be compatible with specific products manufactured by others. There
can be no assurance that the Company will be able to compete successfully, that
its competitors or future competitors will not develop technologies or products
that render the Company's products and technology obsolete or less marketable or
that the Company will be able to successfully enhance its products or technology
or adapt them satisfactorily. See "Business--Integrated Security Systems."
New product development efforts are subject to all of the risks inherent in
the development of new technology and products (including unanticipated delays,
expenses, technical problems or difficulties, as well as the possible
insufficiency of funding to complete development). There can be no assurance as
to when, or whether, such additional developments will be successfully
completed. No assurance can be given that additional technologies and prototypes
can be developed within a reasonable development schedule, if at all. Although
the Company believes it has sufficient information to allow the completion of
development of these products, there can be no assurance that the Company would
have sufficient economic or human resources to complete such development in a
timely manner, or at all, or that it could enter into economically reasonable
arrangements for the completion of such products by third parties.
Following the completion of additional products, the Company must
successfully complete a testing program for the products before they can be
marketed. Although management believes that its testing program is highly
sophisticated, unforeseen technical problems arising out of such testing could
significantly and adversely affect the Company's ability to manufacture and
market a commercially acceptable version. In addition, the Company's success
will depend upon its current and proposed technologies and products meeting
acceptable cost and performance criteria in the marketplace. There can be no
assurance the technologies and products will meet applicable price or
performance objectives or that unanticipated technical or other problems will
not occur which would result in increased costs or material delays. Also, there
can be no assurance that new technologies will not developed in the future by
the Company or its competitors which would render the Company's present software
obsolete, and thus would negatively impact capitalized software costs.
6. Product Protection and Infringement
The Company relies on a combination of patent, trade secret, copyright and
trademark laws, together with non-disclosure agreements, to establish and
protect proprietary rights in its EnWorks(TM) products. These measures afford
limited protection, and there can be no assurance that the steps taken by the
Company to protect these proprietary rights will be adequate to prevent
misappropriation of its technology or the independent development by others of
similar technology. In addition, the laws of Brazil, where the Company maintains
its patents and copyrights, and has pending patent applications, do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. The Company is seeking copyright protection under United States law with
respect to some of its technology. While the Company believes that it would be
impractical and not cost-effective for anyone to attempt to copy complex
software and controlling hardware such as that used in the EnWorks(TM) products,
unauthorized parties, nevertheless, might attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. The cost of enforcement by the Company of its information rights
could be significant, regardless of the outcome of such enforcement proceedings.
In addition, although the Company believes that there are no infringement claims
against the company and no grounds for the assertion of such claims, the cost of
responding to any such assertion, should be it made, could be significant. See
"Business--Intellectual Property Rights."
8
<PAGE>
7. Competition
The Company's products compete with those of numerous well-established
companies, such as Sensormatic, Casi-Rusco, The Pittston Brinks Group, ADT, IBM,
Diebold, Pittway, Inc., Johnson Controls and Honeywell, among others, which
design, manufacture or market integrated security systems or other security
products. Many of these companies have substantially greater financial,
technical, personnel and other resources than the Company and have established
reputations for success in the development, licensing, sale and service of their
products and technology. Certain of these competitors dominate their industries
and have the financial resources necessary to enable them to withstand
substantial price competition or downturns in the market for integrated security
systems and related products. In addition, many of the Company's sales of its
products are anticipated to be through the competitive bid process. There can be
no assurance that the Company will be awarded contracts or purchase orders for
its products as a result of such bid process. See "Business--Products and
Services" and "Business--Competition."
8. Dependence on Charles N. Finkel; Retention of Key Personnel
The Company's operations are materially dependent upon the services of
Charles N. Finkel, its founder, President and Chief Executive Officer. The loss
of the services of Mr. Finkel would materially and adversely affect the
Company's business. The Company has obtained term life insurance on the life of
Mr. Finkel providing a death benefit to the Company of $2,000,000. The Company
has an employment agreement with Mr. Finkel, which includes non-competition
provisions. The success of the Company is also dependent upon its ability to
hire and retain additional qualified executive, technical and marketing
personnel. There can be no assurance that the Company will retain the members of
its current management or that it will successfully attract and retain qualified
management, engineering and sales personnel in the future. See "Management."
9. Challenges of Growth
Marketing may outdistance sales and service capabilities. The Company
anticipates a period of rapid growth that is expected to place a strain on the
Company's administrative, financial and operational resources. While the
Company's key technological personnel have worked together since 1992, the
Company's executive management team has worked together for only a brief period.
The Company's ability to manage its staff and facilities growth effectively will
require it to continue to improve its operational, financial and management
controls, reporting systems and procedures, to install new management
information and control systems and to train, motivate and manage its employees.
There can be no assurance that the Company will install such management
information and control systems in an efficient and timely manner or that the
new systems will be adequate to support the Company's operations. Because of
the complexity of its products, the Company has in the past experienced and
expects in the future to experience a time lag between the date on which
technical and sales personnel are hired and the time at which such persons
become fully productive. In addition, the success of a customer's project could
be substantially affected by the quality of the Company's post-sales
implementation process and, in many cases, its maintenance and service
capabilities. If the Company is unable to hire, train and retain qualified
systems engineers and consultants to implement these services or is unable to
manage the post-sales process effectively, its ability to attract repeat sales
or referenceable accounts could be adversely affected, which could be a limiting
factor to the Company's growth opportunities. If the Company's management is
unable to manage growth effectively including, if the Company's sales and
marketing efforts exceed its capacity to install, maintain and service its
products, and new employees are unable to achieve performance levels, the
Company's business, operating results and financial condition could be adversely
affected.
The Company intends to expand its operations into new international markets
which will require significant management attention and financial resources.
There can be no assurance that the Company's efforts to develop international
sales and support channels will be successful. International sales are subject
to a number of risks, including longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, the burden of
complying with a variety of foreign laws, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, currency
fluctuations and political and economic instability. Additionally, the
protection of intellectual property may be more difficult to enforce outside of
the United States. In the event that the Company is successful in expanding its
international operations, the imposition of exchange or price controls or other
restrictions on foreign currencies and seasonality could materially affect the
Company's business, operating results and financial condition.
10. Lengthy Sales Cycle
The sale of the Company's products typically involves a significant
technical evaluation and commitment of capital and other resources, with the
attendant delays frequently associated with customers' internal procedures to
approve large capital expenditures and to test and accept new technologies that
affect key operations. For these and other reasons, the sales cycle associated
with the Company's products is typically lengthy and subject to a number of
significant risks, including customers' budgetary constraints and internal
acceptance reviews, that are beyond the Company's control. Because of the
lengthy sales cycle and the large size of customer orders,
9
<PAGE>
if revenues forecasted from a specific customer for a particular quarter are not
realized in that quarter, the Company's operating results for that quarter could
be materially adversely affected.
11. Political, Economic and Social Conditions in Brazil
While the Company intends to shift more of its operations and sales to the
United States, a significant amount of its business will continue to be based in
Brazil for the foreseeable future. See Notes A and O in Notes to Consolidated
Financial Statements. The Brazilian market in which the Company operates is
characterized by volatile and frequently unfavorable economic, political and
social conditions. See Notes A and O in Notes to Consolidated Financial
Statements. High inflation and, with it, high interest rates are common.
Inflation has declined but continues to be high in Brazil. In 1995, the per
annum inflation rate was approximately 22% in Brazil (compared to in excess of
900% in 1994). Brazil has also experienced significant currency fluctuations.
See "--Currency Fluctuations."
Inflation adversely impacts the Company in many ways. In particular, if
contract revenues are fixed and rise more slowly than costs or are otherwise not
adjusted for inflation, inflation can erode purchasing power and thereby
adversely affect sales. Margins diminish if product prices fail to keep pace
with increases in supply and material costs. While the Company has been able in
most recent years to increase prices in local currency terms overall at least as
much as inflation, net sales in local currency terms may nevertheless remain
flat or decrease if, among other things, inflation diminishes purchasing power.
Although the Company expects that prices will generally keep pace with inflation
in the immediate future, there is no assurance that sales volume will not
decline or that supply and material costs will not rise more rapidly than
prices. See "--Currency Fluctuations" regarding the impact of devaluations on
net sales in dollars.
The government of Brazil has historically exercised substantial influence
over many aspects of its economy. In recent years, the government of Brazil has
implemented important measures to improve its economy, although the current
climate in Brazil may create significant uncertainty as to future economic,
fiscal and tax policies.
The Brazilian government has had some success in controlling inflation,
although there can be no assurance that this will continue. In addition, in
recent years there have been allegations of government improprieties which may
have adversely affected its ability to implement a successful economic program.
Midway through 1994, the Government of Brazil launched an economic stabilization
program, the Real Plan, which improved economic conditions in Brazil and created
a new currency, the real. Inflation, which had been at double-digit monthly
rates, began to decrease, purchasing power improved and the consumption of goods
and services began to increase. Since December 1994, however, the Brazilian
real has depreciated slightly. See "--Currency Fluctuations." The Company is
not able to predict the long-term effects that the Real Plan and related
economic measures may have upon the Brazilian economy and financial markets and
the real/U.S. dollar exchange rate in general, or upon the Company. In
addition, although the inflation rate in Brazil has declined significantly since
the adoption of the Real Plan, there can be no assurance that the Company's
operations in Brazil will not be adversely affected by renewed hyperinflation.
In view of the foregoing, potential investors should recognize that the
Company's business, earnings, asset values and prospects may be materially and
adversely affected by developments with respect to inflation, interest rates,
currency fluctuations, government policies, price and wage controls, exchange
control regulations, taxation, expropriation, social instability, and other
political, economic or diplomatic developments in or affecting Brazil. Although
the Company has been able to operate successfully in Brazil for over 12 years,
it has no control over such conditions and developments, and can provide no
assurance that such conditions and developments will not adversely affect the
Company's operations or the price of or market for the offered Securities.
12. Currency Fluctuations
As a general matter, because the Company's consolidated cash flow from
operations is generated in material part in the currency of Brazil, the Company
is subject to the effects of fluctuations in the value of the real. Brazil has
historically experienced significant currency fluctuations relative to the U.S.
dollar. The magnitude of the recent fluctuations has diminished, and the
exchange rate of the Brazilian real was 0.85 reals per U.S. dollar at December
31, 1994, compared to 0.97 reals per U.S. dollar at December 31, 1995. Such
fluctuations have generally not adversely affected the profitability of Ensec,
S.A., as substantially all costs of sales and expenses are incurred in the real.
However, in some cases, such fluctuations, particularly depreciations which are
accompanied by high inflation and declining purchasing power, can adversely
affect sales as well as income to the Company and its stockholders. Because the
Company's financial statements are prepared in dollars, net sales (and other
financial statement accounts, including net income) tend to increase when the
rate of inflation in each country has exceeded the rate of depreciation against
the U.S. dollar. Alternatively, net sales and other financial statement accounts
generally are adversely affected if and to the extent that the rate of
depreciation exceeds the rate of inflation in any period. In addition, when
dividends are distributed to the Company by Ensec, S.A., the payments are
converted from reals to U.S.
10
<PAGE>
dollars, and any future fluctuations of local currencies relative to the U.S.
dollar could result in a loss of dividend income to the Company and ultimately
to the Company's stockholders.
In periods of high inflation and interest rates, borrowings denominated in
the real are more costly, while borrowings indexed to the U.S. dollar or other
foreign currencies place the risk of depreciation on the borrower. In periods of
fluctuation, dollar denominated borrowings can generate income statement losses
or charges against stockholders' equity. The Company could be further adversely
affected by a devaluation in the real if it becomes necessary to increase
indebtedness in order to finance capital expenditures or for other purposes.
Currency translation gains and losses may contribute to fluctuations in the
Company's results of operations. The Company has engaged in currency hedging
transactions on a limited basis and in the future may undertake currency hedging
to reduce currency exposure, although there can be no assurance that hedging
transactions, if entered into, would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
13. No Anticipated Dividends; Reliance on Subsidiaries
Payment of dividends on the Common Stock is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock in the
foreseeable future. See "Dividends."
As a holding company, the Company's ability to pay operating expenses, any
debt service obligations and dividends materially depends upon receipt of
sufficient funds from its subsidiaries. Brazil does not currently restrict the
remittance of dividends paid by Ensec, S.A. to the Company, although Brazil has
laws in effect which provide limitations on the exchange of local currency for
foreign currency at official rates of exchange. Brazil has imposed more
restrictive exchange controls in the past, and no assurance can be given that
more restrictive exchange control policies, which could adversely affect the
ability of Ensec, S.A. to pay dividends to the Company, will not be imposed in
the future. The payment of dividends by Ensec, S.A. is also in certain
instances subject to statutory restrictions or restrictive covenants in debt
instruments and is contingent upon the earnings and cash flow of and permitted
borrowings by Ensec, S.A.
14. Product Liability
The Company's products contain software that may contain software errors or
defects, especially when first introduced or when new versions or enhancements
are released. Although to date such defects and errors have not materially
adversely affected the Company's operating results, there can be no assurance
that, despite testing by the Company and by current and potential customers,
defects and errors will not be found in new products or in new versions or
enhancements of existing products. Such discovery could result in adverse
customer reaction, negative publicity regarding the Company or its products or
delay in or failure to achieve market acceptance, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. While neither Ensec, S.A. nor Ensec Inc. has experienced
any product liability claims to date, there can be no assurance that such claims
will not be made in the future. Ensec Inc. maintains product liability
insurance in the aggregate amount of $1,000,000 per year and has additional
excess liability insurance in the amount of $5,000,000 for liability in excess
of its initial $1,000,000 of coverage. Ensec, S.A. maintains no product
liability insurance coverage. A successful claim against Ensec Inc. in excess
of such coverage or against Ensec, S.A. could have a material adverse effect on
the Company. See "Business."
15. No Prior Public Market; Possible Volatility of Stock Price
Prior to this Offering, there has been no public market for the Company's
Common Stock or Redeemable Warrants. Accordingly, there can be no assurance that
an active trading market will develop or be sustained subsequent to this
Offering. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Underwriter and may not be
indicative of the prices that may prevail in the public market. The Company has
applied to have the Common Stock and Redeemable Warrants quoted on the Nasdaq-
SCM, but there is no assurance that the Company's future operating results will
enable it to remain eligible for quotation on the Nasdaq-SCM. If the Company is
unable to satisfy such maintenance criteria in the future, the Common Stock and
the Redeemable Warrants may be delisted from trading on the Nasdaq-SCM and/or
the Boston Stock Exchange, as the case may be, and consequently an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Company's Securities and the Redeemable Warrants would no
longer be redeemable. This stock market generally, and the technology sector in
particular, have experienced and are likely in the future to experience
significant price and volume fluctuations which could adversely affect the
market price of the Common Stock without regard to the significant fluctuations
in response to variations in quarterly operating results, shortfalls in sales or
earnings below analyst estimates, developments in the electronics and security
industries, stock market conditions and other factors. There can be no assurance
that the market price of the Common Stock will not experience significant
fluctuations or decline below the initial public offering price. In addition,
the Underwriter has agreed to serve as the Company's agent for the solicitation
of future exercises of the Redeemable Warrants. If such a solicitation is viewed
as aiding a distribution of Common
11
<PAGE>
Stock, the Underwriter will be prohibited by applicable securities laws from
making a market in the Common Stock for the period from nine days prior to the
commencement of the future exercise solicitation activity until completion of
the Underwriter's participation in that distribution effort. Such an abstention
from making a market in the Company's Common Stock could adversely affect its
market price. See "Underwriting."
16. Control of the Company
Immediately following the Offering, Charles N. Finkel will control the vote
of approximately 65.4% of the outstanding shares of Common Stock (without giving
effect to the possible exercise of the Underwriter's Over-allotment Option, the
Underwriter's Warrants, the Redeemable Warrants, the Corporate Builders Warrants
or options granted under the Plan), which, among other things, will allow Mr.
Finkel to elect the entire class of directors to be elected from time to time.
Such concentration of ownership could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock,
and could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. See "Principal and Selling Stockholders."
17. Broad Discretion in Application of Proceeds; Repayment of Debt.
Approximately $3,315,000 (39.1%) of the estimated net proceeds of this
Offering have been allocated to working capital and general corporate purposes.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. In addition, approximately $3,874,000 (45.6%) of the proceeds of
this Offering will be used to repay indebtedness and related interest, including
indebtedness incurred in connection with the Bridge Financing, and accordingly,
such funds will not be available to fund future growth. See "Use of Proceeds."
18. Shares Eligible for Future Sale
Upon completion of this Offering, the Company will have outstanding
5,350,000 shares of Common Stock, after giving effect to the 250,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants but without giving
effect to shares of Common Stock issuable upon exercise of (i) the Redeemable
Warrants, (ii) the Underwriter's Warrants, (iii) the Underwriter's Over-
allotment Option, (iv) the Corporate Builders Warrants, or (v) options granted
under the Plan. Of such 5,350,000 shares of Common Stock, 1,850,000 shares,
consisting of 1,600,000 shares to be sold by the Company in this Offering plus
250,000 shares to be issued upon exercise of the Bridge Warrants (plus any
additional shares sold upon the exercise of the Underwriter's Over-allotment
Option), will be freely tradeable without restriction or further registration
under the Act, except for any shares held by "affiliates" of the Company within
the meaning of the Act which shares will be subject to the resale limitations of
Rule 144 promulgated under the Act. The Bridge Investors have agreed with the
Underwriter not to sell or otherwise dispose of any of the shares of Common
Stock issuable upon exercise of the Bridge Warrants for a period of twelve
months after the date of the consummation of the Offering and exercise of the
Bridge Warrants without the written consent of the Underwriter.
The remaining 3,500,000 shares (the "Restricted Shares") were issued by the
Company in private transactions in reliance upon one or more exemptions
contained in the Act. The Restricted Shares are deemed to be "restricted
securities" within the meaning of Rule 144 promulgated pursuant to the Act and
may be publicly sold only if registered under the Act or sold pursuant to
exemptions therefrom. As of the date of this Prospectus, all of the Restricted
Shares will have been held for more than two years and are eligible for public
sale in accordance with the requirements of Rule 144, as described below. Mr.
Charles N. Finkel, President and Chief Executive Officer of the Company and
beneficial owner of all shares of Common Stock outstanding immediately prior to
the Offering, however, has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of any of his shares for a period of 18
months after the date of this Prospectus, without the Underwriter's consent. In
addition, Mr. Finkel has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of 800,000 of the shares of Common Stock
beneficially owned by him for a period of ten years after the date of this
Prospectus, without the Underwriter's consent; provided, however, that such
restrictions will be released with respect to 500,000 of such shares if the
Company reports income before income taxes in excess of $7,000,000 for fiscal
1997 and with respect to the remaining 300,000 shares if the Company reports
income before income taxes in excess of $13,000,000 for fiscal 1998. See
"Shares Eligible for Future Sale" and "Underwriting."
12
<PAGE>
19. Dilution
This Offering involves immediate dilution of $4.43 per share between the
adjusted net tangible book value per share after the Offering and the per share
public offering price of $6.25 attributable to the Common Stock. See
"Dilution."
20. Effect of Issuance of Common Stock Upon Exercise of Redeemable Warrants
Immediately after the Offering, assuming full exercise of the Underwriter's
Over-allotment Option, the Company will have outstanding Redeemable Warrants to
purchase an aggregate of up to 2,000,000 shares of Common Stock, including the
Redeemable Warrants and the Redeemable Warrants issuable upon the exercise of
Underwriter's Warrants. The Company has agreed to use reasonable efforts to file
and maintain, so long as the Redeemable Warrants offered hereby are exercisable,
a current registration statement with the Commission relating to the Redeemable
Warrants offered hereby and the shares of Common Stock underlying such
Redeemable Warrants. In addition, the Underwriter has certain demand and
"piggyback" registration rights with respect to the shares of Common Stock and
the Redeemable Warrants underlying the Underwriter's Warrants (and the shares of
Common Stock underlying such Redeemable Warrants).QS
The exercise of such Redeemable Warrants and the sale of the underlying
shares of Common Stock (or even the potential of such exercise or sale) may have
a depressive effect on the market price of the Company's Securities. Moreover,
the terms upon which the Company will be able to obtain additional equity
capital may be adversely affected because the holders of the outstanding
Redeemable Warrants can be expected to exercise them, to the extent they are
able to, at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided in
the Redeemable Warrants. See "Description of Securities" and "Underwriting."
21. Current Prospectus and State Registration Required to Exercise Redeemable
Warrants
Purchasers of the Redeemable Warrants in this Offering will not be able to
exercise them unless at the time of exercise a current prospectus under the Act,
covering the shares of Common Stock issuable upon exercise of the Redeemable
Warrants is effective and such shares have been qualified or are exempt from
qualification under the applicable securities or "blue sky" laws of the states
in which the various holders of the Redeemable Warrants then reside. Although
the Company has undertaken to use reasonable efforts to maintain the
effectiveness of a current prospectus covering the Common Stock underlying the
Redeemable Warrants, no assurance can be given that the Company will be able to
do so. The value of the Redeemable Warrants may be greatly reduced if a current
prospectus covering the Common Stock issuable upon the exercise of the
Redeemable Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the states in which the holders of the
Redeemable Warrants then reside. See "Description of Securities--Redeemable
Warrants."
22. Adverse Effect of Possible Redemption of Redeemable Warrants
The Redeemable Warrants are subject to redemption by the Company at a price
of $.10 per each, commencing on the date twelve months from the date of this
Prospectus (or earlier with the prior written consent of the Underwriter) on at
least 30 days written notice, if the average closing price of the common Stock
equals or exceeds $10.50 for 20 consecutive trading days ending on the third day
prior to the notice of redemption. If the Redeemable Warrants are redeemed,
holders of the Redeemable Warrants will lose their right to exercise the
Redeemable Warrants, except during such 30-day notice of redemption period.
Upon the receipt of a notice of redemption of the Redeemable Warrants, the
holders thereof would be required to (i) exercise the Redeemable Warrants and
pay the exercise price at a time when it may be disadvantageous for them to do
so; (ii) sell the Redeemable Warrants at the then market price, if any, when
they might otherwise wish to hold the Redeemable Warrants; or (iii) accept the
redemption price, which is likely to be substantially less than the market value
of the Redeemable Warrants at the time of redemption. See "Description of
Securities--Redeemable Warrants."
23. Tax Loss Carryforwards
At December 31, 1995, the Company had available unused net operating loss
carryforwards ("NOLs") aggregating approximately $3,617,119 to offset future
taxable income under U.S. tax laws. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the "Code"), utilization of prior NOLs is limited
after an ownership change, as defined in such Section 382, to an amount equal to
the value of the loss corporation's outstanding stock immediately before the
date of the ownership change, multiplied by the federal long-term tax-exempt
rate in effect during the month that the ownership change occurred. Upon the
consummation of the Offering, the Company may be subject to limitations on the
use of its NOLs as provided under Section 382. Accordingly, there can be no
assurance that a significant amount of the Company's existing NOLs will be
available to the Company following the Offering. In the
13
<PAGE>
event that the Company achieves profitability, as to which there can be
no assurance, such limitation would have the effect of increasing the Company
tax liability and reducing the net income and available cash resources of the
Company in the future.
24. Limitations on Director Liability
Florida law provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage stockholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
stockholders on behalf of the Company against a director. In addition, the
Company's Articles of Incorporation (the "Articles") provide for mandatory
indemnification of directors and officers to the fullest extent permitted or not
prohibited by Florida law. See "Description of Securities--Limited Liability and
Indemnification."
25. Factors Inhibiting Takeover
Certain provisions of the Articles and Bylaws (the "Bylaws") may be deemed
to have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a stockholder might consider in its best interest. The Company's Articles
authorize the Board to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock, $.01 par value per share
(the "Preferred Stock") and to fix the number of shares of any series of
Preferred Stock and the designation of any such series, without any vote or
action by the Company's stockholders. Thus, the Board can authorize and issue
shares of Preferred Stock with voting or conversion rights that could adversely
affect the voting or other rights of holders of the Company's Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company, since the terms of
the Preferred Stock that might be issued could potentially prohibit the
Company's consummation of any merger, reorganization, sale of substantially all
of its assets, liquidation or other extraordinary corporate transaction without
the approval of the holders of the outstanding shares of the Common Stock. Other
provisions of the Company's Articles and Bylaws (i) divide the Company's Board
of Directors into three classes, each of which will serve for different three-
year periods; (ii) provide that the stockholders may not take action by written
consent, but only at duly called annual or special meetings of stockholders;
(iii) provide that special meetings of stockholders may be called only by the
Board of Directors or upon the written demand of the holders of not less than
50% of the votes entitled to be cast at a special meeting; and (iv) establish
certain advance notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at annual stockholders'
meetings. In addition, certain provisions of the Florida Business Corporation
Act (the "FBCA") may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Description of Securities--Florida Law
and Certain Articles of Incorporation and Bylaw Provisions."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Redeemable Warrants offered hereby and from the exercise of the Bridge Warrants
are estimated to be $8,489,200 ($9,533,800 if the Underwriter's Over-allotment
Option is exercised in full), after deducting the underwriting discount and
estimated offering expenses payable by the Company. The Company will not
receive any of the proceeds from any sale of shares by the Bridge Investors or
by the Selling Stockholder if the Underwriter's Over-allotment Option is
exercised. See "Principal and Selling Stockholders" and "Concurrent
Registration of Common Stock."
The Company expects to use the net proceeds (assuming no exercise of the
Underwriter's Over-allotment Option) during the next 12 months as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
----------------------- ------------- ----------------
<S> <C> <C>
Repayment of Senior Subordinated Notes(1)..... $2,574,000 30.3%
Repayment of short-term notes(2).............. 1,300,000 15.3%
Research and development(3)................... 1,000,000 11.8%
Dividend payable(4)........................... 300,000 3.5%
Working capital and general corporate purposes 3,315,000 39.1%
---------- -----
TOTAL............................... $8,489,000 100.0%
========== =====
</TABLE>
_______________
(1) Represents the repayment of the outstanding principal amount of $2,500,000,
plus estimated accrued interest thereon at the rate of 10% per annum to the
date of consummation of this Offering, on indebtedness incurred in the
Bridge Financing. The Notes require that $25,000 of the repayment proceeds
be used to exercise the Bridge Warrants. The net proceeds of the Bridge
Financing, approximately $2,250,000, were used to retire approximately
$577,000 of principal outstanding under short-term notes payable by the
Company to four Brazilian financial institutions bearing interest at rates
of approximately 4% to 5% per month, and to retire approximately $160,000
of principal and accrued interest outstanding under long-term indebtedness
owed by the Company to two Brazilian financial institutions bearing
interest at rates 12% per annum. The remaining net proceeds from the Bridge
Financing were used to repay an $80,000 non-interest bearing loan from Mr.
Finkel to the Company and for working capital and other general corporate
purposes.
(2) Represents the repayment of a portion of approximately $2,000,000 of
outstanding principal balance on short-term notes anticipated to be
outstanding as of the consummation of the Offering due from Ensec, S.A. to
five Brazilian banks. These notes bear interest at rates of approximately
4% to 5% per month.
(3) Includes the anticipated costs of adding research and development personnel
and the costs of continued enhancement to current products and new product
development.
(4) Represents dividends payable by Ensec, S.A. to its former parent company,
Tecpo Comercio E Representaceos Ltda., a Brazilian limited liability
company ("Tecpo"), indirectly wholly-owned by Charles N. Finkel, President
and Chief Executive Officer of the Company, which dividends were
attributable to net income of Ensec, S.A. in fiscal year 1992 and prior
periods.
___________________________
If the Underwriter exercises its Over-allotment Option in full, the Company
will realize additional net proceeds of approximately $1,044,600, which amount
will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this Offering will be
sufficient to satisfy the Company's contemplated cash requirements for at least
12 months following the consummation of the Offering. In the event the Company's
plans change or its assumptions change or prove to be inaccurate or the proceeds
of the Offering prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems or otherwise), the Company may find it
necessary or advisable to reallocate some of the proceeds within the above-
described categories or to use portion thereof for other purposes and could be
required to seek additional financing sooner than currently anticipated.
Depending on the Company's progress in the development of its products and
technology, their acceptance by third parties, and the state of the capital
markets, the Company may also determine that it is advisable to raise additional
equity capital, possibly within the next 12 months. The Company has no current
arrangements with respect to, or sources of, additional financing and there can
be no assurance that additional
15
<PAGE>
financing will be available to the Company when needed on commercially
reasonable terms or at all. Any inability to obtain additional financing when
needed would have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease its operations.
Proceeds not immediately required for the purposes described above
will be invested principally in government securities and/or short-term
certificates of deposit.
16
<PAGE>
DILUTION
As of March 31, 1996 after giving pro forma effect to the application
of the proceeds from the Bridge Financing, the Company had a net tangible book
value equal to $1,949,554. See "Selected Consolidated Financial Data." After
giving effect to the sale of the 1,600,000 shares of Common Stock and the
1,600,000 Redeemable Warrants offered by the Company pursuant to this Prospectus
at an initial public offering price of $6.25 per share and $.10 per Redeemable
Warrant, the issuance of 250,000 shares of Common Stock pursuant to the exercise
of the Bridge Warrants, and application of the estimated net proceeds as set
forth under "Use of Proceeds," the pro forma net tangible book value at such
date would have been $9,738,754, or $1.82 per share. This represents an
immediate increase in net tangible book value of $1.26 per share to the existing
stockholders and immediate dilution of $4.43 per share (or 70.9%) to purchasers
of the Common Stock offered hereby ("New Investors"). If the initial public
offering price is higher or lower, the dilution to New Investors will be,
respectively, greater or less. The following table illustrates the dilution per
share:
<TABLE>
<S> <C> <C>
Public offering price(1)............................................. $ 6.25
Net tangible book value per share at March 31, 1996(2)....... $ .56
Increase per share attributable to New Investors............. $ 1.26
Pro forma net tangible book value per share after Offering........... $ 1.82
------
Dilution per share to New Investors(3)............................... $ 4.43
======
- ------------------
</TABLE>
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share represents the Company's total
tangible assets less its total liabilities divided by the number of
shares of Common Stock outstanding. The Company's total tangible assets
are equal to total assets less deferred financing costs of $191,897 and
$25,000 of deferred offering costs which are the Company's intangible
assets as of March 31, 1996.
(3) The dilution of net tangible book value per share to New Investors
assuming the Underwriter's Over-allotment Option is exercised in full
would be $4.30 (or 68.8%).
The following table sets forth, with respect to existing stockholders
and New Investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
------------------- ---------------------------------------
Average Price
Number Percent Amount Percent Per Share
--------- -------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 3,750,000 70.4% $ 3,494,501(1) 25.9% $0.93
New Investors.......... 1,600,000 29.6% $10,000,000 74.1% $6.25
--------- ----- ----------- ----- -----
Total............... 5,350,000 100.0% $13,494,501 100.0% $2.52
========= ===== =========== ===== =====
</TABLE>
___________________
(1) With respect to the 3,500,000 shares of Common Stock currently issued
and outstanding as of the date of this Prospectus (excluding shares to
be issued upon the exercise of the Bridge Warrants), Total Consideration
Paid is assumed to be the sum of the Company's Common Stock and
Additional Paid-in Capital as of March 31, 1996. See "Consolidated
Financial Statements."
The information contained in the above tables gives effect to the
exercise of the Bridge Warrants and the issuance of 250,000 shares of Common
Stock at $.10 per share but does not give effect to the exercise of options
granted under the Plan to purchase 370,000 shares of Common Stock for $3.00 per
share or the exercise of certain of the Corporate Builders Warrants to purchase
57,680 shares of Common Stock for $3.00 per share and 57,680 shares of Common
Stock for $6.00 per share. Exercise of these options and warrants would result
in further dilution to New Investors in this Offering.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, after giving pro forma effect to the Bridge Financing, and as adjusted
to give effect to the receipt and anticipated use of the estimated net proceeds
of this Offering. This table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
----------- ----------- --------------
<S> <C> <C> <C>
Long-term debt (including current
maturities)........................ $ 4,122,615 $ 4,040,615 $ 4,040,615
Senior Subordinated Notes payable(4) -0- 1,775,000 -0-
Stockholders' equity
Preferred Stock, $0.01 par
value per share, 3,000,000
shares authorized, none issued
or outstanding.................... ----- ----- -----
Common Stock, $0.01 par value
per share, 20,000,000 shares
authorized, 3,500,000 shares
issued and outstanding; 5,350,000
shares issued and outstanding,
as adjusted(1)................ 35,000 35,000 53,500
Additional paid-in capital.... 3,434,501 4,081,101 12,551,801
Accumulated deficit(4)........ (1,949,650) (1,949,650) (2,866,547)
Total Stockholders' Equity......... 1,519,851 2,166,451 9,738,754
----------- ----------- -----------
Total Capitalization $ 5,642,466 $ 7,982,066 $13,779,369
=========== =========== ===========
</TABLE>
_____________________
(1) Assumes (i) issuance of 250,000 shares of Common Stock upon the exercise of
the Bridge Warrants; (ii) no exercise of the Underwriter's Over-allotment
Option; (iii) no exercise of the Underwriter's Warrants including the
exercise of Redeemable Warrants contained therein; (iv) no exercise of the
Redeemable Warrants; (v) no exercise of options granted under the Plan; and
(vi) no exercise of the Corporate Builders Warrants. See "Management--1996
Stock Option Plan," "Description of Securities" and "Underwriting."
(2) Adjusted to reflect the application of the net proceeds from the Bridge
Financing and the issuance of the Bridge Warrants completed in May 1996.
(3) Adjusted to reflect the sale of 1,600,000 shares of Common Stock and
1,600,000 Redeemable Warrants offered hereby and the exercise of the Bridge
Warrants. See "Use of Proceeds."
(4) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount in connection with the Bridge Financing which will be
recognized as interest expense upon the repayment thereof.
18
<PAGE>
DIVIDEND POLICY
The Company currently anticipates that it will retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend, among
other things, upon the Company's future earnings, operations, capital
requirements and financial condition, general business conditions and
contractual restrictions on payment of dividends, if any.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the full years shown
have been derived from the Company's audited consolidated financial statements.
The selected statement of income data for the three months ended March 31, 1996
and 1995, and the selected balance sheet data as of March 31, 1996 and 1995,
have been derived from unaudited interim consolidated financial statements of
the Company, and reflect, in management's opinion, all adjustments necessary for
a fair presentation of the financial position and results of operations for
these periods. Results of operations for interim periods are not necessarily
indicative of results to be expected for the full year. This data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
---------------------------------- ------------------------
1995
1994 1995 Pro Forma(8) 1995 1996
------- ------- --------- --------- ----------
(Unaudited) (Unaudited)
Consolidated Operating Data:
(in thousands of U.S. dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $ 11,119 $ 11,457 $ 8,561 $ 3,467 $ 3,391
---------- ---------- ---------- ---------- ---------
Gross profit 7,486 3,793 2,215 1,207 1,041
Selling, general and
administrative expenses 5,094 6,272 5,376 1,893 1,088
Translation loss (gain) 2,046 1,268 1,268 (676) (124)
Other (income) expenses
Interest income (1,614) (648) (648) (219) (41)
Interest expense 508 2,520 2,520 251 349
Net other (income) expense 593 395 395 145 10
Gain on sale of division ---- (1,491) ---- ---- ----
---------- ---------- ---------- ---------- ---------
Net earnings (loss) $ 234 $ (3,818) $ (5,287) $ (212) $ (283)
========== ========== ========== ========== =========
Net earnings (loss) per share(1) $ .06 $ (.96) $ (1.33) $ (.05) $ (.07)
========== ========== ========== ========== =========
Supplemental pro forma
net loss(2) $ (2,764) $ (20)
========== =========
Supplemental pro forma
net loss per share(2) $ (.65) $ (.01)
========== =========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31, 1996 (unaudited)
------------------ --------------------------
1994 1995 Actual Pro forma(3) As Adjusted(4)(5)(6)(7)
------- --------- -------- ------------ --------------------------
Consolidated Balance Sheet Data:
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 1,489 $ (1,505) $ (2,547) $ (2,199) $ 5,590
Total assets 12,123 11,346 12,036 12,957 17,155
Current liabilities 3,783 6,015 7,530 7,887 4,512
Long-term debt,
less current portion 1,696 3,209 2,624 2,542 2,542
Stockholders' equity 5,621 1,803 1,520 2,166 9,739
</TABLE>
(1) Net loss per share is computed based on the weighted average number of
shares of Common Stock outstanding for each period. For purposes of
computing net loss per share and pursuant to Commission requirements,
options, warrants and Common Stock granted or issued by the Company during
the 12 month period preceding the date of the Offering at a price below the
anticipated Offering Price to Public of $6.25 per share have been included
in the determination of the weighted average number of shares outstanding
using the treasury stock method.
(2) The supplemental pro forma net loss and loss per share reflect the issuance
of shares necessary to retire $1,877,000 of short-term notes payable and
the resulting decrease in net loss in the amounts of $1,054,000 and
$264,000 for the year ended 1995 and three months ended March 31, 1996,
respectively, as of the beginning of the period presented. The calculation
is based on the weighted average shares outstanding used in the calculation
of earnings per share, adjusted for the number of estimated shares that
would be issued by the Company, i.e., 300,320 shares at $6.25 per share, to
retire these obligations. See Note A in Notes to Consolidated Financial
Statements.
(3) Pro forma financial information gives effect to the $2,500,000 Bridge
Financing completed in May 1996, net of discount of $725,000 and offering
costs of $270,297, of which $78,400 were attributable to the Bridge
Warrants and $191,897 were attributable to the 10% Senior Subordinated
Notes. The discount is attributable to the deemed value of the Bridge
Warrants as of the date of the Bridge Financing. The Bridge Financing is
expected to be repaid from the proceeds of this Offering and the Bridge
Warrants will be exercised in conjunction with such repayment. See "Use of
Proceeds."
(4) Adjusted to reflect the sale of 1,600,000 shares of Common Stock and
1,600,000 Redeemable Warrants offered hereby and the exercise of the Bridge
Warrants. See "Use of Proceeds" and "Capitalization."
(5) Does not include up to (i) 190,000 shares of Common Stock issuable by the
Company and 50,000 shares of Common Stock to be sold by the Selling
Stockholder upon exercise of the Underwriter's Over-allotment Option in
full; (ii) 1,840,000 shares of Common Stock reserved for issuance upon
exercise of the Redeemable Warrants, including those issuable upon exercise
of the Underwriter's Over-allotment Option in full; (iii) 320,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants and the Redeemable Warrants included therein; (iv) 173,040 shares
reserved for issuance pursuant to the Corporate Builders Warrants; and (v)
450,000 shares issuable upon the exercise of stock options granted pursuant
to the Plan. See "Management--1996 Stock Option Plan," "Certain
Relationships and Related Transactions," and "Underwriting."
(6) After giving effect to (i) the Underwriter's discount ($1,016,000); (ii) a
non-accountable expense allowance ($304,800), of which $50,000 has been
paid by the Company to date; and (iii) an estimated $375,000 of other fees
and expenses incurred in connection with this Offering, including printing,
professional and other miscellaneous fees.
(7) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount on the Bridge Financing which will be recognized as
interest expense upon the repayment thereof.
(8) Adjusted to reflect the sale and discontinuance of operations of the
Company's currency sorting equipment division net of tax effect as if it
occurred on December 31, 1994. See Note M in Notes to Consolidated
Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company derives its revenue primarily from the design, development,
assembly, sales and installation of its security systems and service of such
systems and security-related equipment. In 1994 and 1995, the Company derived a
material portion of its revenues from two sources which will not contribute to
the Company's revenues in 1996 and subsequent years: the leasing of postal
tracking and tracing equipment to a single customer pursuant to a contract which
expired in the second fiscal quarter of 1995, and the sale, installation,
service and maintenance of currency sorting and selection equipment through a
division which was sold in December 1995. See "--Results of Operations--Fiscal
Year 1995 Compared with Fiscal Year 1994--Gain on Sale of Division - De La Rue
Transaction" and Note M in Notes to Consolidated Financial Statements.
Revenue is recognized upon delivery and acceptance for security systems
which are not subject to significant software customization and completed within
relatively short time frames and under the percentage of completion method for
systems that require significant customization. Revenue from the leasing of
equipment and maintenance contracts is recognized as earned over the life of the
related contracts. Maintenance contracts generally provide for initial non-
cancelable terms of one to three years within a specified period of time and
automatically renew on an annual basis thereafter unless terminated by either
party within a specified period of time. "Costs of goods sold" include costs and
expenses related to system sales and to service revenues. Costs of system
sales include equipment, materials, direct installation charges, engineering and
project management, amortization of capitalized software costs and a corporate
overhead allocation. Service costs include parts, labor and related benefits,
and a corporate overhead allocation.
The markets for the technology and products being developed by the Company
are characterized by evolving industry requirements which may result in product
or technology obsolescence. There can be no assurance that the Company can
successfully identify new product opportunities and develop and bring new
products and services to the market in a timely manner. The Company's operating
results have fluctuated and will continue to fluctuate from period to period
depending upon such factors such as the timing of significant contracts, the
pricing and mix of services and products sold by the Company, the introduction
of new products by the Company and its competitors, market acceptance of new and
enhanced versions of the Company's products and services, changes in pricing
policies by its competitors, the Company's ability to obtain sufficient supplies
of sole or limited source components, and the timing of the expansion of the
Company's infrastructure. See "Risk Factors--Evolving Market; New Product
Development; Technological Obsolescence."
The Company began selling its first generation of integrated security
systems in 1983. In 1995, the Company completed over four years of the
development of and began marketing its third generation of integrated security
systems: the EnWorks(TM) family of products, including the Company's flagship
En2000(TM) system. At such time, the Company began the amortization of
approximately $3,330,000 of capitalized software costs incurred in connection
with the development of the EnWorks(TM) family of products, after having
expensed over $2 million of research and development costs in years prior to
1994. These capitalized costs will be amortized over the product's seven-year
estimated useful life. The amortization of such capitalized software costs plus
additional costs which are anticipated to be incurred and capitalized in
connection with future product development and enhancement will have a material
adverse effect on the Company's anticipated 1996 results of operations and may
have a material adverse effect on future periods.
The results of operations of the Company for the 1994 and 1995 periods and
the three months ended March 31, 1995 and 1996 are in certain respects not
comparable due to the material change in 1995 in the Company's revenue mix and
nonrecurring expenses incurred in 1995 in connection with the termination of
over one-half of the Company's employees in response to the expiration of the
postal tracking and tracing equipment lease, the sale of the currency sorting
equipment division and general economic conditions in Brazil. These nonrecurring
expenses of approximately $1.5 million were incurred primarily in the last three
quarters of 1995 and are attributable to the costs related to severance pay and
social taxes associated with the dismissal of approximately 115 of Ensec, S.A.'s
employees. Under Brazilian law, when an employer dismisses an employee without
cause, such employer is required to pay the employee severance which
approximates to one month's salary for each year such employee was employed by
the employer.
Foreign Currency Exchange Rates
The Company's functional currency is the U.S. dollar. The Company has a
substantial portion of its operations located outside the United States in
Brazil. Therefore, a substantial portion of its sales are collected in Brazilian
reals and a substantial portion of the Company's manufacturing and operating
expenses are incurred in Brazilian reals, in each case rather than U.S. dollars.
Although it is impossible to predict future exchange rate fluctuations between
the U.S. dollar and other currencies, it can be anticipated that to the extent
the U.S. dollar strengthens or weakens against the Brazilian real or, to a
lesser extent, other currencies, a substantial portion of the Company's reported
net sales, cost of goods sold and operating expenses will be commensurately
lower or higher than they would have been with a stable foreign currency
relationship. The Company has engaged in currency hedging transactions on a
limited basis in the past and in the future may undertake currency hedging to
reduce currency exposure, although there can be no assurance that hedging
transactions, if entered into, would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations.
22
<PAGE>
See "Risk Factors--Currency Fluctuations" and Note B in Notes to Consolidated
Financial Statements. The Company and its subsidiaries translate into their
functional currency on a monthly basis based on a combination of the then
current and historical exchange rates for the currency in which their assets
and liabilities are valued. Gains or losses arising from these monthly
translations are reflected as translation income or expense. As a result of
these monthly translations, the Company recognized a loss of $1,268,000 in
fiscal 1995 and a gain of $124,000 in the first quarter of 1996.
Results of Operations
First Quarter 1996 Compared with First Quarter 1995
Sales. Total sales for the three months ended March 31, 1996 decreased $.1
million, or 2.9%, to $3.4 million from $3.5 million in the comparable 1995
period. Several material changes occurred in the Company's revenue mix from the
1995 first quarter to the first quarter of 1996, which reflect the refocus by
the Company to its core business of sales of integrated security systems. Sales
from the leasing of postal tracking and tracing equipment and related service
revenue decreased $1.0 million, or 100%, in 1996 from 1995 as a result of the
expiration of a contract with the Brazilian postal authority in the second
quarter of 1995. Revenue from sales of currency sorting equipment decreased $.6
million, or 100%, in 1996 from 1995 as a result of the sale of the currency
sorting equipment division in December 1995. See "Gain on Sale of Division - De
La Rue Transaction" below. Security system sales revenue increased $1.6
million, or 89%, from 1995 to 1996. For the three months ended March 31, 1996
and 1995, sales generated by the Company in the United States amounted to $.9
million and $.3 million, or 26.5% and 8.8%, respectively, of the total sales
for each of the respective periods.
Cost of Goods Sold. Cost of goods sold in the first quarter of 1996
increased $.1 million, or 7.5%, from $2.3 million in the year earlier period, to
$2.4 million. While the dollar amount of cost of goods sold did not change
substantially from period to period, the mix of the cost of goods sold did
change materially from period to period due to the fact that in the first
quarter of 1996, the Company no longer received revenues from the leasing of
postal tracking and tracing equipment and from the sales and service of currency
sorting equipment. In the first quarter of 1995, cost of goods sold related to
the leasing of postal tracking and tracing equipment amounted to $.5 million,
resulting in a $.6 million, or 60.0%, gross profit on such related sales. The
cost of goods sold related to the sales and service of currency sorting
equpiment amounted to $.1 million, resulting in a $.5 million, or 83.3%, gross
profit on related sales. Cost of goods sold related to sales and service of the
Company's security systems in the first quarter of 1995 was $1.7 million as
compared to $2.4 million in the comparable 1996 period. The resulting gross
profit and gross profit percentage in 1995 and 1996 were $.1 million and 5.9%,
and $1.0 million and 30.7%, respectively. This substantial increase in the
Company's gross profit percentage from security system sales in 1995 to 1996
occurred primarily through improvements in the process by which the Company bids
and contracts for systems sales which the Company believes will reduce or
eliminate job costing errors experienced in the 1995 period. The Company
believes that the cost of goods sold as a percentage of revenues from sales and
service of security systems will in future periods more closely approximate
those experienced in the first quarter of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the first quarter of 1996 decreased $.8 million, or
42.9%, to $1.1 million in 1996 from $1.9 million in the comparable 1995 period.
As described above, in the latter part of 1995 the Company reduced the number of
employees in its Brazilian operations. This resulted in a decrease of $.7
million of payroll and related costs in the first quarter of 1996 compared to
the prior period. In addition, in the first quarter of 1996 the Company had
temporary reductions in the number of employees at Ensec Inc. resulting in a $.1
million reduction in payroll and related benefits.
Other Income and Expense. Interest income decreased $178,364, or 81.4%, to
$40,834 in the first quarter of 1996 from $.2 million in the comparable 1995
period. This decrease was attributable to a decreased amount of interest-
yielding assets. Interest expense in the first quarter of 1996 increased $.1
million, or 38.9%, to $348,596 from $251,000 in the comparable 1995 period, due
to increased borrowings.
Income Tax Expense. Income tax expense in the first quarter of 1996
increased by $17,000, or 65.4%, to $43,000 from $26,000 in the comparable 1995
period. This increase was primarily attributable to an increase in the
Company's deferred tax liability over such periods which results from the
capitalization of software costs for book purposes and expensing of such costs
for Brazilian tax purposes.
Fiscal Year 1995 Compared with Fiscal Year 1994
Sales. Total sales for 1995 increased $.4 million, or 3.6%, to $11.5
million from $11.1 million in 1994. During 1995, the Company's revenue from the
sales of the Company's security systems increased $3.3 million, or 82.5%, to
$7.3 million from $4.0 million in 1994. The Company's revenue from sales and
installation of currency sorting equipment in 1995 increased $.3 million, or
11.5%,
23
<PAGE>
to $2.9 million from $2.6 million in 1994. The Company's revenue from postal
tracking and tracing equipment leases and related service contracts in 1995
decreased $3.2 million, or 69.6%, to $1.3 million from $4.5 million in 1994.
These variations result from a change in the Company's revenue mix reflecting
the focus in 1995 on sales of integrated security systems and the expiration of
the postal tracking and tracing equipment lease in the second fiscal quarter of
1995. For the years ended December 31, 1995 and 1994, sales generated by the
Company's U.S. operations totaled $2.4 million and $.9 million, or 21.0% and
7.7%, respectively, of the consolidated sales for each of such years.
Cost of Goods Sold. For 1995, the cost of goods sold increased $4.0
million, or 111.1%, to $7.6 million from $3.6 million in 1994. The increase
resulted primarily from (i) a shift in the mix of revenues from postal tracking
and tracing equipment leases and sales of the Company's currency sorting
equipment, both of which had higher gross profit percentages in 1994, to sales
of integrated security systems; (ii) $.6 million in 1995 expenses incurred in
connection with the termination of certain employees; and (iii) a reduced gross
profit percentage in 1995 from postal tracking and tracing equipment leases. The
gross profit and gross profit percentage (exclusive of the 1995 employee
termination costs) for 1994 and 1995, respectively, in each revenue category
were as follows: (i) leasing of postal tracking and tracing equipment (and
related maintenance revenues) was $3.3 million (73.3%) versus $.4 million
(32.2%); (ii) sales of currency sorting equipment was $1.8 million (69.2%)
versus $1.9 million (64%); and (iii) sales of integrated security systems was
$2.4 million (60.0%) versus $2.1 million (28.8%). The reduced gross profit
percentages from integrated security system sales in 1995 resulted in part from
two contracts on which the company experienced a combined gross loss of $.7
million. Such loss was incurred because of job costing and estimating errors
which the Company believes have been reduced or eliminated through the
implementation of new bidding and contracting procedures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1995 increased $1.2 million, or 23.5%, to $6.3
million from $5.1 million in 1994. This increase resulted from $.7 million in
expenses attributable to employee terminations, $.2 million in expenses
attributable to payroll and related benefits, $.1 million in occupancy costs,
$.1 million in travel and related costs and $.1 million in professional fees.
The increase in expenses attributable to payroll and related benefits occurred
because the average number of personnel employed by Ensec Inc. increased from 12
in 1994 to 17 in 1995. Occupancy costs increased due to the Company's occupancy
of its New York City sales office for the full 1995 fiscal year, as compared to
occupancy for only a portion of 1994, as well as occupancy in 1995 by the
Company of a Dallas office.
Other Income and Expense. Interest income decreased $.9 million, or 56.3%,
to $.7 million in 1995 from $1.6 million in 1994. This decrease resulted from a
reduction in interest-yielding assets. Interest expense in 1995 increased $2.0
million, or 400%, to $2.5 million in 1995 from $.5 million in 1994. This
increase resulted from a increase of $3.7 million in the Company's long-term and
short-term debt to several Brazilian financial institutions, of which $2.1
million bore interest at rates in excess of 5% per month.
Gain On Sale of Division - De La Rue Transaction. On December 7, 1995, the
Company sold one of its divisions which manufactured and sold bank automation
and currency sorting equipment to De La Rue Investimentos Ltda., a Brazilian
limited liability company ("De La Rue"), a minority stockholder. In exchange,
De La Rue transferred to Ensec, S.A. all of De La Rue's capital stock in Ensec,
S.A., $1.8 million in cash, and a 10% interest in a corporation owned by De La
Rue, to which the Company attributes nominal value. This transaction resulted
in the recognition by the Company of a gain of $1.5 million. The operating
profit of this division during 1995 was $.7 million.
Income Tax Expense. In 1995, income tax expense decreased $1.3 million, or
216.7%, to a benefit of $.7 million in 1995 from an expense of $.6 million in
1994. This decrease in income tax expense was primarily attributable to a
decrease in the Company's net deferred tax liability caused by increases in the
federal and foreign NOLs allowed for 1995.
Certain Factors Affecting Future Performance
Although the Company has experienced increases in revenues from sales of
its integrated security systems, including sales of the En2000(TM) system, the
Company does not believe that prior growth rates are necessarily indicative of
future operating results. In addition, the Company intends to invest
significantly in research and development of its products. As a result, there
can be no assurance that the Company will be profitable on a quarterly or annual
basis. Due to the Company's limited operating history with respect to the
EnWorks(TM) family of integrated security systems and products, predictions as
to future operating results are difficult. Future operating results may
fluctuate due to factors such as: general economic conditions, specific economic
conditions relating to the production of integrated security systems (including
software); the demand for the Company's products; the size and timing of future
orders and new contracts; specific feature requests by customers; production
delays or manufacturing inefficiencies; management decisions to commence or
discontinue product lines; the Company's ability to design, introduce and
manufacture new products on a cost-effective and timely basis; the timing of
research and development expenditures; the maintenance of present and the
availability of future strategic alliances and joint marketing or servicing
agreements; the introduction of new products and product enhancements by the
Company or its competitors; the
24
<PAGE>
budgeting cycle of customers; changes in the proportion of revenues
attributable to license fees and maintenance and support services; changes in
the level of operating expenses; and the present and future level of competition
in the industry.
The Company expects to incur additional losses in the foreseeable
future, including net losses at least through the third quarter of 1996. The
anticipated net loss in the third quarter of 1996 is believed by the Company to
result primarily from deferred interest expenses of approximately $1 million
anticipated to be recognized in such quarter in connection with the repayment of
the Bridge Financing from the proceeds of the offering.
Sales of the Company's integrated security systems for larger installations
are generally customized and generally involve significant testing and a
commitment of significant resources by the Company. For these and other reasons,
the sales cycle for these systems is typically long and subject to a number of
significant risks over which the Company has little or no control and, as a
result, the Company may expend significant resources pursuing potential sales
that will not be consummated. See "Risk Factors--Lengthy Sales Cycle."
The Company anticipates that international sales in Brazil and, over time,
in other countries, will continue to represent a significant percentage of
revenue in the foreseeable future. International sales are subject to a number
of risks, including unexpected changes in regulatory requirements, tariffs and
other trade barriers, political and economic instability in foreign markets,
difficulty in the staffing, management and integration of foreign operations
with those in the U.S., longer payment cycles, greater difficulty in the
collection of accounts receivable, currency fluctuations and potentially adverse
tax consequences. These factors may, in the future, contribute to fluctuations
in the Company's financial condition and results of operations. Although these
factors have not created a material adverse affect to date, the long-term impact
of currency fluctuations, including any possible effect on the business outlook
in other developing countries and other risks associated with international
sales, cannot be predicted. See "Risk Factors--Political, Economic and Social
Conditions in Brazil" and "Risk Factors--Challenges of Growth."
Liquidity and Capital Resources
The Company's primary sources of liquidity have been a combination of cash
flow from operations, a $.3 million revolving line of credit (pursuant to which
$.5 million has been advanced), short-term and long-term borrowings from
Brazilian banks and borrowings from affiliates. In addition, the Company
received $1.8 million in 1995 from the sale of its bank automation equipment
division and $.6 million from the sale of fixed assets and, in connection with
the Bridge Financing, in May 1996 the Company issued $2.5 million of 10% Senior
Subordinated Notes. The Bridge Financing is expected to be repaid from the
proceeds of this Offering and the Bridge Warrants will be exercised in
conjunction with such repayment. See "Use Of Proceeds" and "Notes to the
Consolidated Financial Statements."
Cash provided by (used in) operations was $1.9 million, ($6.3) million,
($.6) million, and $.5 million for the years ended December 31, 1995 and 1994,
and the three months ended March 31, 1995 and 1996, respectively. The negative
cash flow from operations during 1995 resulted from (i) $1.5 million of employee
termination expenses incurred by the Company; (ii) a reduction in sales
attributable to slower economic activity in Brazil as a result of (a) the
effects of the "Real Plan" and (b) a reduction in marketing efforts in 1994
pending the completion of the Company's EnWorks(TM) family of products; (iii)
losses of $.7 million which were incurred on two integrated systems contracts;
(iv) translation losses; (v) an increase in interest expense; and (vi) increased
costs of expanding the Company's U.S. operations. The Company experienced
positive cash flow from operations during the first quarter of 1996. Cash flow
generally fluctuates from quarter to quarter depending on the timing of cash
receipts and payments, including accounts receivable and accounts payable, and
the level of investment in inventory which varies depending on the different
stages of completing a particular contract.
In addition to maintaining a negative cash flow from operations in 1995,
the Company's has, since 1992, made a substantial investment in the development
of software for the EnWorks(TM) family of products. This investment amounted to
$1.7 million, $1.2 million, $.4 million and $.4 million for the years ended 1994
and 1995 and the three months ended March 31, 1995 and 1996, respectively. The
Company anticipates that it will continue to incur substantial research and
development expenditures in the future in order to enhance existing products and
to develop new products.
The Company has $.5 million outstanding under a line of credit agreement
with a commercial bank, which line of credit will expire in June 1996. The
Company is currently seeking to renew or extend the line of credit agreement.
Borrowings under the line of credit are evidenced by notes payable which bear
interest at a rate of such bank's prime rate plus 2% per annum and are secured
by Ensec Inc.'s accounts receivable. The Company obtained its long-term debt
financing from two Brazilian banks. These loans bear interest at a rate of 12%
per annum, require monthly payments of principal and interest and mature in
1998. As of March 31, 1996, the Company has $4.1 million outstanding under its
long-term notes. Short-term borrowings from several Brazilian banks as of March
31, 1996 amounted to $2.5 million, which bear interest at rates of approximately
4% to 5% per month. The repayment of the short-term debt from the proceeds of
this offering will result in a substantial reduction in interest expense.
25
<PAGE>
The Company believes that the financing provided by the Offering and the
line of credit should provide funds that, together with cash flow from
operations, will be sufficient to repay its Brazilian short-term debt and meet
its presently anticipated working capital, including marketing expenditures, and
research and development expenditure requirements for at least the next 12
months. As a result of entering into employment agreements with nine of the
Company's executives in June 1996, the Company will incur increases in salary
expenses of $.3 million for 1996. See "Management."
As of December 31, 1995, the Company had NOL carryforwards for U.S. federal
income tax purposes of approximately $3.6 million, which begin to expire in
2006. These carryforwards result from cumulative operating losses of Ensec
Inc. since its inception in 1991. The consummation of this Offering and the
sale of the Securities may limit the Company's ability to offset such
carryforwards against U.S. taxable income in future years. The Company's NOL
carryforwards for Brazilian corporate and social contribution tax purposes
totaled $5.5 million as of December 31, 1995. There are no limitations which
effect the ability of the Company to offset these losses against future
Brazilian taxable income. See Note K in Notes to Consolidated Financial
Statements.
26
<PAGE>
BUSINESS
General
The Company designs, develops, assembles, sells, installs and services
high-end integrated security systems based on the Company's proprietary software
and controlling hardware which permits multiple mechanisms to be combined into a
single enterprise-wide system of access control, surveillance and data security.
The Company's security systems are typically found in large commercial or
governmental facilities, including office buildings, military bases, museums,
correctional facilities and airports. Since its inception, the Company has
installed approximately 400 systems, primarily in Brazil, including systems for
many large corporations (such as Bosch, Caterpillar, General Motors, IBM,
Eastman Kodak, Microsoft and Texaco), and government agencies (such as the
Brazilian Bureau of Mint & Engraving and the Central Bank of Brazil). The
Company derives its revenue primarily from sales and installation of its
security systems and service of such systems and security-related equipment.
The Company believes that the worldwide integrated security systems market
is currently $1.5 billion and has been growing at a rate of approximately 15%
per annum from 1992 to 1995. The Company is attempting to expand its focus from
operations based primarily in Brazil, marketing its products primarily to
Brazilian customers, to a company with a global market focus and a particular
emphasis on sales to U.S. customers. To facilitate this shift, the Company has
entered into strategic alliances with EDS and Lockheed Martin to joint-market
Company systems and services. The Company is in the process of moving its
research and development activities and finance and executive functions from
Brazil to the United States.
Examples of some of the Company's completed projects include: (i) an
integrated security system for the Brazilian Bureau of Mint & Engraving; (ii) an
access control, time and attendance, CCTV and fleet management system for
Companhia Vale do Rio Doce, a large Brazilian iron ore mining company with over
65,000 employees; and (iii) a postal tracking and tracing system for the
Brazilian Postal Service. The installations described above involved prior
versions of the Company's systems.
In 1995, the Company completed the development of its third-generation
system, the EnWorks(TM) product family, consisting of state-of-the-art, real
time, integrated electronic security systems. The Company invested four years
and over $5 million in the development of the flagship product in the
EnWorks(TM) family: the En2000(TM) system. The Company began marketing this
system in 1995 and in early 1995 the Company was selected by the Port Authority
of New York and New Jersey through a competitive bid process to provide the new
integrated access control for the parking facilities located in the World Trade
Center. In 1995, the Company entered into contracts to install eight additional
En2000(TM) systems, including a contract from EDS to install the En2000(TM) in
EDS's corporate headquarters in Plano, Texas. In the first fiscal quarter of
1996, the Company entered into contracts to install four En2000(TM) systems. In
addition, the Company currently has 55 service and maintenance contracts with
customers who have purchased Company products, covering 150 installations.
The foundation of the Company's systems is proprietary software which
permits the integration of various security mechanisms into a unified system
operating through the use of GUIs and distributive intelligence. Distributive
intelligence is a means by which individual components of an integrated security
system can process information independently of each other so that such
components may continue to operate even when a particular component elsewhere in
the system malfunctions or is rendered inoperative. In addition, an integrated
security system which implements distributive intelligence can operate more
efficiently because individual components are able to complete independent tasks
simultaneously. The Company's systems have the ability to integrate the
following functions based on the customer's specific needs: access control,
alarm monitoring, vehicle tracking, postal tracking and tracing, time and
attendance, guard tours, restaurant revenue reporting, elevator control,
facilities management, parking facility control, CCTV and video badging. To
provide these functions, the Company's systems integrate and enable
communication between security components obtained from third parties such as
identification devices, entry devices, surveillance devices, fire alarms, CCTV,
video imaging and data security software.
Integrated Security Systems
Integrated security systems perform functions such as access control,
facilities management and alarm monitoring through combined subsystems and
components such as CCTV, paging devices, intercoms and identification badges. An
integrated security system is essentially a central command and control which
uses a common user interface, shares data and forms a system that performs in a
uniform and cohesive fashion. Systems integration allows various disparate
security components to communicate with each other so that one system, rather
than many, controls a company's or a location's security. The components used
in an integrated system include the same sensor and detection devices found in
burglar, fire, access control and CCTV systems. The Company believes that, by
integrating these components into a single system, each function is enhanced by
establishing uniform responses for certain conditions. Integrated systems
involve fewer parts and fewer steps to process data, therefore requiring less
response time to perform functions. By combining the functions of various
subsystems, an integrated system can avoid having two components competing for
control of the same object; for example, a door or gate.
Integrated security systems are generally based upon a central database in
order to integrate components and subsystems. The degrees of systems
integration can vary, ranging from subsystems which communicate with each other
via separate databases and a
27
<PAGE>
central translator, to more advanced integrations which share the same database.
For example, an integrated system can be as simple as connecting a CCTV system
to an alarm system for a small bank branch or casino room. An integrated system
can also be extremely advanced, being built around a common database and
combining radio frequency identification cards and graphical screen monitoring
of access control with monitored alarms and HVAC (heating, ventilating, air
conditioning)/lighting management systems for large corporate or government
sites. The common feature of all integrated systems is the ability of various
functions' data gathering units to communicate with each other through software.
The least flexible and most basic form of integration is known as "hardware
interconnection" which connects signals of one subsystem to another through
electrical wiring. A more advanced form of integration employs a "customized
interface" in the form of a centralized personal computer monitoring subsystems
which are unable to communicate with each other. Traditionally, this approach
has been expensive to install and operate and totally dependent on the ability
to customize the central PC program. The most advanced form of integration,
enabling communication among all subsystems, is through a "single integral
database" for multiple applications which allows for easy program revisions and
the addition of new program modules.
The purchase and installation of an integrated security system will
generally cost more than a simple, stand alone alarm monitoring, access control,
CCTV or security guard system. However, the Company believes that integrated
systems justify their investment because they can result in reduced capital and
operating costs while improving performance. An integrated system generally
saves capital costs over separate, unconnected security functions because
hardware and software costs are combined, and most security system projects
require multiple functions, such as separate alarms, CCTV or card access
control. Integrated security systems can also generally reduce maintenance
costs because less parts inventory needs to be kept, compared to standalone
systems, and technician/repair costs are less because of the integrated nature
of the system. Staffing costs are also generally reduced by integrated systems,
because operators monitor multiple functions, the complexity of several systems
has been simplified into one graphical user interface and, as a result of the
simpler nature of the system, staffing needs are reduced.
The primary function of an integrated security system is usually access
control. Conventional access control systems typically involve proprietary
mechanical devices allowing access, such as magnetic stripe card readers on
turnstiles or proximity card readers on doors. These mechanisms were sometimes
connected to a CCTV system, but usually not integrated with a larger premises
control system. Today, such mechanical access control systems are still being
installed, but the Company believes that the future growth in access control
will come from PC-based systems which are integrated with other building
systems. Access control is becoming increasingly important in the protection of
electronically transmitted data. Gaining access to a data stream, whether it be
a corporate computer network or an ATM network, involves various forms of
identification and certification. These include traditional forms such as a
simple personal identification number (PIN) or cards with magnetic stripes, but
are increasingly becoming more sophisticated, such as token cards (which allow
remote access to PIN-specific systems), remote detection cards like radio
frequency ID badges and biometric (finger or eye) identification equipment.
Integrated Security Systems Market
Most integrated security systems are sold in an installed turnkey package
with a range of options. The features and functions of integrated security
systems vary from customer to customer. High-end systems are both multi-tasking
(supporting more than one task at a time) and multi-user (supporting multiple
command centers or multiple concurrent operators). The Company believes that
the demand for products in the security systems industry will be driven by large
companies and governmental agencies with multiple locations, seeking new
functions, greater standardization, operational simplicity and increasingly
higher value-added per installation.
The Company believes that the security industry has recently begun to
change the way it markets to clients. Historically, security issues have been
addressed on a predominantly localized basis, because security products were
unable to monitor more than one location and the perceived need on the part of
customers to take a "hands-on" approach with respect to security issues. The
Company believes that companies with more than one location required multiple
systems, installations and personnel to handle the security function, with no
ability to centrally monitor or respond to information. With the advent of on-
premises systems that connect the various components of a security system,
coupled with graphical monitoring boards that no longer need be operated by
highly trained individuals, security end users are now able to use fewer and
more highly trained facilities management personnel to monitor greater numbers
of locations. In addition, security has become a multi-site, multi-functional
decision making process that is now beyond the capabilities of a regional plant
manager. Large companies have indicated to the Company the need for
standardization across numerous corporate sites. Local security directors,
therefore, are no longer the only persons who make security systems purchasing
decisions. Increasingly, the management information systems director, the
facility manager, and in some cases, the communications manager all play a role
in selecting the system, requiring the decision to be made by a higher level
corporate executive. Finally, given the complexities of systems requirements,
corporations are increasingly outsourcing some or all of their security
functions.
28
<PAGE>
Products and Services
As a full-service provider of integrated systems and services, the Company
has established three distinct yet related sources of revenue: Systems,
Service and Distribution and Procurement. As of May 31, 1996, the Company has a
current backlog of orders for systems sales and installations and service
aggregating in excess of $5.5 million to be filled over the next 18 months.
SYSTEMS: The Company markets a variety of stand-alone and integrated
products in its EnWorks(TM) family of products, as follows:
En2000(TM) Integrated Security System
Integrated security system providing on-line access
control/alarm monitoring and the integration and/or secondary
monitoring of additional application subsystems.
En1000(TM) Integrated Security System
Integrated security system providing on-line access
control/alarm monitoring with a more limited number of readers
and no integration or secondary monitoring of additional
application subsystems.
WinScape System
Windows(TM) -based offline access control system (currently
under development)
DC500 Stand Alone Access Control Terminal
Data Collector.
The EnWorks(TM) family of products is designed to permit upgrades and
improvements permitting lesser-featured systems such as the DC500 system to be
expanded to provide the features of the most sophisticated system offered, the
En2000(TM) system. The En2000(TM) system was designed to be expandable from its
current function (i.e., an integrated security system) to meet the new and
changing applications needs of the end-user. The foundation for this approach
was established with the selection of the object-oriented analysis and design
methodology, a real time operating system, the Intel platform, and the graphical
user interface system architecture. The Company offers a number of components to
expand or enhance the En2000(TM) system including a Remote Panel for Access (a
networked access control/data collector), a Remote Panel for Monitoring (a
networked alarm monitoring unit), multi-site communications capabilities and
expanded databases.
SERVICE: A critical and value-added part of any systems sale is the
ability of the systems provider to train, service and maintain the system. The
Company, primarily through Ensec, S.A., has developed a service business segment
to provide project management, systems design, training, technical
documentation, site surveys and audits, installation and maintenance services,
which it now operates through its wholly-owned subsidiary, EnService, Ltda., a
Brazilian limited liability company ("EnService").
Since the Company's installed base of systems is concentrated in Brazil,
EnService's revenues and personnel resources are also primarily based in Brazil.
EnService provides nationwide installation, project management, and maintenance
services through trained technicians deployed in locations throughout Brazil.
These services are provided on a contract basis which typically have a duration
of five years or more. EnService currently has 55 maintenance and service
contracts covering 150 installations. EnService has also in the past provided
maintenance services to third-party end-users and multinational product
suppliers for products and systems not sold or installed by the Company.
EnService is not currently providing this type of maintenance service, but may
choose to do so again in the future.
Ensec Inc.'s sales and marketing efforts for service and maintenance
have only recently begun. Accordingly, the Company's U.S.-based service
capabilities have not been fully developed. In early 1996, however, Ensec Inc.
was awarded a three-year maintenance contract on the World Trade Center's
parking access control contract.
DISTRIBUTION AND PROCUREMENT: The Company from time to time also
distributes to or procures for end-users security products manufactured by
others. To complement its existing products and offer to its customers a data
security function as part of an integrated security system or on a stand-alone
basis, the Company has entered into a two year Software Value Added Reseller
Agreement (the "Reseller Agreement") with ICL Enterprises ("ICL"), pursuant to
which the Company has the right to resell ICL's data security software. The
Reseller Agreement provides the Company with a nonexclusive license to
distribute, reproduce, resell and sublicense ICL software to customers of the
Company, except that the Company may not sublicense ICL software to resellers.
Intellectual Property
29
<PAGE>
Although the Company believes that its continued success will depend
principally on the continuing innovation, technical expertise, quality of
product support and customer relations, the Company's ability to compete
successfully depends, in part, on its ability to protect the proprietary
technology contained in its products. The Company relies on a combination of
patent, trade secret, copyright and trademark laws, together with non-disclosure
agreements, to establish and protect proprietary rights in its EnWorks(TM)
products. The Company generally enters into confidentiality and/or license
agreements with its employees, distributors, customers and suppliers, and limits
access to and distribution of its proprietary information. These measures afford
limited protection, and there can be no assurance that the steps taken by the
Company to protect these proprietary rights will be adequate to prevent
misappropriation of its technology or the independent development by others of
similar technology. In addition, the laws of Brazil, where the Company maintains
its patents and copyrights and has pending patent applications, do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. The Company is seeking copyright protection under United States law with
respect to some of its technology. While, the Company believes that it would be
impractical and not cost-effective for anyone to attempt to copy complex
software such as that used in the EnWorks(TM) products, unauthorized parties,
nevertheless, might attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. The cost of
enforcement by the Company of its information rights could be significant,
regardless of the outcome of such enforcement proceedings. In addition, although
the Company believes that there are no infringement claims against the company
and no grounds for the assertion of such claims, the cost of responding to any
such assertion, should be it made, could be significant.
Research and Development
One of the Company's most significant assets is its research and
development capabilities. Unlike most of its direct competitors who rely upon
third-party software and hardware vendors, the Company has the in-house
capability to develop, maintain and enhance its proprietary technology. As a
result, the Company has been able to control the pace, scope and quality of its
technology. Moreover, this dedicated technical competence places the Company in
the position of being able to provide customized solutions to meet each
customer's specific needs. Management believes that this ability to provide
customized solutions constitutes a competitive advantage.
Research and development for the Company will be centered in Boca Raton,
Florida, and is separated into two areas: Industrial and Development. The
Industrial group is responsible for quality assurance, product control,
manufacturing and compliance (e.g., government certification, Federal
Communications Commission qualification and Underwriter's Laboratory(TM)
certifications). The Development group, the larger of the two, is responsible
for research and development, new products and engineering. Research and
development is responsible for design and implementation of new products, as
well as additions and enhancements to existing products. Individuals in research
and development perform all of the software and hardware research and
development for Company-manufactured products, along with custom modifications
to existing equipment or new products for custom projects and special
applications.
As the EnWorks(TM) product line matures, particularly with the
En2000(TM) system, the Development group's resources will become focused to a
greater extent on new systems applications, vertical markets and large system
integration projects (e.g., the Parking Access Control System at The World Trade
Center). Depending upon the nature of the systems requirements, some of these
projects may be outside the security arena.
Operations
The Company's operations personnel are responsible for all post-sales
activities which include systems installations, project management, customer
support and field service. These personnel provide all technical documentation,
product manuals and system training.
30
<PAGE>
Sales & Marketing
The Company's sales strategy is focused on the following:
. Concentrated calling efforts on Fortune 1000 companies with
sufficient integration requirements and size to qualify as
direct sales prospects;
. Active solicitation of consulting companies responsible for
specifying providers of security systems on large, high-end
integrated security systems projects;
. Development of strategic Value Added Integrator ("VAI")
relationships with a limited number of large, well-known
multinational systems integrators with large established client
bases and existing networks (e.g., EDS, Lockheed Martin, etc.);
and
. Aggressively responding to federal, state and local government
requests for proposals as a prime contractor (e.g., World Trade
Center) or in cooperation with strategic partners.
The Company markets and provides its products directly through its
offices. In addition, the Company has developed and tested an advertising
campaign in its U.S. and Brazil markets. The campaign includes print and direct
mail advertising, combined with technical seminars, trade shows, technical
publications, public relations and collateral materials.
Sources of new client relationships include referrals and the Company's
integrated marketing campaign. The Company's sales organization is supported by
its prospect database, which includes the names of companies and decision makers
in each targeted market. Company executives establish first contact with
targeted prospects to create awareness, understanding and preference for the
Company's products. Company executives also identify general client needs and
introduce the appropriate Company engineer or team engineers to help develop the
initial proposal. A Company executive is assigned to the account to establish a
long-term relationship, which person serves as the overall coordinator of the
Company's multiple service and product offerings to the client.
Prior to 1995, virtually all of the Company's systems sales were made in
Brazil, where Ensec, S.A. had and continues to have a well-established
reputation for delivering reliable, high-quality systems. Although systems
sales throughout Brazil remain one of the Company's strengths, the Company's
senior management believes that the business development opportunities in North
America for new systems sales are significantly greater. To this end, the
Company has begun to actively pursue large, high-end integrated security systems
projects in the U.S. In early 1995, the New York & New Jersey Port Authority
awarded the parking access control system contract for The World Trade Center to
Ensec Inc. The World Trade Center contract bidding process took place over a
two-year period and required Ensec Inc. to submit to extensive third-party
technical and background due diligence investigations.
The Company's global sales strategy is to be identified as a leading
edge security company which can deliver quality products, solutions or
integrations and offer these into specific market segments (i.e., government,
financial, manufacturing, etc.). The Company intends to undertake limited
international sales efforts beyond the established Brazilian market and the
developing U.S. market. The Company has one distributor, System Kejuruteraan
Keselamatan (SKK) located in Petaling Jaya, Selangor, Malaysia with regional
offices in Singapore, Indonesia, Thailand, China/Hong Kong, South Korea and
Vietnam. It was created to serve the security needs of the Asian market as an
agent for Ensec Inc. SKK's primary activity is in computerized integrated
security systems and their related functions. SKK is currently participating in
projects for airports, port facilities, commercial complexes, communication
network providers, prisons and banks in Asia.
The Company believes that its VAI relationships will be its most
significant sources of sales and revenue in the near future. Currently, the
Company's two primary VAI relationships are with EDS and Lockheed Martin.
The Company and EDS have entered into a Card Access Systems Agreement,
as amended (the "Systems Agreement"), whereby EDS shall purchase the Company's
hardware, software and other products, as well as the Company's installation,
education, support and maintenance services. EDS is entitled to purchase
hardware and software from the Company at prices which are generally discounted
from the Company's list prices. The Company shall perform any requested system
installation, Licensed Software (as defined in the Systems Agreement) support
services and hardware maintenance services from the Company at prices and rates
as set forth in the Systems Agreement. The Company and EDS have also agreed to
jointly promote and sell their products and services in the marketplace for an
initial term of three years. The joint marketing agreement shall be
automatically renewed for successive one year terms unless one party provides
proper notice of nonrenewal to the other party. To effectively market such
products and services, the parties have agreed to formulate and approve a joint
marketing plan on or before August 22, 1996. Such marketing plan may include,
without limitation, common public relations, advertising, sales training, press
releases and targeted marketing approaches. The marketing plan shall be
supplemented by a standard sales campaign process. As a part of the joint
marketing strategy, the Company has allowed EDS to market, promote and remarket
Licensed Software and any documentation thereto as an authorized remarketer in
accordance with the
31
<PAGE>
terms and conditions of the Systems Agreement. The Systems Agreement may be
terminated by either party for cause as set forth in the Systems Agreement.
The Company has entered into a five year Strategic Alliance Agreement
(the "Alliance Agreement") with Lockheed Martin. The Alliance Agreement permits
Lockheed Martin and the Company to cooperate and complement each other's efforts
in identifying, proposing and marketing integrated solutions to governmental,
corporate and industrial entities. Such integrated solutions may include,
without limitation, access control, electronic photo-identification, intrusion
detection, intercommunications, visitor and parking control and other control
systems and their associated networks. The Alliance Agreement contemplates that
Lockheed Martin and the Company will agree upon a particular teaming arrangement
with each party assuming defined roles and responsibilities in order to more
effectively compete for future business opportunities and programs. Pursuant to
the terms and conditions of the Alliance Agreement, Lockheed Martin and the
Company have agreed to jointly market and support each other's services without
soliciting services or products from other sources or offering services and
products to other contractors. In so doing, the Company would provide system
integration services and associated low-voltage building systems exclusively to
Lockheed Martin for use in certain programs. Lockheed Martin would utilize only
the Company's services for such programs. After the initial five-year term, the
Alliance Agreement may be extended upon the mutual agreement of the parties for
additional one year terms. The Alliance Agreement may be terminated by either
party upon 12 months prior written notice.
The Company has also entered into an 18 month Teaming Agreement (the
"Teaming Agreement") with Bell & Howell Postal Systems, Inc. ("Bell & Howell").
Bell & Howell intends to bid on a contract to provide postal automation
equipment to Empresa Brasileira de Correios E Telegrafos ("ECT"), the Brazilian
postal authority. The Company has agreed to assist Bell & Howell in preparing
proposals for the sale of postal automation equipment to ECT and in developing a
marketing program for such sales. The Company has also agreed to provide Bell &
Howell with administrative support and assistance for its operations in Brazil.
Upon the acceptance of a Bell & Howell proposal by ECT, Bell & Howell has agreed
to name the Company as a program subcontractor, subject to ECT's approval, in
the following areas: (i) installation and maintenance of mail automation
equipment; (ii) custom software development, as mutually agreed upon by the
parties; and (iii) other efforts to be mutually agreed upon by the parties. Bell
& Howell has also agreed to pay the Company a fee of eight percent of the
cumulative net sales of Bell & Howell products to ECT made during the term of
the Teaming Agreement, subject to certain conditions. The Teaming Agreement may
be terminated in accordance with the terms thereof by either party upon ten days
prior written notice. The Teaming Agreement may be extended for an additional
one year period by the mutual agreement of the parties within 30 days of the
expiration thereof.
Competition
The U.S. electronic security market remains a highly competitive,
fragmented and dynamic industry. The Company believes that most of its
competitors excel in a particular market niche rather than having broad-based
market share. In Brazil, the Company competes with Sensormatic, Casi-Rusco and
Northern Corporation, among others. In North America, significant competitors
include Software House/Sensormatic, Casi-Rusco, Matrix, Cardkey, ADT, IBM,
Diebold, Johnson Controls, Honeywell, Infographic, MDI and Pittston Services.
Some of these competitors have greater name recognition, more extensive
engineering, manufacturing, marketing and distribution capabilities and greater
financial, technological and personnel resources than the Company. See "Risk
Factors--Competition." The Company may also face competition from potential new
entrants into the Company's segment of the security systems industry, many of
which have substantially greater resources than the Company. It is possible, for
example, that existing or potential competitors of the Company could introduce a
new product or products which could feature a significantly lower cost structure
or significantly more advanced price/performance characteristics. The Company
expects that price competition will increase and could adversely affect its
market share and results of operations. There can be no assurance that the
Company will be able to compete successfully in the future against existing or
potential competitors or successfully adapt to changes in the market for the
Company's products. An increase in competition could have a material adverse
effect on the Company's business and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company competes principally on the basis of product performance and
features and, to a lesser extent, on the basis of price. Other principal
competitive factors include product reliability and compatibility and
flexibility of use with a user's other systems.
Employees
As of May 31, 1996, the Company employed 80 individuals, of which
approximately 65 were employed in Brazil by Ensec, S.A. and 15 were employed in
the United States by Ensec Inc. None of Ensec Inc.'s employees are represented
by unions or were covered by any collective bargaining agreement. All of Ensec
S.A.'s employees, or approximately 81.3% of the Company's employees, are covered
by collective bargaining agreements. The collective bargaining agreement
expires on November 1, 1996.
32
<PAGE>
In addition to the collective bargaining agreement, Brazilian labor laws
are applicable to all of the Company's employees in Brazil. The requirements of
the collective bargaining agreement and the Brazilian labor laws principally
address the length of the work day, minimum daily wages for professional
workers, contributions to a retirement fund, insurance for work-related
accidents, procedures for dismissing employees, determination of severance pay
and other conditions of employment.
The Company believes that its future success will depend in large part
upon its ability to continue to attract, retain, train and motivate highly
skilled and dedicated employees. The Company has not experienced a work
stoppage, and the Company believes that its employee relations are good.
Facilities
U.S.: The Company and Ensec Inc. are headquartered in Boca Raton,
Florida. Ensec Inc. presently leases approximately 6,000 square feet of office
space at two locations--Boca Raton, Florida and New York City, New York. The New
York offices are utilized by Ensec's regional sales personnel.
Brazil: Ensec, S.A. is headquartered in a Company-owned building located
in Cotia, a suburb of Sao Paulo. The building was constructed in 1990 and is
comprised of approximately 140,000 square feet of office and warehouse space. In
addition to the Cotia-based headquarters, Ensec, S.A. maintains a number of
service facilities located throughout Brazil. These offices, many of which are
provided by third party customers of the Company, are used principally by
EnService field technicians.
The Company believes that its facilities are adequate to meet the
Company's current business requirements, and that suitable additional space will
be available as needed to accommodate further physical expansion of corporate
operations and for additional sales and support offices.
Legal Proceedings
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. As of the
date of this Prospectus, the Company is not a party to any legal proceedings the
adverse outcome of which, in management's opinion, individually or in the
aggregate, would have a material adverse effect on the Company's results of
operations or financial position.
33
<PAGE>
MANAGEMENT
The directors and executive officers of the Company, their ages, and
positions with the Company, Ensec, S.A., and Ensec Inc. as of the date of this
Propsectus are
set forth below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles N. Finkel 45 Chairman of the Board, Chief Executive
Officer and President of the Company;
Chairman of the Board and Chief
Executive Officer of Ensec, S.A.
and Ensec Inc.
James K. Norman 49 Vice President-U.S. and Director of the
Company; Vice President and Chief
Operating Officer of Ensec Inc.;
Director of Ensec, S.A.
Flavio R. da Silva 46 Vice President-Brazil and Director of
the Company; President and Chief
Operating Officer and Director of
Ensec, S.A.; Director of Ensec Inc.
Steven T. Geffin 38 Vice President of the Company; Vice
President and Director of Ensec, S.A.
and Ensec Inc.
David J. Rottner 40 Vice President, Chief Financial
Officer and Secretary of the Company
and Ensec Inc.
Edward Morelli 44 Vice President-Operations of Ensec Inc.
Nuno J. Moura 44 Vice President, Secretary and
Controller of Ensec, S.A.
Lucas Blanco 34 Vice President-Technology and
Engineering of Ensec, S.A.
John De George 49 Vice President-Sales of Ensec Inc.
</TABLE>
Charles N. Finkel founded Ensec, S.A. and has been Chairman and Chief
Executive Officer since its inception. Mr. Finkel has 18 years of
experience in the security industry commencing with Engesa, S.A., an
international defense company, where Mr. Finkel held a senior sales and
marketing position. While at Engesa, Mr. Finkel served as a consultant to the
Brazilian Bureau of Mint & Engraving, where he was responsible for negotiating
currency printing projects with other countries. In 1983, Mr. Finkel left
Engesa to found Ensec, S.A. Mr. Finkel received a degree in civil engineering
from Armando Alvares Peteado, Brazil, and a Masters degree in Marketing from
Getulio Vargas, Brazil.
James K. Norman joined the Company in May 1996 as a director, the
Company's Vice-President-U.S and Chief Operating Officer. Prior to joining the
Company, Mr. Norman was employed for 20 years by Racal-Milgo and affiliated
companies, serving from 1989 to September 1995 as President of Racal-Datacom,
Inc., a consolidated data group company. Prior to that time, Mr. Norman served
as Senior Vice President - Sales, Service and Marketing of Racal-Milgo, with
worldwide responsibility for sales and service for all products designed and
manufactured in the United States. Mr. Norman received a Bachelor of Science
degree in Business Administration from Auburn University.
Flavio R. da Silva joined Ensec, S.A. in May 1995 and has served as a
director of the Company since its inception. Mr. da Silva is a mechanical
engineer who received a Bachelor of Science and Masters degrees in Business
Administration from Mackenzie University, Brazil, and a Ph.D. in Engineering
from the University of Sao Paulo, Brazil. Prior to joining Ensec in 1995, Mr. da
Silva held management positions, from 1971 to 1989, for Brasilit, a manufacturer
of building products, and from 1990 to 1995, for Fortilit and predecessor
companies, a manufacturer of PVC products.
34
<PAGE>
Steven T. Geffin joined Ensec, S.A. and Ensec Inc. in 1992. Prior to
joining the Company, Mr. Geffin was in research and development for four years
at Casi-Rusco, a competitor of the Company engaged in the sales and
installations of security systems. Mr. Geffin is responsible for worldwide
engineering, research & development and manufacturing for all Company products.
Mr. Geffin received a Bachelor and Masters of Science degrees in Electrical
Engineering from the University of Miami in Miami, Florida.
David J. Rottner joined the Company in May 1996 as its Chief Financial
Officer, Vice President and Secretary. Mr. Rottner has over 17 years of
public accounting experience. From November 1993 to May 1996, Mr. Rottner was
a certified public accountant with Grant Thornton LLP, a national accounting
firm in Fort Lauderdale, Florida. From April 1990 to November 1993, Mr. Rottner
was a certified public accountant with Paul Scherer & Company, in New York, New
York. Mr. Rottner graduated from the State University of New York, Albany,
with a Bachelor of Science degree in Accounting.
Edward Morelli joined Ensec Inc. in 1994. Before joining the Company,
Mr. Morelli was Operations Manager for Datalarm Security Systems, a security and
card access company in Miami, Florida, from 1990 to 1994. Prior to that, he was
Division Administrator for Sentrex Security Systems, also a security and card
access company, in Miami. Mr. Morelli's career in security systems began in
1974 installing fire/burglar alarms. Mr. Morelli studied electronics at PIO IX
in Buenos Aires, Argentina.
Nuno J. Moura has over 18 years of experience in administration and
finance. He served as Director of Finance and Administration for Gillette de
Brazil prior to joining Ensec, S.A. in 1995. He received a Masters degree in
Finance from Pontificia Universidade Catolica, Brazil.
Lucas Blanco joined Ensec, S.A. in 1984. Mr. Blanco received a degree in
Engineering from Faculdades de Engenharia Industrial, Brazil. Mr. Blanco has
held a variety of technical positions with the Company, and has direct
responsibility for managing Ensec, S.A.'s software and hardware engineers.
John De George joined Ensec Inc. in 1995 as its Senior Vice President-
Sales. Prior to that time, Mr. De George was sales manager for Vikonics, Inc.,
a manufacturer of large scale computer-based integrated security and life safety
systems in Teterboro, New Jersey from 1992 to 1995. Prior to that, he was
General Manager for Alphamation, Inc., a data/telecommunication and
document/image processing systems integrator located in Hauppauge, New York.
Mr. De George received a Bachelor of Science degree from Hofstra University in
Hempstead, New York.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no family
relationships among any of the executive officers or directors of the Company.
The Company is currently seeking at least two additional indivduals not
affiliated with the Compnay to serve on its Board of Directors.
Election of Directors
Pursuant to the Company's Articles of Incorporation, the Board of Directors
is divided into three classes, as nearly equal in number as possible, designated
Class I, Class II and Class III. The term of the initial Class I directors
terminates on the date of the 1997 annual meeting of stockholders; the term of
the initial Class II directors terminates on the date of the 1998 annual meeting
of stockholders and the term of the initial Class III directors terminates on
the date of the 1999 annual meeting of stockholders. At each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. Mr. Norman is currently a
Class I director, Mr. da Silva is currently a Class II director and Mr. Finkel
is currently a Class III director. For further information, see "Description of
Securities--Florida Law and Certain Charter and Bylaw Provisions."
Pursuant to the terms of the Underwriting Agreement relating to this
Offering, the Underwriter has the right, until ___________, 1999 (three years
after the date of this Prospectus), to elect to have a designee attend all
meetings of the Board of Directors of the Company or to cause the Company to
nominate and use its best efforts to obtain election to the Board of Directors
of a person designated by the Underwriter.
35
<PAGE>
Directors of the Company, Ensec, S.A. and Ensec Inc. do not receive any
additional compensation for serving as a director or committee member, but
directors who are not employees of the Company are reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors and Board committees.
Committees of the Board of Directors
Upon the consummation of the Offering and the appointment of two
individuals not otherwise affiliated with the Company as directors, the Company
will form an Audit Committee and a Compensation Committee. The Audit Committee
will be responsible for reviewing audit functions, including accounting and
financial reporting practices of the Company, the adequacy of the Company's
system of internal accounting control, the quality and integrity of the
Company's financial statements and relations with independent auditors. It is
anticipated that the Audit Committee will consist of Mr. Finkel, and both of the
new directors. The Compensation Committee is responsible for establishing the
compensation of the Company's directors, officers and employees, including
salaries, bonuses, commission, and benefit plans, administering the Plan, and
other forms of or matters relating to compensation. It is anticipated that the
Compensation Committee will consist of Mr. Finkel and one or both of such new
directors.
Executive Compensation
The following table sets forth as of December 31, 1995, all compensation
paid during the Company's last fiscal year to the Company's Chief Executive
Officer and to executive officers whose total annual compensation exceeded
$100,000 in any of the last three completed fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation(1)
--------------------------------------
Name and Principal Position Other Annual All Other
Year Salary Bonuses Compensation Compensation(3)
---- --------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Charles N. Finkel, Chief Executive Officer 1995 $ 116,500 $ -0- $ -0- $ 107,200
of the Company, Ensec, S.A. and Ensec Inc. 1994 $ 73,000 $ -0- $ -0- $ 117,900
1993 $ 67,600 $ -0- $ -0- $ 191,100
Frederico Bettancourt, Senior Vice President 1995 $ 102,800 $ -0- $ -0- $ 34,800
and Chief Financial Officer of Ensec, S.A.(2) 1994 $ 128,600 $ -0- $ -0- $ -0-
1993 $ 99,500 $ -0- $ -0- $ -0-
</TABLE>
- ------------------
(1) All compensation or remuneration paid to employees was paid by Ensec,
S.A. and Ensec Inc. In accordance with the rules of the Commission, the
compensation described in this table does not include medical, group
life insurance or other benefits received by the executives which are
available generally to all salaried employees of the Company, and
certain perquisites and other personal benefits, securities or property
received by the executives which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
(2) Mr. Bettancourt, who was an executive officer of Ensec, S.A. as of
December 31, 1995, is no longer employed by the Company or any of its
subsidiaries.
(3) Represents nonreimbursed personal expenses paid by the Company on
behalf of the executive.
Employment Agreements
The Company or its subsidiaries are a party to substantially identical
employment agreements with Messrs. Finkel, Norman, da Silva, Geffin, Morelli,
Rottner, Moura, Blanco and De George, pursuant to which each of those
individuals serve as an executive of the Company, Ensec, S.A. or Ensec Inc. Each
of the employment agreements is for an initial three-year term, commencing May
1996 and automatically renews for successive three-year terms unless either
party provides written notice to the other party at least 90 days prior to
renewal. Under the terms of the employment agreements, Messrs. Finkel, Norman,
da Silva, Geffin, Morelli, Rottner, Moura, Blanco and De George receive an
initial annual base salary of $240,000, $127,000, $127,000, $100,000, $80,000,
$75,000, $60,000, $108,000 and $85,000, respectively, which may be increased
from time to time by the Board of Directors. Mr. Rottner's employment agreement
provides for minimum annual increases in base salary of five percent. Mr. De
George's agreement currently provides for payment of an additional two percent
of sales revenues on sales of Company products by Mr. De George. The employment
agreements
36
<PAGE>
for Messrs. Norman, da Silva and Geffin provide for annual cash bonuses equal to
25% of the annual base salary then in effect for Messrs. Norman, da Silva and
Geffin in the event certain subsidiary budgets and other performance goals are
attained each fiscal year. The other executives will be eligible for annual cash
bonuses determined in the discretion of the Board of Directors of the Company
based on the attainment of individual performance targets and the financial
performance of the Company or its subsidiaries.
The agreements provide that upon termination of employment by the
Company, other than for Cause (as defined in the agreements) or retirement, the
Company shall pay the executive an amount equal to a multiple of the executive's
total cash compensation in the 12 months preceding the date of termination, as
follows: Mr. Finkel - two times; Messrs. Norman, da Silva, Geffin and Rottner -
one time; and Messrs. Morelli, Moura, Blanco and De George - one-half times the
amount of such compensation. The agreements provide for noncompetition,
nonsolicitation and nondisclosure covenants. The agreements also provide for
each executive, with the exception of Mr. Finkel, a grant of options under the
Plan which will vest in one-third equal installments over a three-year period,
with the first vesting to occur on the first anniversary date of the employment
agreements. The options are Incentive Stock Options and provide for an exercise
price of $3.00 per share, subject to adjustment in accordance with the terms of
the Plan. In order for the options to vest, the executive must be an employee of
the Company or its subsidiaries as of the date of vesting, and according to the
terms of the Plan vesting of the options will accelerate and the options will
become immediately exercisable in the event the executive is terminated by the
Company other than for Cause. The number of options granted to the executives
under the Plan pursuant to the employment agreements is as follows: Mr. Norman -
150,000 shares; Messrs. da Silva and Geffin - 50,000 shares; Mr. Rottner -
30,000 shares; Messrs. Morrelli, Blanco, and De George - 25,000 shares; and
Mr. Moura - 15,000 shares.
1996 Stock Option Plan
The Company has adopted the 1996 Stock Option Plan (the "Plan"),
pursuant to which stock options (both Nonqualified Stock Options and Incentive
Stock Options, as defined in the Plan), stock appreciation rights and restricted
stock may be granted to directors, key employees and consultants (the
"Participants"). The Plan is administered by a committee (the "Committee")
comprised of at least two directors who are "disinterested persons," as defined
under Rule 16b-3(c)(2) promulgated under the Exchange Act. The Plan provides for
the automatic grant to directors who are not employees of the Company or its
subsidiaries, at such time as an individual becomes a director of the Company,
of Nonqualified Stock Options to purchase 15,000 shares of Common Stock at an
exercise price per share equal to the greater of $3.00 or the fair market value
of the shares on the date of grant. The options vest in increments of 5,000
shares per year, commencing on the date of the Company's annual meeting of
stockholders for the election of directors next following the date such
individual became a director and continuing with each such successive annual
meeting provided such person remains a director of the Company as of such date.
The Plan also provides for the acceleration of the vesting schedule in certain
circumstances.
With respect to the grant of awards under than Plan to persons other
than non-employee directors, the Committee will determine persons to be granted
stock options, stock appreciation rights and restricted stock, the amount of
stock or rights to be optioned or granted to each such person, and the terms and
conditions of any stock options, stock appreciation rights and restricted stock.
Both Incentive Stock Options and Nonqualified Stock Options may be granted under
the Plan. An Incentive Option is intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code. Any Incentive Stock Option
granted under the Plan will have an exercise price of not less than 100% of the
fair market value of the shares on the date on which such option is granted.
With respect to an Incentive Stock Option granted to a Participant who owns more
than 10% of the total combined voting stock of the Company of any parent or
Subsidiary of the Company, the exercise price for such option must be at least
110% of the fair market value of the shares subject to the option on the date
the option is granted. A Nonqualified Stock Option granted under the Plan (i.e.,
an option to purchase the Common Stock that does not meet the Code's
requirements for Incentive Options) must have an exercise price of at least the
par value of the stock.
Stock appreciation rights may be granted in conjunction with the grant
of an Incentive or Nonqualified Stock Option under the Plan or independently of
any such stock option. A stock appreciation right granted in conjunction with a
stock option may be an alternative right. In which event, the exercise of the
stock option terminates the stock appreciation right to the extent of the shares
purchased upon exercise of the stock option and, correspondingly, the exercise
of the stock appreciation right terminates the stock option to the extent of the
shares with respect to which such right is exercised. Alternatively, a stock
appreciation right granted in conjunction with a stock option may be an
additional right, in which case both the stock appreciation right and the stock
option may be exercised. A stock appreciation right may not, however, be granted
in conjunction with an Incentive Stock Option under circumstances in which the
exercise of the stock appreciation right affects the right to exercise the
Incentive Stock Option or vice versa, unless certain terms and conditions are
met. Subject to the terms of the Plan, the Committee may award shares of
restricted stock to the Participants. Generally, a restricted stock award will
not require the payment of any option price by the Participant but will call for
the transfer of shares to the Participant subject to forfeiture, without payment
of any consideration by the Company, if the Participant's employment terminates
during a "restricted" period (which must be at least six months) specified in
the award of the restricted stock.
37
<PAGE>
There are 450,000 shares authorized for possible issuance under the
Plan. As of the date of this Prospectus, options to purchase 370,000 of such
reserved shares of Common Stock have been granted with exercise prices of $3.00
per share.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus.
The table is based on information obtained from the persons named below with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the aggregate
outstanding shares of Common Stock; (ii) each director; (iii) the Chief
Executive Officer of the Company; and (iv) all executive officers and directors
as a group. Charles N. Finkel, President and Chief Executive Officer of the
Company and Ensec Inc., and Chief Executive Officer of Ensec S.A. (the "Selling
Stockholder"), has agreed to sell up to 50,000 shares of Common Stock in the
event the Underwriter's Over-allotment Option is exercised with respect to a
number of shares equal to or greater than 50,000. The Company will not receive
any proceeds from the sale of shares by the Selling Stockholder.
<TABLE>
<CAPTION>
Percentage of Outstanding
Common Stock Beneficially Owned
-------------------------------
Number of Shares
of Common Stock Shares
Names and Addresses of Beneficially to be Prior to After
Beneficial Owners(1) Owned Sold Offering Offering(2)
- --------------------------- --------------- ------ --------- -----------
<S> <C> <C> <C> <C>
Charles N. Finkel 3,500,000(3) 50,000 100% 65.4(3)
James K. Norman -0- -0- -0- *
Flavio R. da Silva -0- -0- -0- *
All executive officers and
directors as a group
(5 persons) 3,500,000(3) 50,000 100% 65.4(3)
</TABLE>
______________________
* Less than 1%
(1) The address of each stockholder is 751 Park of Commerce Drive, Suite
104, Boca Raton, Florida 33487. Unless otherwise indicated, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the
date of this Prospectus upon the exercise of options, warrants or
convertible securities. None of the options granted by the Company under
the Plan are exercisable within 60 days of the date of this Prospectus.
(2) Includes in number of shares of Common Stock outstanding 250,000 shares
issuable upon exercise of the Bridge Warrants and excludes (i) 190,000
shares of Common Stock issuable by the Company upon exercise of the
Underwriter's Over-allotment Option in full; (ii) 1,840,000 shares of
Common Stock reserved for issuance upon exercise of the Redeemable
Warrants, including those issuable upon exercise of the Underwriter's
Over-allotment Option in full; (iii) 320,000 shares of Common Stock
reserved for issuance upon exercise of the Underwriter's Warrants and
the Redeemable Warrants included therein; (iv) 173,040 shares reserved
for issuance upon exercise of the Corporate Builders Warrants; and (v)
450,000 shares reserved for issuance under the Plan, pursuant to which
options to purchase 370,000 of such reserved shares of Common Stock have
been granted.
(3) Such shares are indirectly owned by Mr. Finkel through wholly-owned
entities. See "Certain Relationships and Related Transactions." Mr.
Finkel's percentage ownership, and that of all executive officers and
directors as a group, will be 62.3% in the event the Underwriter's Over-
allotment Option is exercised in full.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of April 3, 1996, the Company retained Corporate Builders, L.P.
("Corporate Builders"), a financial advisory and strategic consulting firm, to
provide public relations and financial consulting services pursuant to a one-
year agreement. Upon execution of the agreement, the Company paid Corporate
Builders an initial payment of $21,500 and the Company shall pay Corporate
Builders a fee of $5,000 per month for public relations services. In the event
Corporate Builders provides additional services to the Company, Corporate
Builders shall be entitled to receive $250 per day, with such payments not to
exceed an aggregate of $45,000. The Company is obligated to reimburse Corporate
Builders for all out-of-pocket expenses incurred in conjunction with its
services. In addition, Corporate Builders is entitled to receive up to 173,040
warrants of the Company's Common Stock, one-third immediately exercisable at a
price of $3.00 per share, one-third immediately exercisable at a price of $6.00
per share and one-third exercisable commencing November 3, 1997 at a price of
$7.00 per share. The Corporate Builders Warrants expire May 2, 1999 if not
exercised.
Of the 3,500,000 shares of Company Common Stock currently issued and
outstanding, 2,500,000 shares are owned by Tecpo and 1,000,000 shares are owned
by Fugrow Investments, Inc., a British Virgin Islands corporation ("Fugrow").
Tecpo and Fugrow are wholly-owned by Mayfair Limited Partnership, a Delaware
limited partnership, the sole general partner of which is Mayfair Company, a
Delaware corporation. Charles N. Finkel, President and Chief Executive Officer
of the Company, is the sole limited partner of Mayfair Limited Partnership and
the sole stockholder of Mayfair Company.
40
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock,
par value $.01 per share, and 3,000,000 shares of Preferred Stock, par value
$.01 per share. As of the date of this Prospectus, there are 3,500,000 shares of
Common Stock outstanding, held of record by two stockholders, and no shares of
Preferred Stock outstanding.
The following summary description of the Company's Common Stock and
Preferred Stock is qualified in its entirety by reference to the Articles and
Bylaws, copies of which are included as exhibits to the Registration Statement
of which this Prospectus is a part.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
Preferred Stock
The Board of Directors has the authority, without further action of the
stockholders of the Company, to issue up to an aggregate of 3,000,000 shares of
Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of such series.
The Board of Directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of Common Stock. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
Redeemable Warrants
The Redeemable Warrants will be issued in registered form pursuant to an
agreement, dated the date of this Prospectus (the "Warrant Agreement"), between
the Company, the Underwriter and American Stock Transfer & Trust Company (the
"Warrant Agent"). The following discussion of certain terms and provisions of
the Redeemable Warrants is qualified in its entirety by reference to the
detailed provisions of the Statement of Rights, Terms, and Conditions for each
Redeemable Warrant which forms a part of the Warrant Agreement. A form of the
certificate representing the Redeemable Warrants and a form of the Warrant
Agreement have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.
One Redeemable Warrant represents the right of the registered holder
thereof to purchase one share of Common Stock at an exercise price of $7.00 per
share, subject to adjustment (the "Purchase Price"). The Redeemable Warrants
will be entitled to the benefit of adjustments in their respective Purchase
Prices and in the number of shares of Common Stock and/or other securities
deliverable upon the exercise thereof in the event of a stock dividend, stock
split, reclassification, reorganization, consolidation or merger.
Unless previously called for repurchase, the Redeemable Warrants may be
exercised immediately, until the close of business on ______________, 2001 (five
years from the date of this Prospectus) (the "Expiration Date"). On or after
the Expiration Date, the Redeemable Warrants automatically become wholly void
and of no value. The Company may at any time extend the Expiration Date of all
outstanding Redeemable Warrants, for such increased period of times as it may
determine. The Redeemable Warrants may be exercised at the office of the
Warrant Agent.
The Company has the right at any time beginning ___________, 1997 (one
year from the date of this Prospectus), or such earlier date as the Underwriter
may determine, to repurchase the Redeemable Warrants at a price of $.10 each, by
written notice mailed
41
<PAGE>
30 days prior to the repurchase date to each Redeemable Warrant holder at his
address as it appears on the books of the Warrant Agent. Such notice may only be
given within three days following any period of 20 consecutive trading days
during which the high closing bid or trading price of the shares of Common Stock
(if then traded on the Nasdaq-SCM or on a national securities exchange) equals
or exceeds $10.50 per share, subject to adjustments for stock dividends, stock
splits and the like. If Redeemable Warrants are called for repurchase, they must
be exercised prior to the close of business on the day immediately preceding the
date of any such repurchase or the right to purchase the applicable shares of
Common Stock is forfeited.
No Redeemable Warrant will be exercisable unless at the time of exercise
the Company had filed with the Commission a current prospectus covering the
shares of Common Stock issuable upon exercise of such Redeemable Warrant and
such shares of Common Stock have been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of such
Redeemable Warrant. The Company will use its best efforts to have all such
shares of Common Stock so registered or qualified on or before the exercise date
and to maintain a current prospectus relating thereto until the expiration of
the Redeemable Warrants, subject to the terms of the Warrant Agreement. While it
is the Company's intention to do so, there is no assurance that it will be able
to do so.
No holder, as such, of Redeemable Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purposes whatsoever until such Redeemable Warrants have been duly exercised and
the Purchase Price has been paid in full.
Transfer and Warrant Agent
The Company's transfer agent and registrar for the Common Stock and
Warrant Agent for the Redeemable Warrants is American Stock Transfer & Trust
Company.
Limited Liability and Indemnification
Under the FBCA, a director is not personally liable for monetary damages
to the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) the director's breach of, or failure to perform, those
duties constitutes: (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation to procure a judgment in its favor or by
or in the right of a stockholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or stockholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him or her and
incurred by him or her in his or her capacity or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the FBCA.
The Articles of the Company provide that the Company shall, to the
fullest extent permitted by applicable law, as amended from time to time,
indemnify all officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Florida Law and Certain Articles of Incorporation and Bylaw Provisions
The Company is subject to (i) Section 607.0901 of the FBCA, which
generally requires supermajority approval by disinterested directors or
stockholders of certain specified transactions between a corporation and holders
of more than 10% of the outstanding shares of the corporation (or their
affiliates), and (ii) Section 607.0902 of the FBCA, which generally provides
that shares acquired in excess of certain specified thresholds will not possess
any voting rights unless such voting rights are approved by a majority vote of
the corporation's disinterested stockholders.
In addition, certain provisions of the Company's Articles summarized in
the following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
42
<PAGE>
Classified Board of Directors. The Articles provide for the Board of
Directors to be divided into three classes of directors serving staggered three-
year terms. As a result, approximately one-third of the Board of Directors will
be elected each year. These provisions, when coupled with the provision of the
Articles authorizing only the Board of Directors to fill vacant directorships or
increase the size of the Board and prohibiting stockholder removal of directors
except for "cause" and upon the affirmative vote of 66 2/3% of the issued and
outstanding shares of Common Stock entitled to vote generally in the election of
directors, may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. The Articles
provide that stockholders may not take action by written consent, but only at
duly called annual or special meetings or stockholders. The Articles further
provide that special meetings of stockholders of the Company may be called only
by the Board of Directors or holders of not less than 50% of the votes entitled
to be cast at the special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Articles provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 120 days nor more than 180 days prior to the date of the
Company's notice of annual meeting provided with respect to the previous year's
annual meeting; provided, however, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
30 calendar days earlier than the date contemplated by the previous year's proxy
statement, notice by the stockholder, to be timely, must be received no later
than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever is first. The Articles also specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may
preclude stockholders from bringing matters before the stockholders at an annual
or special meeting or from making nominations for directors at an annual or
special meeting.
Authorized But Unissued Shares. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender, offer, merger or
otherwise, and thereby protect the continuity of the Company's management.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
5,350,000 shares of Common Stock, after giving effect to the 250,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants but without giving
effect to shares of Common Stock issuable upon exercise of (i) the Redeemable
Warrants, (ii) the Underwriter's Warrants, (iii) the Underwriter's Over-
allotment Option, (iv) the Corporate Builders Warrants, or (v) options granted
under the Plan. Of such 5,350,000 shares of Common Stock, 1,850,000 shares,
consisting of 1,600,000 shares to be sold by the Company in this Offering plus
250,000 to be issued upon exercise of the Bridge Warrants (plus any additional
shares sold upon the exercise of the Underwriter's Over-allotment Option), will
be freely tradeable without restriction or further registration under the Act,
except for any shares held by "affiliates" of the Company within the meaning of
the Act which shares will be subject to the resale limitations of Rule 144
promulgated under the Act. The Bridge Investors have agreed with the
Underwriter not to sell or otherwise dispose of any of the shares of Common
Stock issuable upon exercise of the Bridge Warrants for a period of twelve
months after the date of the consummation of the Offering and exercise of the
Bridge Warrants without the written consent of the Underwriter. The Underwriter
may, in its sole discretion, and at any time without notice, release all or any
portion of the shares owned by the Bridge Investors from such restrictions.
The remaining 3,500,000 shares (the "Restricted Shares") were issued by
the Company in private transactions in reliance upon one or more exemptions
contained in the Act. The Restricted Shares are deemed to be "restricted
securities" within the meaning of Rule 144 promulgated pursuant to the Act and
may be publicly sold only if registered under the Act or sold pursuant to
exemptions therefrom. As of the date of this prospectus, all of the Restricted
Shares will have been held for more than two years and are eligible for public
sale in accordance with the requirements of Rule 144, as described below. Mr.
Charles N. Finkel, President and Chief Executive Officer of the Company and
beneficial owner of all shares of Common Stock outstanding immediately prior to
the Offering, however, has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of any of his shares for a period of 18
months after the date of this Prospectus, without the Underwriter's consent. In
addition, Mr. Finkel has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of 800,000 shares of Common Stock
beneficially owned by him for a period of ten years after the date of this
Prospectus, without the Underwriter's consent; provided, however, that such
restrictions will be released with respect to 500,000 of such
43
<PAGE>
shares if the Company reports income before income taxes in excess of $7,000,000
for fiscal 1997 and with respect to the remaining 300,000 shares if the Company
reports income before income taxes in excess of $13,000,000 for fiscal 1998. The
Underwriter may, in its sole discretion, and at any time without notice, release
all or any portion of the shares owned by Mr. Finkel from such restrictions.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on Nasdaq-SCM, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of the Company for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above. The Commission is currently
considering a proposal to reduce the Rule 144 holding period for restricted
securities to one year.
The Company intends to file a registration statement under the
Securities Act to register shares of Common Stock reserved for issuance under
the Plan, thereby permitting the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act. The Company has
reserved up to 450,000 shares of Common Stock for issuance under the Plan. As of
the date of this Prospectus, options to purchase 385,000 of such reserved shares
of Common Stock were outstanding under the Plan. See "Management--1996 Stock
Option Plan."
Prior to this Offering, there has been no public market for the Common
Stock or the Redeemable Warrants, and no predictions can be made as to the
effect, if any, that sales of the Common Stock under Rule 144 will have on the
market price of such securities from time to time. Sales of substantial amounts
of the Company's securities in the public market could have a significant
adverse effect on prevailing market prices and could impair the Company's future
ability to raise capital through the sale of its equity securities. See "Risk
Factors--Shares Eligible for Future Sale."
44
<PAGE>
CONCURRENT REGISTRATION OF COMMON STOCK
The 250,000 shares of Common Stock issuable upon the exercise of the
Bridge Warrants are also being registered in connection with this Offering and
are covered by a Bridge Investors Prospectus included in the Registration
Statement of which this Prospectus forms a part. Such shares have been included
in the Registration Statement of which this Prospectus forms a part. The Bridge
Warrants were issued to the Bridge Investors in connection with the Company's
May 1996 Bridge Financing, in which the Company agreed to register the
underlying shares concurrently with this Offering and pay all expenses in
connection therewith (other than brokerage commissions and fees and expenses of
counsel). The Company also agreed to maintain an effective registration
statement and current prospectus covering the issuance and public sale of shares
of Common Stock issuable upon exercise of the Bridge Warrants for a period of 18
months from the consummation of this Offering. None of the Bridge Investors has
ever held any position or office with the Company or had any other material
relationship with the Company. The Company will not receive any proceeds from
the sale of shares by the Bridge Investors.
The Common Stock issuable to the Bridge Investors upon exercise of the
Bridge Warrants may, commencing twelve months from the date of this Prospectus
or earlier with the consent of the Underwriter, be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. Such shares offered hereby may be
sold by one or more of the following methods, without limitation: (a) a block
trade in which a broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Bridge Investors may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Bridge Investors in
amounts to be negotiated. Such brokers or dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act, in connection with such sales.
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to
purchase from the Company, 1,600,000 shares of Common Stock and 1,600,000
Redeemable Warrants. The underwriting agreement between the Company and the
Underwriter (the "Underwriting Agreement") provides that the obligations of the
Underwriter are subject to certain conditions precedent. The Underwriter is
committed to purchase all of the Securities offered hereby if any are purchased
(other than those covered by the Underwriter's Over-allotment Option described
below).
The Underwriter has advised that it proposes initially to offer the
1,600,000 shares of Common Stock and 1,600,000 Redeemable Warrants to the public
at the initial public offering prices set forth on the cover page of this
Prospectus and that it may allow to selected dealers who are members of the NASD
concessions not in excess of $______ per share of Common Stock and $______ per
Redeemable Warrant, of which not more than $_______ per share of Common Stock
and $_______ per Redeemable Warrant may be re-allowed to certain other dealers.
After the initial public offering, the offering price and other selling
terms may be changed by the Underwriter. The Underwriter has advised the
Company that the Underwriter does not intend to confirm sales to any accounts
over which it exercises discretionary authority.
The Underwriting Agreement provides further that the Underwriter will
receive from the Company a non-accountable expense allowance of 3% of the gross
proceeds of the Offering (including all securities sold by the Company and the
Selling Stockholder upon exercise of the Underwriter's Over-allotment Option),
of which $50,000 has been paid by the Company to date. The Company has also
agreed to pay all expenses in connection with qualifying the shares of Common
Stock and the Redeemable Warrants offered hereby for sale under the laws of such
states as the Underwriter may designate, including expenses of counsel retained
for such purpose by the Underwriter.
Pursuant to the Underwriter's Over-allotment Option, which is
exercisable for a period of 45 days after the closing of the Offering, the
Underwriter may purchase up to 15% of the total number of shares of Common Stock
(of which the first 50,000 shares will be purchased from the Selling Stockholder
and the remainder from the Company) and Redeemable Warrants offered hereby,
solely to cover over-allotments.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase 160,000 shares of Common
Stock and 160,000 Redeemable Warrants. The Underwriter's Warrants will be
nonexercisable for one year after the date of this Prospectus. Thereafter, for a
period of four years, the Underwriter's Warrants will be exercisable at an
amount equal to 165%
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Ensec International, Inc.
We have audited the accompanying consolidated balance sheets of Ensec
International, Inc. and Subsidiaries (the "Company") as of December 31, 1994 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ensec
International, Inc. as of December 31, 1994 and 1995, and the consolidated
results of their operations and their consolidated cash flows for the years then
ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Fort Lauderdale, Florida
April 12, 1996 (except for Note N,
as to which the date is May 15, 1996)
The foregoing auditors' report is in the form which will be signed upon
effectiveness of the offering contemplated and described in Note L to the
financial statements.
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
April 12, 1996
F-2
<PAGE>
Ensec International, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1994 1995 1996
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 1,906,012 $ 239,031 $ 77,232
Short-term investments - 922,775 922,775
Accounts receivable (less
allowance for doubtful
accounts of $96,000, $115,000
and $104,000
in 1994, 1995 and 1996,
respectively) 2,325,000 1,967,550 2,428,566
Inventory 574,788 981,882 1,160,683
Other current assets (Note D) 465,774 398,652 394,226
----------- ----------- -----------
Total current assets 5,271,574 4,509,890 4,983,482
Property and equipment, net (Note E) 3,563,258 2,654,913 2,598,618
Other assets
Capitalized software costs, net 2,917,000 3,825,000 4,046,000
Deferred income taxes (Note K) 40,000 - -
Fiscal incentive certificates 240,000 258,000 258,000
Refundable income taxes 70,000 74,000 124,000
Other assets 20,957 24,400 25,603
----------- ----------- -----------
Total assets $12,122,789 $11,346,203 $12,035,703
=========== =========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities
<S> <C> <C> <C>
Bank overdraft $ - $ - $ 180,135
Notes payable (Note G) 493,000 2,120,000 2,511,000
Due to related party 8,227 - -
Lines of credit (Note H) - 268,774 485,700
Accounts payable 702,486 1,115,070 1,180,790
Accrued and other liabilities
(Note F) 1,723,782 1,019,384 1,375,965
Dividends payable 277,043 300,647 297,647
Current portion of long-term debt 578,000 1,191,000 1,499,000
----------- ----------- -----------
Total current liabilities 3,782,538 6,014,875 7,530,237
----------- ----------- -----------
Long-term debt, less current portion
(Note I) 1,696,000 3,209,000 2,623,615
Deferred income taxes 1,023,000 319,000 362,000
Commitments and contingencies (Note J) - - -
Stockholders' equity
Preferred stock, authorized
3,000,000 shares at $.01
par value; issued and
outstanding, 0 shares at
December 31, 1994 and 1995 and
at March 31, 1996 - - -
Common stock, authorized
20,000,000 shares at $0.01
par value; issued and
outstanding, 3,500,000 shares
at December 31, 1994 and 1995
and at March 31, 1996,
respectively 35,000 35,000 35,000
Additional paid-in capital 3,434,501 3,434,501 3,434,501
Retained earnings (accumulated
deficit) 2,151,750 (1,666,173) (1,949,650)
----------- ----------- -----------
Total stockholders' equity 5,621,251 1,803,328 1,519,851
----------- ----------- -----------
Total liabilities and
stockholders' equity $12,122,789 $11,346,203 $12,035,703
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Ensec International, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
Year Ended December 31, March 31,
----------------------- ------------------------
1994 1995 1995 1996
------ ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $11,118,633 $11,456,815 $3,467,358 $3,390,734
Cost of goods sold 3,632,433 7,663,695 2,260,533 2,349,710
----------- ----------- ---------- ----------
Gross profit 7,486,200 3,793,120 1,206,825 1,041,024
Selling, general and
administrative expenses 5,094,186 6,271,538 1,892,532 1,088,230
Translation loss (gain) 2,046,000 1,268,000 (676,000) (124,000)
----------- ----------- ---------- ----------
Earnings (loss) from
operations 346,014 (3,746,418) (9,707) 76,794
Other (income) expenses
Interest income (1,614,000) (648,341) (219,198) (40,834)
Interest expense 508,000 2,519,517 251,000 348,596
Gain on sale of division (Note M) - (1,491,000) - -
Other, net 592,968 395,329 144,899 9,509
----------- ----------- ---------- ----------
513,032 775,505 176,701 317,271
----------- ----------- ---------- ----------
Earnings (loss)
before income taxes 859,046 (4,521,923) (186,408) (240,477)
Income tax (benefit) expense (Note K) 625,000 (704,000) 26,000 43,000
----------- ----------- ---------- ----------
Net earnings (loss) $ 234,046 $(3,817,923) $ (212,408) $ (283,477)
=========== =========== ========== ==========
Net earnings (loss) per
common share $ .06 $ (.96) $ (.05) $ (.07)
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Ensec International, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Two Years Ended December 31, 1995
and Three Months Ended March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------ Paid-In (Accumulated
Shares Amount Capital Deficit) Total
--------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 3,500,000 $35,000 $3,434,501 $ 1,917,704 $ 5,387,205
Net earnings - - - 234,046 234,046
--------- ------- ---------- ----------- -----------
Balance at
December 31, 1994 3,500,000 35,000 3,434,501 2,151,750 5,621,251
Net loss - - - (3,817,923) (3,817,923)
--------- ------- ---------- ----------- -----------
Balance at
December 31, 1995 3,500,000 35,000 3,434,501 (1,666,173) 1,803,328
Net loss (unaudited) - - - (283,477) (283,477)
--------- ------- ---------- ----------- -----------
Balance at March 31,
1996 (unaudited) 3,500,000 $35,000 $3,434,501 $(1,949,650) $ 1,519,851
========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Ensec International, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------ -------------------------
1994 1995 1995 1996
--------- ------------ ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings loss $ 234,046 $(3,817,923) $ (212,408) $(283,477)
Adjustments to reconcile net earnings
loss to net cash provided by (used in)
operating activities:
Depreciation and amortization expense 935,312 674,832 215,000 207,295
(Gain) on sale of division - (1,491,000) - -
Changes in assets and liabilities:
(Increase) in short-term investments - (922,775) - -
Decrease (increase) in accounts
receivable (938,773) 460,000 216,000 (563,566)
Decrease (increase) in inventories 120,617 (407,094) (525,000) (178,801)
Decrease (increase) in other
current assets (260,835) (35,428) (321,000) 36,976
Decrease (increase) in other assets (127,432) 15,557 334,000 18,797
Increase (decrease) in accounts
payable 323,289 412,585 104,000 (113,615)
Increase (decrease) in accrued
and other liabilities 1,566,713 (1,197,795) (431,000) 397,381
----------- ----------- ---------- ---------
Net cash provided by (used in)
operating activities 1,852,937 (6,309,041) (620,408) 480,610
Cash flows from investing activities:
Computer software costs (1,689,000) (1,202,000) (412,000) (372,000)
Proceeds from sale of fixed assets - 575,000 - -
Proceeds from sale of currency
sorting equipment - 1,812,000 - -
Purchase of fixed assets (283,676) (180,487) (321,000) -
----------- ----------- ---------- ---------
Net cash (used in) provided
by investing activities (1,972,676) 1,004,513 (733,000) (372,000)
Cash flows from financing activities:
Net borrowings (repayments)
under credit line agreements (147,146) 268,774 - 216,926
Net borrowings from affiliates 771,000 8,228 - -
Net borrowings under loan agreements 1,394,000 3,753,000 1,212,000 113,615
----------- ----------- ---------- ---------
Net cash provided by
financing activities 2,017,854 4,030,002 1,212,000 330,541
----------- ----------- ---------- ---------
Net increase (decrease) in cash
and cash equivalents 1,898,115 (1,274,526) (141,408) (522,069)
Translation (loss) gain on cash and
cash equivalents (812,000) (392,455) 143,000 360,270
Cash and cash equivalents at
beginning of year 819,897 1,906,012 1,906,000 239,031
----------- ----------- ---------- ---------
Cash and cash equivalents at end of year $ 1,906,012 $ 239,031 $1,908,408 $ 77,232
=========== =========== ========== =========
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 296,000 $ 1,175,517 $ 101,000 $ 222,000
=========== =========== ========== =========
Income taxes $ 35,000 $ 48,000 $ 44,000 $ -
=========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Ensec International, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1995
and the Three Months Ended March 31, `1995 and 1996
(Information relating to the three months ended March 31, 1995 and 1996 is
unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Ensec International, Inc. and Subsidiaries (the "Company") designs, develops and
assembles integrated security systems. Ensec International, Inc. has two wholly-
owned subsidiaries, Ensec-Engenharia e Sistemas de Seguranca S.A. ("Ensec,
S.A."), a Brazilian corporation, and Ensec Inc., a Florida corporation. All
intercompany transactions have been eliminated in consolidation.
Of the 3,500,000 shares of Company common stock currently issued and outstanding
2,500,000 are owned by Tecpo Comercio E Representaceos Ltda. ("Tecpo") and
1,000,000 shares are owned by Fugrow Investments, Inc., a British Virgin Islands
corporation ("Fugrow"). Tecpo and Fugrow are wholly-owned by Mayfair Limited
Partnership, a Delaware limited partnership, the sole general partner of which
is Mayfair Company, a Delaware corporation. Charles N. Finkel, President and
Chief Executive Officer of the Company, is the sole limited partner of Mayfair
Limited Partnership and the sole stockholder of Mayfair Company.
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Short-Term Investments
- ----------------------
The short-term investment at December 31, 1995, consists of a certificate of
deposit which is restricted because it is pledged as a performance guarantee
under a contract. The Company expects the certificate of deposit to be partially
released in June 1996 when the contract is substantially completed, and the
remainder to be released in August 1996.
Inventories
- -----------
Inventories are stated at the lower of cost or market based on a first-in,
first-out basis. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31,
1994 1995 1996
-------- -------- ----------
(Unaudited)
<S> <C> <C> <C>
Parts and supplies $574,788 $494,028 $ 328,028
Inventory applicable to contracts in
progress, net of billings of $0, $1,002,341
and $1,730,272 in 1994, 1995 and 1996,
respectively - 487,854 832,655
-------- -------- ----------
$574,788 $981,882 $1,160,683
======== ======== ==========
</TABLE>
F-7
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Depreciation
- ------------
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
straight-line method of depreciation is followed for financial reporting
purposes. The useful lives are as follows:
Equipment 5 to 10 years
Furniture and fixtures 5 to 10 years
Income Taxes
- ------------
Deferred taxes have been provided on temporary differences in reporting certain
transactions for financial accounting and tax purposes. Under the liability
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the current enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
Use of Estimates
- ----------------
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
The Company's estimates of the percentage of completion on contracts are based
on management's best estimate of total costs to be incurred. However, the actual
results may be different from management's estimates.
Fair Value of Financial Instruments
- -----------------------------------
The carrying values of cash and cash equivalents, trade receivable and accounts
payable approximate fair value due to the short-term maturities of these
instruments.
Revenue Recognition
- -------------------
Revenue is recognized upon delivery and acceptance for normal product sales,
which are those systems which do not require significant software customization
and are completed within relatively short time-frames. Revenues from those
turnkey systems that require significant customization are recognized as
contract revenues under the percentage of completion method. Earned revenue is
based on the percentage that incurred costs to date bear to total estimated
costs after giving effect to
(continued)
F-8
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Revenue Recognition - Continued
- -------------------
the most recent estimates of total cost. The cumulative impact of revisions in
total cost estimates during the progress of work is reflected in the year in
which these changes become known. Earned revenue reflects the original contract
price adjusted for agreed upon claim and change order revenue, if any. Progress
billings in accounts receivable are currently due in accordance with the
contract terms. Revenue received under maintenance contracts is recognized over
the term of the related agreements.
Capitalized Software Costs
- --------------------------
The Company capitalized costs incurred for internally developed software to be
sold, leased, or otherwise marketed where economic and technological feasibility
has been established. Capitalized software costs are amortized over the
estimated economic useful life of the software product (7 years). Capitalized
software costs amounted to $2,917,000 and $4,119,000 at December 31, 1994 and
1995, respectively. Accumulated amortization at December 31, 1994 and 1995,
amounted to $0 and $294,000, respectively. Costs of product enhancements are
capitalized and amortized over the remaining life of the product.
Impairment of Assets
- --------------------
The Company periodically assesses the realizability of the capitalized software
costs. This assessment includes calculations of the estimated future gross
profits to be realized from product sales as well as consideration of changes in
hardware and software technology.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There was no material impact from the adoption of the provisions of
SFAS 121 in the first quarter of 1996.
Foreign Currency Translation
- ----------------------------
Ensec, S.A. operates in a highly inflationary country (Brazil). As a result, the
U.S. dollar is considered the functional currency and a combination of current
and historical rates is used in translating assets and liabilities. The related
exchange adjustments are included in operations.
The adjustments to reflect the effects of inflation, which are required by
generally accepted accounting principles in Brazil, have been eliminated in
these translated financial statements to conform them with generally accepted
principles in the United States.
(continued)
F-9
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Interim Financial Information
-----------------------------
The financial statements at March 31, 1996 and for the three month periods
ended March 31, 1995 and 1996 are unaudited and prepared on the same basis
as the audited consolidated financial statements included herein. In the
opinion of management, such interim financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the results for such periods. The results of operations for
the three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year or any other interim period.
Earnings Per Common Share
-------------------------
Net earnings per share has been computed by dividing net earnings (loss)
by the weighted average number of common and common equivalent shares
outstanding during each period. The weighted average number of shares of
common stock and common stock equivalent shares used for computing net
earnings (loss) was 3,972,302 in 1994, 1995 and 1996. Weighted average
shares includes the effect of the options and warrants issued with exercise
prices below the IPO price, as calculated under the treasury stock method.
Subsequent to year end, the Company completed the Bridge Financing,
discussed in Note N. A part of those proceeds, along with a part of the
proceeds from the public offering (see Note L.) were and will be used to
retire certain indebtedness. Supplementary earnings per share data, assuming
the issuance of the shares and retirement of debt at the beginning of the
period, would be $ (.65) and $ (.01) for the year ended December 31, 1995
and for the quarter ended March 31, 1996, respectively.
Concentration of Credit Risk
----------------------------
The Company's sales are concentrated in the United States and Brazil.
Approximately 92%, 79% and 73% of the Company's sales in 1994, 1995 and
1996, respectively, are in Brazil, of which one customer represents 40% and
13% and 0% in 1994, 1995 and 1996, respectively. Approximately 62% of the
sales in the United States in 1995 are from the results of one contract.
For the quarter ended March 31, 1996, two contracts represented 95% of
sales in the United States.
Stock Options
-------------
Options granted under the Company's Stock Option Plan are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In November 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation," which will
require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method
specified in APB 25. The Company plans to continue to apply APB 25 and the
only effect of adopting Statement 123 in 1996 will be the new disclosure
requirement.
F-10
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE B - RISKS AND UNCERTAINTIES
The Company will generate an increasing portion of its revenue from the
sale and service of En2000 integrated security system products. These
products are exposed to the risk that new technology could be introduced
resulting in significantly lowered demand for its products. Also, the
estimated useful life of the Company's capitalized software costs is a
significant estimate for which it is reasonably possible that such a
technology change will affect the estimated useful life.
A significant amount of the Company's operations are based in Brazil. The
Brazilian market in which the Company operates is characterized by volatile
and frequently unfavorable economic, political and social conditions. High
inflation and, with it, high interest rates are common. Inflation has
declined but continues to be high in Brazil. In 1995, the per annum
inflation rate was approximately 22% in Brazil (compared to over 900% in
1994). Historically, Brazil has also experienced significant currency
fluctuations. In view of the foregoing, the Company's business, earnings,
asset values and prospects may be materially and adversely affected by
developments with respect to inflation, interest rates, currency
fluctuations, government policies, price and wage controls, exchange control
regulations, taxation, expropriation, social instability, and other
political, economic or diplomatic developments in or affecting Brazil.
Although the Company has been able to operate successfully in Brazil for
over 12 years, it has no control over such conditions and developments, and
can provide no assurance that such conditions and developments will not
adversely affect the Company's operations.
NOTE C - ORGANIZATION OF HOLDING COMPANY
On April 2, 1996, Ensec International, Inc. was formed as a holding
company and acquired Ensec, S.A. and Ensec, Inc. in a stock for stock
transaction. These acquisitions have been accounted for as an exchange
between entities under common control in a manner similar to a pooling of
interest. Accordingly, the consolidated statements include the operations
of both companies for 1994 and 1995.
NOTE D - OTHER CURRENT ASSETS
Other current assets consists of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Advances to suppliers $242,000 $ 85,000
Social taxes receivable, net 59,000 125,000
Compulsory deposits 40,000 41,385
Other receivables 70,000 70,000
Other 54,774 77,267
-------- --------
$465,774 $398,652
======== ========
</TABLE>
F-11
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Land $ 279,000 $ 279,000
Building 1,337,000 1,337,000
Machinery and equipment 4,553,689 2,351,745
Furniture and fixtures 518,373 532,943
Vehicles 59,000 60,000
----------- -----------
6,747,062 4,560,688
Less accumulated depreciation (3,183,804) (1,905,775)
----------- -----------
$ 3,563,258 $ 2,654,913
=========== ===========
</TABLE>
NOTE F - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
1994 1995
----------- -----------
<S> <C> <C>
Salaries and related taxes $ 783,000 $ 518,000
Taxes other than income taxes 190,000 103,000
Advances from customers 554,000 42,000
Other accruals 196,782 356,384
----------- -----------
$ 1,723,782 $ 1,019,384
=========== ===========
</TABLE>
NOTE G - NOTES PAYABLE
Notes payable to banks at December 31, 1994 and 1995 amounted to $493,000
and $2,120,000, respectively. These notes bear interest at rates ranging
from 4.06% to 5.30% per month and are guaranteed by the Chief Executive
Officer of the Company. Maturity dates of these notes are within one year.
F-12
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE H - LINE OF CREDIT
The line of credit balance at December 31, 1994 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
Note payable to bank under a $200,000
line of credit; interest payable monthly
at prime plus 2% (effective rate of 10.5%);
collateralized by accounts receivable.
The note was repaid in 1996. $ - $ 185,400
Note payable to bank under a $300,000
line of credit; interest payable monthly
at prime plus 2% (effective rate of 10.5%);
collateralized by accounts receivable;
principal is due on June 17, 1996. - 83,374
---------- -----------
$ - $ 268,774
========== ===========
</TABLE>
NOTE I - LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Note payable to bank; principal and interest
at 12% payable monthly; guaranteed by the
President of the Company; maturing on
March 15, 1998 $2,274,000 $1,729,000
Note payable; principal and interest at
12% payable monthly; collateralized by a
mortgage on certain real and personal
property; maturing on September 15, 1998 - 2,671,000
---------- ----------
2,274,000 4,400,000
Less Current portion of long-term debt (578,000) (1,191,000)
---------- ----------
$1,696,000 $3,209,000
========== ==========
</TABLE>
F-13
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE J - COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases certain offices and equipment pursuant to non-
cancelable operating leases which expire in various years through 1999. The
following is a schedule of future minimum lease payments as of December 31,
1995:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 78,627
1997 66,834
1998 30,834
1999 26,702
--------
$202,997
========
</TABLE>
Rent expense was approximately $124,600 and $211,900 in 1994 and 1995,
respectively.
Litigation
----------
The Company is engaged in various lawsuits, as defendant, involving
alleged sexual harassment and employment law claims. The Company has
established reserves, which, in its opinion, will be sufficient to satisfy
its obligations with respect to such lawsuits.
Employment Agreements
---------------------
The Company has entered into employment agreements with certain of its
officers for a period of three years commencing May 1996. The agreements
provide the employees with severance benefits ranging from 1/2 to 2 times
total cash compensation earned in the 12 months preceding the date of
termination in the event the agreements are terminated under certain
conditions. The agreements also provide for each officer, with the exception
of the president, a grant of options under the Company's 1996 Stock Option
Plan (the "Plan") which will vest in one-third equal installments over a
three-year period, with the first vesting to occur on the first anniversary
date of the employment agreements.
F-14
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE K - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C> <C>
Current
Federal $ - $ -
Foreign - -
---------- ---------
Deferred
Federal $ - $ -
Foreign 625,000 (704,000)
---------- ---------
$625,000 $(704,000)
========== =========
</TABLE>
Deferred income taxes and benefits are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences which give rise to significant deferred tax
assets or liabilities follow:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Contributions $ 544 $ 884
Amortization of organization cost 11,416 4,527
Net operating loss - Federal 779,693 1,229,821
Net operating loss - Foreign 49,000 919,000
Other 1,898 9,705
----------- -----------
842,551 2,163,937
Less valuation allowance - Federal 779,693 1,229,821
----------- -----------
62,858 934,116
Computer software costs (1,072,000) (1,238,000)
Depreciation (13,858) (15,116)
----------- -----------
Net deferred tax liability $(1,023,000) $ (319,000)
=========== ===========
</TABLE>
The change in the valuation allowance amounted to $293,593 and $442,321 in
1994 and 1995, respectively.
(continued)
F-15
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE K - INCOME TAXES - Continued
At December 31, 1995, the Company has net operating loss ("NOL")
carryforwards for income tax purposes as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Federal $3,617,119
Foreign corporate taxes $2,896,000
Foreign social contribution taxes $2,629,000
</TABLE>
Expiration of the Federal tax NOL begins in 2006. The foreign NOL's have
no expiration date and therefore can be carried forward indefinitely. Due
to historical losses, a valuation allowance of $779,693 and $1,229,821 has
been established for the entire amount of the tax benefit attributed to the
Federal tax NOL. If certain changes in ownership occur, future utilization
of the Federal tax NOL may be limited.
NOTE L - PUBLIC OFFERING OF COMMON STOCK
The Board has authorized the filing of a registration statement relating
to an initial public offering of 1,600,000 shares of Common Stock and
Redeemable Warrants to purchase 1,600,000 shares of Common Stock. In
addition to the issuance and sale of 1,600,000 shares of common stock, up to
240,000 additional shares may be sold by the underwriter pursuant to an
over-allotment option. In connection with the offering, the Company has
agreed to sell to the underwriter, for nominal consideration, redeemable
warrants to purchase up to 160,000 shares of Common Stock ("the Warrants")
and 160,000 Redeemable Warrants. The Warrants are initially exercisable at
a price of 165% of the initial public offering price per share of common
stock and per Redeemable Warrant for a period of four years commencing one
year from the effective date of the Registration Statement and are
restricted from sale, transfer and assignment until the date of first
exercisability.
NOTE M - PRO FORMA INFORMATION FOR SALE OF DIVISION
In December 1995, the Company sold its currency sorting machine division
to a minority shareholder for the shareholder's interest in the Company plus
$1,812,000 in cash, and a 10% interest in the purchaser, valued at zero.
Based on the division's net book value of $133,000, and employee termination
costs of $188,000, a gain of $1,491,000 resulted from this transaction.
(continued)
F-16
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE M - PRO FORMA INFORMATION FOR SALE OF DIVISION
Below is an unaudited Pro forma Consolidated Condensed Statement of
Operations.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------
Pro Forma Pro Forma
Historical Adjustments (1) Adjusted
------------ --------------- ------------
<S> <C> <C> <C>
Revenues $11,456,815 $(2,896,000) $ 8,560,815
Operating costs and expenses 15,203,233 (2,213,600) 12,989,633
----------- ----------- -----------
Operating earnings (loss) (3,746,418) 682,400 (4,428,818)
Other expenses, net 775,505 1,491,000 775,505
----------- ----------- -----------
Loss before income taxes (4,521,923) 2,173,400 (5,204,323)
Income tax expense (benefit) (704,000) 704,182 (1,408,182)
----------- ----------- -----------
Net earnings (loss) $(3,817,923) $ 1,469,218 $(5,287,141)
=========== =========== ===========
Net loss per common share $(.96) $(1.33)
=========== ===========
</TABLE>
(1) These amounts represent the operations of the currency sorting machine
division from January 1, 1995 up to the date of sale in December 1995.
NOTE N - SUBSEQUENT EVENT
Bridge Loan
-----------
In May 1996, the Company completed a $2,500,000 bridge financing to
support its operations until a contemplated initial public offering of the
Company's securities is completed in 1996. The financing was obtained
through the offering of Units of $25,000 each. Each Unit consists of: (i)
a senior subordinated promissory note in the principal amount of $25,000
bearing interest, payable semi-annually, at the rate of 10% per annum due
and payable on the earliest of: (a) the closing of an initial public
offering of the Company's Common Stock, par value $.01 per share; or (b) 12
months from the date of the initial sale of the unit; and (ii) warrants to
purchase 2,500 shares of the Company's common stock, par value $.01 per
share, at an exercise price of $.10 per share.
(continued)
F-17
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE N - SUBSEQUENT EVENT - Continued
Stock Options
-------------
In May 1996, the Company adopted the Plan pursuant to which stock options
(both Nonqualified Stock Options and Incentive Stock Options, as defined in
the Plan), stock appreciation rights and restricted stock may be granted to
directors, key employees and consultants (the "Participants"). The Plan
provides for the automatic grant to directors who are not employees of the
Company or its subsidiaries, at such time as an individual becomes a
director of the Company, of Nonqualified Stock Options to purchase 15,000
shares of Common Stock at an exercise per share equal to the greater of
$3.00 or the fair market value of the shares on the date of grant. The
options vest in increments of 5,000 shares per year, commencing on the date
of the Company's annual meeting of shareholders for the election of
directors next following the date such individual became a director and
continuing with each such successive annual meeting provided such person
remains a director of the Company as of such date. The Plan also provides
for the acceleration of the vesting schedule in certain circumstances.
Stock appreciation rights may be granted in conjunction with the grant of
an Incentive or Nonqualified Stock Option under the Plan or independently of
any such stock option. A stock appreciation right granted in conjunction
with a stock option may be an alternative right. In which event, the
exercise of the stock option terminates the stock appreciation right to the
extent of the shares purchased upon exercise of the stock option, and
correspondingly, the exercise of the stock appreciation right terminates the
stock option to the extent of the shares with respect to which such right is
exercised. Alternatively, a stock appreciation right granted in conjunction
with a stock option may be an additional right, in which case both the stock
appreciation right and the stock option may be exercised. A stock
appreciation right may not, however, be granted in conjunction with an
Incentive Stock Option under circumstances in which the exercise of the
stock appreciation right affects the right to exercise the Incentive Stock
Option or vice versa, unless certain terms and conditions are met. Subject
to the terms of the Plan, the Company may award shares of restricted stock
to the Participants. Generally, a restricted stock award will not require
the payment of any option price by the Participant but will call for the
transfer of shares to the Participant subject to forfeiture, without payment
of any consideration by the Company, if the Participant's employment
terminates during a "restricted" period (which must be at least six months)
specified in the award of the restricted stock.
There are 450,000 shares authorized for possible issuance under the Plan,
of which Incentive Stock Options to purchase 370,000 shares were granted in
May and June 1996 with an exercise price of $3.00 per share.
F-18
<PAGE>
Ensec International, Inc. and Subsidaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Two Years Ended December 31, 1995
and for the Three Months Ended March 31, 1995 and 1996
(Information relating to the Three Months Ended March 31, 1995 and 1996 is
unaudited)
NOTE O - SEGMENT INFORMATION
The Company's operations involve a single industry segment that designs,
develops, and assembles integrated security systems. The geographic areas
in which the Company operates are the United States and Brazil. Net sales,
operating income (before interest and income taxes) and identifiable assets
by geographic area were as follows:
<TABLE>
<CAPTION>
United States Brazil Consolidated
-------------- ------------ -------------
<S> <C> <C> <C>
1994
----
Net sales $ 860,633 $10,258,000 $11,118,633
=========== =========== ===========
Operating income (loss) $(1,096,985) $ 1,442,999 $ 346,014
=========== =========== ===========
Identifiable assets $ 776,422 $11,346,367 $12,122,789
=========== =========== ===========
1995
----
Net sales $ 2,406,815 $ 9,050,000 $11,456,815
=========== =========== ===========
Operating loss $(1,069,026) $(2,677,392) $(3,746,418)
=========== =========== ===========
Identifiable assets $ 2,000,598 $ 9,345,605 $11,346,203
=========== =========== ===========
</TABLE>
F-19
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
[Alternate Page for Bridge Investors Prospectus]
Preliminary Prospectus, Subject to Completion, Dated June 18, 1996
ENSEC INTERNATIONAL, INC.
250,000 Shares of Common Stock
This Prospectus relates to an offering (the "Offering") by certain
persons (the "Bridge Investors") of up to 250,000 shares of the common stock,
$.01 par value per share (the "Common Stock") of Ensec International, Inc. (the
"Company"). The Company will not receive any of the proceeds from the sale of
such shares. It is anticipated that the Common Stock offered hereby will be
offered and sold from time to time in the over-the-counter market or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. See "Bridge Investors and Plan of
Distribution."
Prior to the Offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the NASDAQ SmallCap Market
(the "Nasdaq-SCM") under the trading symbol "ENSC." It is also anticipated that
an application will be submitted to list the Common Stock on the Boston Stock
Exchange under the trading symbol "___."
Concurrently with this Offering, the Company is offering by separate
prospectus (the "Company Prospectus") 1,600,000 shares of Common Stock (the
"Company Offered Shares") and redeemable warrants (the "Company Offered
Redeemable Warrants") to purchase 1,600,000 shares of Common Stock
(collectively, the "Company Offering"). See "Concurrent Registration of Common
Stock and Warrants."
The Company has agreed to pay all of the expenses in connection with the
registration and sale of the shares being offered by the Bridge Investors (other
than brokerage commissions and fees and expenses of counsel). The Company has
also agreed to indemnify the Bridge Investors against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
-----------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT SHOULD
INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN THE
COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS."
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
No underwriter, dealer, salesperson or other person has been
authorized to give any information or to make any representation other than as
contained in this Prospectus in connection with this Offering and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company. The delivery of this Prospectus at any time does not
imply that there has not been any change in the information set forth herein or
in the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy any security
other than the securities offered hereby, or an offer to sell or solicitation of
an offer to buy such securities in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom such offer or
solicitation would be unlawful.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................
Risk Factors............................................
Use of Proceeds.........................................
Dilution................................................
Capitalization..........................................
Dividend Policy.........................................
Selected Consolidated Financial Data....................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................
Business................................................
Management..............................................
Principal and Selling Stockholders......................
Certain Relationships and Related Transactions..........
Description of Securities...............................
Shares Eligible for Future Sale.........................
Bridge Investors and Plan of Distribution...............
Concurrent Registration of Common Stock and Warrants....
Legal Matters...........................................
Experts.................................................
Available Information...................................
Index to Consolidated Financial Statements.............. F-1
</TABLE>
________________
As of the date of the Company Prospectus, the Company will become
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices: New
York Regional Office, Suite 1300, 7 World Trade Center, New York, New York
10048, and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and copies of such material may also be obtained
from the Public Reference Section of the Commission at prescribed rates. The
Commission maintains a World Wide Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file such information electronically. The Company's Common
Stock will be quoted on the Nasdaq-SCM and such reports and other information
can also be inspected at the offices of Nasdaq Operations, 1735 K Street N.W.,
Washington, D.C., 20006. The Company intends to furnish its stockholders with
annual reports containing audited consolidated financial statements and such
other reports as the Company deems appropriate or as may be required by law.
(i)
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, the
information in this Prospectus (i) reflects the formation of the Company and its
organization as the holding company for Ensec, S.A. and Ensec Inc. as if such
formation and organization had occurred as of the earliest date presented, (ii)
does not reflect the issuance by the Company in April and May 1996 of $2,500,000
of 10% senior subordinated notes to the Bridge Investors who also received in
connection therewith warrants to purchase 250,000 shares of Common Stock with an
exercise price of $.10 per share (the "Bridge Warrants") which are mandatorily
exercisable upon the consummation of the sale of the securities in the Company
Offering, and (iii) does not give effect to the exercise of (a) an over-
allotment option granted to Rickel & Associates, Inc. (the "Underwriter")
pursuant to the Company Offering (the "Underwriter's Over-allotment Option"),
(b) the Company Offered Warrants, (c) warrants (the "Underwriter's Warrants")
entitling the Underwriter to purchase up to 160,000 shares of Common Stock and
160,000 Company Offered Redeemable Warrants and (d) other outstanding options
and warrants to purchase an aggregate of 568,040 shares of Common Stock.
The Company
The Company designs, develops, assembles, sells, installs and services high-
end integrated security systems based on the Company's proprietary software and
controlling hardware which permits multiple mechanisms to be combined into a
single enterprise-wide system of access control, surveillance and data security.
The Company's security systems are typically found in large commercial or
governmental facilities, including office buildings, military bases, museums,
correctional facilities and airports. Since its inception, the Company has
installed approximately 400 systems, primarily in Brazil, including systems for
many large corporations (such as Bosch, Caterpillar, General Motors, IBM,
Eastman-Kodak, Microsoft and Texaco), and government agencies (such as the
Brazilian Bureau of Mint & Engraving and the Central Bank of Brazil). The
Company derives its revenue primarily from sales and installation of its
security systems and service of such systems and security-related equipment.
The Company believes that the worldwide integrated security systems market is
currently $1.5 billion and has been growing at a rate of approximately 15% per
annum from 1992 to 1995. The Company is attempting to expand its focus from
operations based primarily in Brazil, marketing its products primarily to
Brazilian customers, to a company with a global market focus and a particular
emphasis on sales to U.S. customers. To facilitate this shift, the Company has
entered into strategic alliances with Electronic Data Systems ("EDS") and
Lockheed Martin IMS ("Lockheed Martin") to joint-market Company systems and
services. The Company is in the process of moving its research and development
activities and finance and executive functions from Brazil to the United States.
Examples of some of the Company's completed projects include: (i) an
integrated security system for the Brazilian Bureau of Mint & Engraving; (ii) an
access control, time and attendance, closed-circuit television ("CCTV") and
fleet management system for Companhia Vale do Rio Doce, a large Brazilian iron
ore mining company with over 65,000 employees; and (iii) a postal tracking and
tracing system for the Brazilian Postal Service. The installations described
above involved prior versions of the Company's systems.
In 1995, the Company completed the development of its third-generation system,
the EnWorks(TM) product family, consisting of state-of-the-art, real time,
integrated electronic security systems. The Company invested four years and
over $5 million in the development of the flagship product in the EnWorks(TM)
family: the En2000(TM) system. The Company began marketing this system in 1995
and in early 1995 the Company was selected by the Port Authority of New York and
New Jersey through a competitive bid process to provide the new integrated
access control for the parking facilities located in the World Trade Center. In
1995, the Company entered into contracts to install eight additional En2000(TM)
systems, including a contract from EDS to install the En2000(TM) in EDS's
corporate headquarters in Plano, Texas. In the first fiscal quarter of 1996, the
Company entered into contracts to install four En2000(TM) systems. In addition,
the Company currently has 55 service and maintenance contracts with customers
who have purchased Company products, covering 150 installations.
The foundation of the Company's systems is proprietary software which permits
the integration of various security mechanisms into a unified system operating
through the use of graphical user interfaces ("GUI"s) and distributive
intelligence. Distributive intelligence is a means by which individual
components of an integrated security system can function independently of each
other so that such components may continue to operate even when a particular
component elsewhere in the system malfunctions or is rendered inoperative. In
addition, an integrated security system which implements distributive
intelligence can operate more efficiently because individual components are able
to complete independent tasks simultaneously. The Company's systems have the
ability to integrate the following functions based on the customer's specific
needs: access control, alarm monitoring, vehicle tracking, postal tracking and
tracing, time and attendance, guard tours,
1
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
restaurant revenue reporting, elevator control, facilities management, parking
facility control, CCTV and video badging. To provide these functions, the
Company's systems integrate and enable communication between security components
obtained from third parties such as identification devices, entry devices,
surveillance devices, fire alarms, CCTV, video imaging and data security
software.
Pursuant to a Share Escrow Agreement between the Underwriter and Charles N.
Finkel, the Company's President, Chief Executive Officer and beneficial owner of
all shares of Common Stock outstanding immediately prior to the Company
Offering, Mr. Finkel agreed with the Underwriter not to offer, sell, contract to
sell or otherwise dispose of any of his shares for a period of 18 months after
the date of the Company Prospectus, without the Underwriter's consent. In
addition, Mr. Finkel has agreed with the Underwriter not to offer, sell,
contract to sell or otherwise dispose of 800,000 shares of Common Stock
beneficially owned by him for a period of ten years after the date of the
Company Prospectus, without the Underwriter's consent; provided, however, that
such restrictions will be released with respect to 500,000 of such shares if the
Company reports income before income taxes in excess of $7,000,000 in fiscal
1997 and with respect to the remaining 300,000 shares if the Company reports
income before income taxes in excess of $13,000,000 in fiscal 1998. The
Underwriter may, in its sole discretion, and at any time without notice, release
all or any portion of the shares owned by Mr. Finkel from such restrictions.
See "Shares Eligible for Future Sale."
The Company, a Florida corporation, was formed in April 1996 as a holding
company for Ensec Inc., a Florida corporation ("Ensec Inc."), and Ensec-
Engenharia Sistemas de Seguranca, S.A., a Brazilian corporation ("Ensec, S.A.").
Ensec, S.A. was founded in 1983 by Charles N. Finkel, the Company's President
and Chief Executive Officer. In 1991, Ensec, S.A. established its U.S.
operations with the formation of Ensec Inc. The Company's principal
administrative offices are located in Boca Raton, Florida and Sao Paulo, Brazil.
The Company maintains a regional sales office in New York City. The Company's
principal executive offices are located at 751 Park of Commerce Drive, Suite
104, Boca Raton, Florida 33487, telephone number (561) 997-2511.
2
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
The Offering
<TABLE>
<S> <C>
Securities offered........ 250,000 shares of Common Stock. See "Description
of Securities."
Common Stock outstanding:
After the Company
Offering(1)............... 5,350,000 shares of Common Stock
Risk Factors.............. The securities offered hereby involve a high
degree of risk and substantial immediate dilution
to new investors. Only investors who can bear the
risk of their entire investment should invest.
See "Risk Factors" and "Dilution."
Proposed NASDAQ symbol.... "ENSC"
- ----------
</TABLE>
(1) Includes 250,000 shares of Common Stock offered hereby and the Company
Offered Shares. Excludes (i) 165,000 shares of Common Stock issuable by
the Company and 75,000 shares of Common Stock to be sold by the Selling
Stockholder (as defined herein) upon exercise of the Underwriter's Over-
allotment Option in full; (ii) 1,840,000 shares of Common Stock reserved
for issuance upon exercise of the Company Offered Redeemable Warrants,
including those issuable upon exercise of the Underwriter's Over-allotment
Option; (iii) 320,000 shares of Common Stock reserved for issuance upon
exercise of the Underwriter's Warrants and the Company Offered Redeemable
Warrants included therein; (iv) 173,040 shares reserved for issuance
pursuant to warrants issued to Corporate Builders, L.P. (the "Corporate
Builders Warrants"); and (v) 450,000 shares issuable upon the exercise of
stock options which may be granted pursuant to the Company's 1996 Stock
Option Plan (the "Plan"). See "Management--1996 Stock Option Plan" and
"Certain Relationships and Related Transactions."
3
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
(1) Net loss per share is computed based on the weighted average number of
shares of Common Stock outstanding for each period. For purposes of
computing net loss per share and pursuant to Commission requirements,
options, warrants and Common Stock granted or issued by the Company during
the 12 month period preceding the date of the Company Offering at a price
below the anticipated offering price to the public of $6.25 per share have
been included in the determination of the weighted average number of shares
outstanding using the treasury stock method.
(2) The supplemental pro forma net loss and loss per share reflect the issuance
of shares necessary to retire $1,300,000 of notes payable and the resulting
decrease in net loss after taxes in the amounts of $730,000 and $183,000
for the year ended 1995 and three months ended March 31, 1996,
respectively, as of the beginning of the period presented. The calculation
is based on the weighted average shares outstanding used in the calculation
of earnings per share, adjusted for the number of estimated shares that
would be issued by the Company, i.e., 208,000 shares at $6.25 per share, to
retire these obligations. See Note A in Notes to Consolidated Financial
Statements.
(3) Pro forma financial information gives effect to the $2,500,000 Bridge
Financing completed in May 1996, net of discount of $725,000 and offering
costs of $270,297, of which $78,400 were attributable to the Bridge
Warrants and $191,897 were attributable to the 10% Senior Subordinated
Notes. The discount is attributable to the deemed value of the Bridge
Warrants as of the date of the Bridge Financing. The Bridge Financing is
expected to be repaid from the proceeds of the Company Offering and the
Bridge Warrants will be exercised in conjunction with such repayment. See
"Use of Proceeds."
(4) Adjusted to reflect the sale of 1,600,000 shares of Common Stock and
1,600,000 Company Offered Redeemable Warrants offered hereby and the
exercise of the Bridge Warrants. See "Use of Proceeds" and
"Capitalization."
(5) Does not include up to (i) 165,000 shares of Common Stock issuable by the
Company and 75,000 shares of Common Stock to be sold by the Selling
Stockholder upon exercise of the Underwriter's Over-allotment Option in
full; (ii) 1,840,000 shares of Common Stock reserved for issuance upon
exercise of the Company Offered Redeemable Warrants, including those
issuable upon exercise of the Underwriter's Over-allotment Option in full;
(iii) 320,000 shares of Common Stock reserved for issuance upon exercise of
the Underwriter's Warrants and the Company Offered Redeemable Warrants
included therein; (iv) 173,040 shares reserved for issuance pursuant to the
Corporate Builders Warrants; and (v) 450,000 shares issuable upon the
exercise of stock options granted pursuant to the Plan. See "Management--
1996 Stock Option Plan" and "Certain Relationships and Related
Transactions."
(6) After giving effect to (i) the Underwriter's discount ($1,016,000); (ii) a
non-accountable expense allowance ($304,800), of which $50,000 has been
paid by the Company to date; and (iii) an estimated $375,000 of other fees
and expenses incurred in connection with the Company Offering, including
printing, professional and other miscellaneous fees.
(7) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount on the Bridge Financing which will be recognized as
interest expense upon the repayment thereof.
(8) Adjusted to reflect the sale and discontinuance of operations of the
Company's currency sorting equipment division net of tax effect as if it
occurred on December 31, 1994. See Note M in Notes to Consolidated
Financial Statements.
6
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW. COMMON STOCK SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW
AND CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS.
1. Potential for Future Losses; Accumulated Deficit
For the fiscal year ended December 31, 1995, the Company experienced a net
loss of $3,818,000, and as of March 31, 1996 had an accumulated deficit of
$1,950,000. The Company anticipates continued losses for the foreseeable
future. The Company's operating results for future periods are subject to
numerous uncertainties. The Company anticipates significant expenses in its
foreseeable future, including research and development expenses, marketing
costs, general administrative expenses and capital expenditures. Because the
Company anticipates incurring significant expenses in connection with the
continued development and marketing of its products, there can be no assurance
that the Company will achieve sufficient revenues to offset anticipated
operating costs. Inasmuch as the Company will continue to have high levels of
operating expenses and will be required to make significant expenditures in
connection with its continued research and development activities, the Company
may experience significant operating losses that could continue until such time,
if ever, that the Company is able to generate sufficient revenues to support its
operations. There can be no assurance that the Company's technology and
products will be able to compete successfully in the marketplace and/or generate
significant revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2. Working Capital Deficit; Banking Relationships
The Company's capital requirements in connection with its development and
marketing activities will continue to be significant. As of March 31, 1996, the
Company had a working capital deficit of $2,547,000. While the application of
the anticipated net proceeds from the Company Offering will eliminate such
working capital deficit, the Company has no current arrangements with respect to
sources of additional financing. Ensec, S.A. maintains various credit
facilities with a number of Brazilian banks, and relies in large part on those
credit facilities for its current working capital. All of Ensec, S.A.'s
borrowings with respect to its working capital credit facilities are of a short
term nature. Ensec, S.A.'s lenders have, in the past, renewed the credit
facilities on a regular basis on substantially similar terms and conditions as
existing credit facilities. Due to the current instability of the Brazilian
economy and the Brazilian banking system, however, there can be no assurance
that Ensec, S.A.'s lenders will continue to renew Ensec, S.A.'s credit
facilities, under any conditions. To the extent certain existing lenders may
determine not to renew or may determine to reduce any line of credit extended to
Ensec, S.A., management believes that lines of credit with other banks can be
negotiated to replace any lost credit availability. However, there can be no
assurance that additional financing will be available to the Company or to
Ensec, S.A. on commercially reasonable terms, or at all. The inability to
obtain additional financing, when needed, could have a material adverse effect
on Ensec, S.A. and the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
3. Dependence on Significant Customers and Suppliers
Although the composition of the Company's largest customers has changed
from year to year, historically the Company's revenues have been materially
dependent on a limited number of customers. The number of customers which each
accounted for five percent or more of the Company's revenues was 17 in 1994 and
15 in 1995. See Note A in Notes to Consolidated Financial Statements. While
management expects the Company's customer base to continue to expand, a limited
number of large orders may continue to account for a significant portion of the
Company's sales during any given period for the foreseeable future. As such,
the Company's financial condition and results of operations may be adversely
affected by a delay, reduction or cancellation of orders from one or more of its
significant customers or the loss of one or more of such customers.
The Company currently relies on a limited number of suppliers of components
and other parts for its security systems. Failure or delay by the Company's
suppliers in fulfilling its anticipated needs would adversely affect the
Company's ability to deliver and market its products. The Company may have
difficulty in obtaining alternative contractual agreements with the suppliers of
such materials due to, among other things, possible material shortages or
possible lack of adequate purchasing power. However, management believes that
the Company's component and parts needs are available from multiple sources.
7
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
In periods of high inflation and interest rates, borrowings denominated in
the real are more costly, while borrowings indexed to the U.S. dollar or other
foreign currencies place the risk of devaluation on the borrower. In periods of
fluctuation, dollar denominated borrowings can generate income statement losses
or charges against stockholders' equity. The Company could be further adversely
affected by a devaluation in the real if it becomes necessary to increase
indebtedness in order to finance capital expenditures or for other purposes.
Currency translation gains and losses may contribute to fluctuations in the
Company's results of operations. The Company has engaged in currency hedging
transactions on a limited basis and in the future may undertake currency hedging
to reduce currency exposure, although there can be no assurance that hedging
transactions, if entered into, would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
13. No Anticipated Dividends; Reliance on Subsidiaries
Payment of dividends on the Common Stock is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not currently intend to declare any dividends on its Common Stock in the
foreseeable future. See "Dividends."
As a holding company, the Company's ability to pay operating expenses, any
debt service obligations and dividends materially depends upon receipt of
sufficient funds from its subsidiaries. Brazil does not currently restrict the
remittance of dividends paid by Ensec, S.A. to the Company, although Brazil has
laws in effect which provide limitations on the exchange of local currency for
foreign currency at official rates of exchange. Brazil has imposed more
restrictive exchange controls in the past, and no assurance can be given that
more restrictive exchange control policies, which could adversely affect the
ability of Ensec, S.A. to pay dividends to the Company, will not be imposed in
the future. The payment of dividends by Ensec, S.A. is also in certain
instances subject to statutory restrictions or restrictive covenants in debt
instruments and is contingent upon the earnings and cash flow of and permitted
borrowings by Ensec, S.A.
14. Product Liability
The Company's products contain software that may contain software errors or
defects, especially when first introduced or when new versions or enhancements
are released. Although to date such defects and errors have not materially
adversely affected the Company's operating results, there can be no assurance
that, despite testing by the Company and by current and potential customers,
defects and errors will not be found in new products or in new versions or
enhancements of existing products. Such discovery could result in adverse
customer reaction, negative publicity regarding the Company or its products or
delay in or failure to achieve market acceptance, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. While neither Ensec, S.A. nor Ensec Inc. has experienced
any product liability claims to date, there can be no assurance that such claims
will not be made in the future. Ensec Inc. maintains product liability
insurance in the aggregate amount of $1,000,000 per year and has additional
excess liability insurance in the amount of $5,000,000 for liability in excess
of its initial $1,000,000 of coverage. Ensec, S.A. maintains no product
liability insurance coverage. A successful claim against Ensec Inc. in excess
of such coverage or against Ensec, S.A. could have a material adverse effect on
the Company. See "Business."
15. No Prior Public Market; Possible Volatility of Stock Price
Prior to the Company Offering, there has been no public market for the
Company's Common Stock. Accordingly, there can be no assurance that an active
trading market will develop or be sustained subsequent to the Company Offering
or this Offering. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Underwriter and may not be
indicative of the prices that may prevail in the public market. The Company has
applied to have the Common Stock, but there is no assurance that the Company's
future operating results will enable it to remain eligible for quotation on the
Nasdaq-SCM. If the Company is unable to satisfy such maintenance criteria in
the future, the Common Stock may be delisted from trading on the Nasdaq-SCM
and/or the Boston Stock Exchange, as the case may be, and consequently an
investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Common Stock. This stock market generally,
and the technology sector in particular, have experienced and are likely in the
future to experience significant price and volume fluctuations which could
adversely affect the market price of the Common Stock without regard to the
significant fluctuations in response to variations in quarterly operating
results, shortfalls in sales or earnings below analyst estimates, developments
in the electronics and security industries, stock market conditions and other
factors. There can be no assurance that the market price of the Common Stock
will not experience significant fluctuations or decline below the initial public
offering price. In addition, the Underwriter has agreed to serve as the
Company's agent for the solicitation of future exercises of the Company Offered
Redeemable Warrants. If such a solicitation is viewed as aiding a distribution
of Common Stock, the Underwriter will be prohibited by applicable securities
laws from making a market in the Common Stock for the period from nine days
prior to the
11
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
commencement of the future exercise solicitation activity until completion of
the Underwriter's participation in that distribution effort. Such an abstention
from making a market in the Company's Common Stock could adversely affect its
market price.
16. Control of the Company
Immediately following the Company Offering, Charles N. Finkel will control
the vote of approximately 65.4% of the outstanding shares of Common Stock
(without giving effect to the possible exercise of the Underwriter's Over-
allotment Option, the Underwriter's Warrants, the Company Offered Redeemable
Warrants, the Corporate Builders Warrants or options granted under the Plan),
which, among other things, will allow Mr. Finkel to elect the entire class of
directors to be elected from time to time. Such concentration of ownership
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock, and could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. See "Principal
and Selling Stockholders."
17. Broad Discretion in Application of Proceeds; Repayment of Debt
Approximately $3,315,000 (39.1%) of the estimated net proceeds of the
Company Offering have been allocated to working capital and general corporate
purposes. Accordingly, the Company will have broad discretion as to the
application of such proceeds. In addition, approximately $3,874,000 (45.6%) of
the proceeds of the Company Offering will be used to repay indebtedness and
related interest, including indebtedness incurred in connection with the Bridge
Financing, and accordingly, such funds will not be available to fund future
growth. See "Use of Proceeds."
18. Shares Eligible for Future Sale
Upon completion of the Company Offering, the Company will have outstanding
5,350,000 shares of Common Stock, after giving effect to the 250,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants but without giving
effect to shares of Common Stock issuable upon exercise of (i) the Company
Offered Redeemable Warrants, (ii) the Underwriter's Warrants, (iii) the
Underwriter's Over-allotment Option, (iv) the Corporate Builders Warrants, or
(v) options granted under the Plan. Of such 5,350,000 shares of Common Stock,
1,850,000 shares, consisting of the Company Offered Shares plus the 250,000
shares of Common Stock offered pursuant to this Offering (plus any additional
shares sold upon the exercise of the Underwriter's Over-allotment Option), will
be freely tradeable without restriction or further registration under the Act,
except for any shares held by "affiliates" of the Company within the meaning of
the Act which shares will be subject to the resale limitations of Rule 144
promulgated under the Act. The Bridge Investors have agreed with the
Underwriter not to sell or otherwise dispose of any of the shares of Common
Stock issuable upon exercise of the Bridge Warrants for a period of 12 months
after the date of the consummation of the Company Offering and exercise of the
Bridge Warrants without the written consent of the Underwriter.
The remaining 3,500,000 shares (the "Restricted Shares") were issued by the
Company in private transactions in reliance upon one or more exemptions
contained in the Act. The Restricted Shares are deemed to be "restricted
securities" within the meaning of Rule 144 promulgated pursuant to the Act and
may be publicly sold only if registered under the Act or sold pursuant to
exemptions therefrom. As of the date of this Prospectus, all of the Restricted
Shares will have been held for more than two years and are eligible for public
sale in accordance with the requirements of Rule 144, as described below. Mr.
Charles N. Finkel, President and Chief Executive Officer of the Company and
beneficial owner of all shares of Common Stock outstanding immediately prior to
the Company Offering, however, has agreed with the Underwriter not to offer,
sell, contract to sell or otherwise dispose of any of his shares for a period of
18 months after the date of the Company Prospectus, without the Underwriter's
consent. In addition, Mr. Finkel has agreed with the Underwriter not to offer,
sell, contract to sell or otherwise dispose of 800,000 of the shares of Common
Stock beneficially owned by him for a period of ten years after the date of the
Company Prospectus, without the Underwriter's consent; provided, however, that
such restrictions will be released with respect to 500,000 of such shares if the
Company reports income before income taxes in excess of $7,000,000 for fiscal
1997 and with respect to the remaining 300,000 shares if the Company reports
income before income taxes in excess of $13,000,000 for fiscal 1998. See
"Shares Eligible for Future Sale."
19. Tax Loss Carryforwards
At December 31, 1995, the Company had available unused net operating loss
carryforwards ("NOLs") aggregating approximately $3,617,119 to offset future
taxable income under U.S. tax laws. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the "Code"), utilization of prior NOLs is limited
after an ownership change, as defined in such Section 382, to an amount equal to
the value of the loss corporation's outstanding stock immediately before the
date of the ownership change, multiplied by the federal long-term tax-exempt
rate in effect during the month that the ownership change occurred. Upon the
consummation of the Offering, the Company may
12
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
be subject to limitations on the use of its NOLs as provided under Section 382.
Accordingly, there can be no assurance that a significant amount of the
Company's existing NOLs will be available to the Company following the Offering.
In the event that the Company achieves profitability, as to which there can be
no assurance, such limitation would have the effect of increasing the Company
tax liability and reducing the net income and available cash resources of the
Company in the future.
20. Limitations on Director Liability
Florida law provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage stockholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
stockholders on behalf of the Company against a director. In addition, the
Company's Articles of Incorporation (the "Articles") provide for mandatory
indemnification of directors and officers to the fullest extent permitted or not
prohibited by Florida law. See "Description of Securities--Limited Liability
and Indemnification."
21. Factors Inhibiting Takeover
Certain provisions of the Articles and Bylaws (the "Bylaws") may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that a stockholder might consider in its best interest. The Company's
Articles authorize the Board to determine the rights, preferences, privileges
and restrictions of unissued series of preferred stock, $.01 par value per share
(the "Preferred Stock") and to fix the number of shares of any series of
Preferred Stock and the designation of any such series, without any vote or
action by the Company's stockholders. Thus, the Board can authorize and issue
shares of Preferred Stock with voting or conversion rights that could adversely
affect the voting or other rights of holders of the Company's Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company, since the terms of
the Preferred Stock that might be issued could potentially prohibit the
Company's consummation of any merger, reorganization, sale of substantially all
of its assets, liquidation or other extraordinary corporate transaction without
the approval of the holders of the outstanding shares of the Common Stock. Other
provisions of the Company's Articles and Bylaws (i) divide the Company's Board
of Directors into three classes, each of which will serve for different three-
year periods; (ii) provide that the stockholders may not take action by written
consent, but only at duly called annual or special meetings of stockholders;
(iii) provide that special meetings of stockholders may be called only by the
Board of Directors or upon the written demand of the holders of not less than
50% of the votes entitled to be cast at a special meeting; and (iv) establish
certain advance notice procedures for nomination of candidates for election as
directors and for stockholder proposals to be considered at annual stockholders'
meetings. In addition, certain provisions of the Florida Business Corporation
Act (the "FBCA") may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Description of Securities--Florida Law
and Certain Articles of Incorporation and Bylaw Provisions."
13
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
[THIS PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby. The net proceeds to the Company from the sale of
the Company Offered Shares and Company Offered Redeemable Warrants and from the
exercise of the Bridge Warrants are estimated to be $8,489,000 ($9,401,000 if
the Underwriter's Over-allotment Option is exercised in full), after deducting
the underwriting discount and estimated expenses of the Company Offering payable
by the Company. The Company will not receive any of the proceeds from any sale
of shares by the Selling Stockholder if the Underwriter's Over-allotment Option
is exercised. See "Principal and Selling Stockholders" and "Concurrent
Registration of Common Stock and Warrants."
The Company expects to use the net proceeds of the Company Offering
(assuming no exercise of the Underwriter's Over-allotment Option) during the
next 12 months as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
- ----------------------- ------------- ----------------
<S> <C> <C>
Repayment of Senior Subordinated Notes(1)..... $2,574,000 30.3%
Repayment of short-term notes(2).............. 1,300,000 15.3%
Research and development(3)................... 1,000,000 11.8%
Dividend payable(4)........................... 300,000 3.5%
Working capital and general corporate purposes 3,315,000 39.1%
---------- -----
TOTAL............................... $8,489,000 100.0%
========== =====
</TABLE>
_______________
(1) Represents the repayment of the outstanding principal amount of $2,500,000,
plus estimated accrued interest thereon at the rate of 10% per annum to the
date of consummation of this Offering, on indebtedness incurred in the
Bridge Financing. The Notes require that $25,000 of the repayment proceeds
be used to exercise the Bridge Warrants. The net proceeds of the Bridge
Financing, approximately $2,250,000, were used to retire approximately
$577,000 of principal outstanding under short-term notes payable by the
Company to four Brazilian financial institutions bearing interest at rates
of approximately 4% to 5% per month, and to retire approximately $160,000
of principal and accrued interest outstanding under long-term indebtedness
owed by the Company to two Brazilian financial institutions bearing
interest at rates 12% per annum. The remaining net proceeds from the
Bridge Financing were used to repay an $80,000 non-interest bearing loan
from Mr. Finkel to the Company and for working capital and other general
corporate purposes.
(2) Represents the repayment of a portion of approximately $2,000,000 of
outstanding principal balance on short-term notes anticipated to be
outstanding as of the consummation of the Company Offering due from Ensec,
S.A. to five Brazilian banks. These notes bear interest at rates of
approximately 4% to 5% per month.
(3) Includes the anticipated costs of adding research and development personnel
and the costs of continued enhancement to current products and new product
development.
(4) Represents dividends payable by Ensec, S.A. to its former parent company,
Tecpo Comercio E Representaceos Ltda., a Brazilian limited liability
company ("Tecpo"), indirectly wholly-owned by Charles N. Finkel, President
and Chief Executive Officer of the Company, which dividends were
attributable to net income of Ensec, S.A. in fiscal year 1992 and prior
periods.
___________________________
If the Underwriter exercises its Over-allotment Option in full, the
Company will realize additional net proceeds of approximately $912,000, which
amount will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the proceeds of the Company
Offering will be sufficient to satisfy the Company's contemplated cash
requirements for at least 12 months following the consummation of the Company
Offering. In the event the Company's plans change or its assumptions change or
prove to be inaccurate or the proceeds of the Company Offering prove to be
insufficient to find operations (due to unanticipated expenses, delays, problems
or otherwise), the Company may find it necessary or advisable to reallocate some
of the proceeds within the above-described categories or to use portion thereof
for other purposes and could be required to seek additional financing sooner
than currently anticipated. Depending on
15
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
the Company's progress in the development of its products and technology, their
acceptance by third parties, and the state of the capital markets, the Company
may also determine that it is advisable to raise additional equity capital,
possibly within the next 12 months. The Company has no current arrangements
with respect to, or sources of, additional financing and there can be no
assurance that additional financing will be available to the Company when needed
on commercially reasonable terms or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
Proceeds not immediately required for the purposes described above
will be invested principally in government securities and/or short-term
certificates of deposit.
16
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
DILUTION
As of March 31, 1996 after giving pro forma effect to the application
of the proceeds from the Bridge Financing, the Company had a net tangible book
value equal to $1,949,554. See "Selected Consolidated Financial Data." After
giving effect to the sale of the Company Offered Shares and the Company Offered
Redeemable Warrants, the issuance of 250,000 shares of Common Stock pursuant to
the exercise of the Bridge Warrants, and application of the estimated net
proceeds as set forth under "Use of Proceeds," the pro forma net tangible book
value at such date would have been $9,738,754, or $1.82 per share. This
represents an immediate increase in net tangible book value of $1.26 per share
to the existing stockholders and immediate dilution of $4.43 per share (or
70.9%) to purchasers of the Common Stock offered hereby ("New Investors"). If
the initial public offering price is higher or lower, the dilution to New
Investors will be, respectively, greater or less. The following table
illustrates the dilution per share:
<TABLE>
<S> <C>
Public offering price(1).................................... $6.25
Net tangible book value per share
at March 31, 1996(2)............................... $ .56
Increase per share attributable
to New Investors................................... $1.26
Pro forma net tangible book value per share after Offering.. $1.82
-----
Dilution per share to New Investors(3)...................... $4.43
=====
- ------------------
</TABLE>
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share represents the Company's total tangible
assets less its total liabilities divided by the number of shares of Common
Stock outstanding.
(3) The dilution of net tangible book value per share to New Investors assuming
the Underwriter's Over-allotment Option is exercised in full would be $4.32
(or 69.1%).
The following table sets forth, with respect to existing stockholders and
New Investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
------------------- ---------------------------------------
Average Price
Number Percent Amount Percent Per Share
--------- -------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 3,750,000 70.4% $ 3,494,501(1) 25.9% $0.93
New Investors.......... 1,600,000 29.6% $10,000,000 74.1% $6.25
--------- ----- ----------- ----- -----
Total............... 5,350,000 100.0% $13,494,501 100.0% $2.52
========= ===== =========== ===== =====
</TABLE>
___________________
(1) With respect to the 3,500,000 shares of Common Stock currently issued and
outstanding as of the date of the Company Prospectus (excluding shares to
be issued upon the exercise of the Bridge Warrants), Total Consideration
Paid is assumed to be the sum of the Company's Common Stock and Additional
Paid-in Capital as of March 31, 1996. See "Consolidated Financial
Statements."
The information contained in the above tables gives effect to the exercise
of the Bridge Warrants and the issuance of 250,000 shares of Common Stock at
$.10 per share but does not give effect to the exercise of options granted under
the Plan to purchase 395,000 shares of Common Stock for $3.00 per share or the
exercise of certain of the Corporate Builders Warrants to purchase 57,680 shares
of Common Stock for $3.00 per share and 57,680 shares of Common Stock for $6.00
per share. Exercise of these options and warrants would result in further
dilution to New Investors in this Offering.
17
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, after giving pro forma effect to the Bridge Financing, and as adjusted
to give effect to the receipt and anticipated use of the estimated net proceeds
of the Company Offering. This table should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operation" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
---------------
<S> <C> <C> <C>
Actual Pro Forma(2) As Adjusted(3)
----------- ----------- --------------
Long-term debt (including current
maturities)....................... $ 4,122,615 $ 4,040,615 $ 4,040,615
Senior Subordinated Notes
payable(4)........................ -0- 1,775,000 -0-
Stockholders' equity
Preferred Stock, $0.01 par value
per share,
3,000,000 shares authorized, none
issued
or outstanding................. ----- ----- -----
Common Stock, $0.01 par value per
share,
20,000,000 shares authorized,
3,500,000 shares
issued and outstanding; 5,350,000
shares
issued and outstanding, as
adjusted(1)................... 35,000 35,000 53,500
Additional paid-in capital..... 3,434,501 4,081,101 12,551,801
Accumulated deficit(4)......... (1,949,650) (1,949,650) (2,866,547)
Total Stockholders' Equity......... 1,519,851 2,166,451 9,738,754
----------- ----------- -----------
Total Capitalization....... $ 5,642,466 $ 7,982,066 $13,779,369
=========== =========== ===========
</TABLE>
_____________________
(1) Assumes (i) issuance of 250,000 shares of Common Stock upon the exercise of
the Bridge Warrants; (ii) no exercise of the Underwriter's Over-allotment
Option; (iii) no exercise of the Underwriter's Warrants including the
exercise of Company Offered Redeemable Warrants contained therein; (iv) no
exercise of the Company Offered Redeemable Warrants; (v) no exercise of
options granted under the Plan; and (vi) no exercise of the Corporate
Builders Warrants. See "Management--1996 Stock Option Plan" and
"Description of Securities."
(2) Adjusted to reflect the application of the net proceeds from the Bridge
Financing and the issuance of the Bridge Warrants completed in May 1996.
(3) Adjusted to reflect the sale of the Company Offered Shares and the Company
Offered Redeemable Warrants and the exercise of the Bridge Warrants. See
"Use of Proceeds."
(4) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount in connection with the Bridge Financing which will be
recognized as interest expense upon the repayment thereof.
DIVIDEND POLICY
The Company currently anticipates that it will retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend, among
other things, upon the Company's future earnings, operations, capital
requirements and financial condition, general business conditions and
contractual restrictions on payment of dividends, if any.
18
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
<TABLE>
<S> <C> <C> <C> <C> <C>
Current liabilities 3,783 6,015 7,530 7,887 4,512
Long-term debt,
less current portion 1,696 3,209 2,624 2,542 2,542
Stockholders' equity 5,621 1,803 1,520 2,166 9,739
</TABLE>
(1) Net loss per share is computed based on the weighted average number of
shares of Common Stock outstanding for each period. For purposes of
computing net loss per share and pursuant to Commission requirements,
options, warrants and Common Stock granted or issued by the Company during
the 12 month period preceding the date of the Company Offering at a price
below the anticipated offering price to the public of $6.25 per share have
been included in the determination of the weighted average number of shares
outstanding using the treasury stock method.
(2) The supplemental pro forma net loss and loss per share reflect the issuance
of shares necessary to retire $1,300,000 of notes payable and the resulting
decrease in net loss after taxes in the amounts of $730,000 and $183,000
for the year ended 1995 and three months ended March 31, 1996,
respectively, as of the beginning of the period presented. The calculation
is based on the weighted average shares outstanding used in the calculation
of earnings per share, adjusted for the number of estimated shares that
would be issued by the Company, i.e., 208,000 shares at $6.25 per share, to
retire these obligations. See Note A in Notes to Consolidated Financial
Statements.
(3) Pro forma financial information gives effect to the $2,500,000 Bridge
Financing completed in May 1996, net of discount of $725,000 and offering
costs of $270,297, of which $78,400 were attributable to the Bridge
Warrants and $191,897 were attributable to the 10% Senior Subordinated
Notes. The discount is attributable to the deemed value of the Bridge
Warrants as of the date of the Bridge Financing. The Bridge Financing is
expected to be repaid from the proceeds of the Company Offering and the
Bridge Warrants will be exercised in conjunction with such repayment. See
"Use of Proceeds."
(4) Adjusted to reflect the sale of the Company Offered Shares and the Company
Offered Redeemable Warrants and the exercise of the Bridge Warrants. See
"Use of Proceeds" and "Capitalization."
(5) Does not include up to (i) 165,000 shares of Common Stock issuable by the
Company and 75,000 shares of Common Stock to be sold by the Selling
Stockholder upon exercise of the Underwriter's Over-allotment Option in
full; (ii) 1,840,000 shares of Common Stock reserved for issuance upon
exercise of the Company Offered Redeemable Warrants, including those
issuable upon exercise of the Underwriter's Over-allotment Option in full;
(iii) 320,000 shares of Common Stock reserved for issuance upon exercise of
the Underwriter's Warrants and the Company Offered Redeemable Warrants
included therein; (iv) 173,040 shares reserved for issuance pursuant to
warrants issued to Corporate Builders, L.P. (the "Corporate Builders
Warrants"); and (v) 450,000 shares issuable upon the exercise of stock
options granted pursuant to the Plan. See "Management--1996 Stock Option
Plan" and "Certain Relationships and Related Transactions."
(6) After giving effect to (i) the Underwriter's discount ($1,016,000); (ii) a
non-accountable expense allowance ($304,800), of which $50,000 has been
paid by the Company to date; and (iii) an estimated $375,000 of other fees
and expenses incurred in connection with the Company Offering, including
printing, professional and other miscellaneous fees.
(7) Adjusted for $191,897 of deferred financing costs and amortization of the
$725,000 discount on the Bridge Financing which will be recognized as
interest expense upon the repayment thereof.
(8) Adjusted to reflect the sale and discontinuance of operations of the
Company's currency sorting equipment division net of tax effect as if it
occurred on December 31, 1994. See Note M in Notes to Consolidated
Financial Statements.
20
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
agreements; the introduction of new products and product enhancements by the
Company or its competitors; the budgeting cycle of customers; changes in the
proportion of revenues attributable to license fees and maintenance and support
services; changes in the level of operating expenses; and the present and future
level of competition in the industry.
The Company expects to incur additional losses in the foreseeable future,
including net losses at least through the third quarter of 1996. The
anticipated net loss in the third quarter of 1996 is anticipated to result
primarily from deferred expenses of approximately $1 million of deferred
expenses anticipated to be recognized in such quarter in connection with the
repayment of the Bridge Financing from the proceeds of the Company Offering.
Sales of the Company's integrated security systems products for larger
installations are generally customized and generally involve significant testing
and a commitment of significant resources by the Company. For these and other
reasons, the sales cycle for these systems is typically long and subject to a
number of significant risks over which the Company has little or no control and,
as a result, the Company may expend significant resources pursuing potential
sales that will not be consummated. See "Risk Factors--Lengthy Sales Cycle."
The Company anticipates that international sales in Brazil and, over time,
in other countries, will continue to represent a significant percentage of
revenue in the foreseeable future. International sales are subject to a number
of risks, including unexpected changes in regulatory requirements, tariffs and
other trade barriers, political and economic instability in foreign markets,
difficulty in the staffing, management and integration of foreign operations
with those in the U.S., longer payment cycles, greater difficulty in the
collection of accounts receivable, currency fluctuations and potentially adverse
tax consequences. These factors may, in the future, contribute to fluctuations
in the Company's financial condition and results of operations. Although these
factors have not created a material adverse affect to date, the long-term impact
of currency fluctuations, including any possible effect on the business outlook
in other developing countries and other risks associated with international
sales, cannot be predicted. See "Risk Factors--Challenges of Growth" and "Risk
Factors--Political, Economic and Social Conditions in Brazil."
Liquidity and Capital Resources
The Company's primary sources of liquidity have been a combination of cash
flow from operations, a $.5 million revolving line of credit, short-term and
long-term borrowings from Brazilian banks and borrowings from affiliates. In
addition, the Company received $1.8 million in 1995 from the sale of its bank
automation equipment division and $.6 million from the sale of fixed assets and,
in connection with the Bridge Financing, in May 1996 the Company issued $2.5
million of 10% Senior Subordinated Notes and the Bridge Warrants. The Bridge
Financing is expected to be repaid from the proceeds of the Company Offering and
the Bridge Warrants will be exercised in conjunction with such repayment. See
"Use Of Proceeds" and "Notes to the Consolidated Financial Statements."
Cash provided by (used in) operations was $1.9 million, ($6.3) million,
($.6) million, and $.5 million for the years ended December 31, 1995 and 1994,
and the three months ended March 31, 1995 and 1996, respectively. The negative
cash flow from operations during 1995 resulted from (i) $1.5 million of employee
termination expenses incurred by the Company; (ii) a reduction in sales
attributable to slower economic activity in Brazil as a result of (a) the
effects of the "Real Plan" and (b) a reduction in marketing efforts in 1994
pending the completion of the Company's EnWorks(TM) family of products; (iii)
losses of $.7 million which were incurred on two integrated systems contracts;
(iv) translation losses; (v) an increase in interest expense; and (vi) increased
costs of expanding the Company's U.S. operations. The Company experienced
positive cash flow from operations during the first quarter of 1996. Cash flow
generally fluctuates from quarter to quarter depending on the timing of cash
receipts and payments, including accounts receivable and accounts payable, and
the level of investment in inventory which varies depending on the different
stages of completing a particular contract.
In addition to maintaining a negative cash flow from operations in 1995,
the Company's has, since 1992, made a substantial investment in the development
of software for the EnWorks(TM) family of products. This investment amounted to
$1.7 million, $1.2 million, $.4 million and $.4 million for the years ended 1994
and 1995 and the three months ended March 31, 1995 and 1996, respectively. The
Company anticipates that it will continue to incur substantial research and
development expenditures in the future in order to enhance existing products and
to develop new products.
The Company had $.3 million in cash available pursuant to a line of credit
agreement with a commercial bank which was increased to $.5 million in June
1996, and such line of credit will expire in September 1996. Borrowings under
the line of credit are evidenced by notes payable which bear interest at a rate
of such bank's prime rate plus 2% per annum and are secured by Ensec Inc.'s
accounts receivable. The Company obtained its long-term debt financing from two
Brazilian banks. These loans bear interest at a rate of 12% per annum, require
monthly payments of principal and interest and mature in 1998. As of March 31,
1996, the Company has $4.1 million outstanding under its long-term notes.
Short-term borrowings from several Brazilian banks as of March 31, 1996 amounted
to $2.5 million, which bear interest
24
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
at rates of approximately 4% to 5% per month. The repayment of the short-term
debt from the proceeds of the Company Offering will result in a substantial
reduction in interest expense.
The Company believes that the financing provided by the Company Offering
and the line of credit should provide funds that, together with cash flow from
operations, will be sufficient to repay its Brazilian short-term debt and meet
its presently anticipated working capital, including marketing expenditures, and
research and development expenditure requirements for at least the next 12
months. As a result of entering into employment agreements with nine of the
Company's executives in June 1996, the Company will incur increases in salary
expenses of $.3 million for 1996. See "Management."
As of December 31, 1995, the Company had NOL carryforwards for U.S. federal
income tax purposes of approximately $3.6 million, which begin to expire in
2006. These carryforwards result from cumulative operating losses of Ensec
Inc. since its inception in 1991. The consummation of the Company Offering and
the sale of the securities offered therein may limit the Company's ability to
offset such carryforwards against U.S. taxable income in future years. The
Company's NOL carryforwards for Brazilian corporate and social contribution tax
purposes totaled $5.5 million as of December 31, 1995. There are no limitations
which effect the ability of the Company to offset these losses against future
Brazilian taxable income. See Note K in Notes to Consolidated Financial
Statements.
25
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
Steven T. Geffin joined Ensec, S.A. and Ensec Inc. in 1992. Prior to
joining the Company, Mr. Geffin was in research and development for four years
at Casi-Rusco, a competitor of the Company engaged in the sales and
installations of security systems. Mr. Geffin is responsible for worldwide
engineering, research & development and manufacturing for all Company products.
Mr. Geffin received a Bachelor and Masters of Science degrees in Electrical
Engineering from the University of Miami in Miami, Florida.
David J. Rottner joined the Company in May 1996 as its Chief Financial
Officer, Vice President and Secretary. Mr. Rottner has over 17 years of public
accounting experience. From November 1993 to May 1996, Mr. Rottner was a
certified public accountant with Grant Thornton LLP, a national accounting firm.
From April 1990 to November 1993, Mr. Rottner was a certified public accountant
with Paul Scherer & Company. Mr. Rottner graduated from the State University of
New York, Albany, with a Bachelor of Science degree in Accounting.
Edward Morelli joined Ensec Inc. in 1994. Before joining the Company,
Mr. Morelli was Operations Manager for Datalarm Security Systems, a security and
card access company in Miami, Florida, from 1990 to 1994. Prior to that, he was
Division Administrator for Sentrex Security Systems, also a security and card
access company, in Miami. Mr. Morelli's career in security systems began in
1974 installing fire/burglar alarms. Mr. Morelli studied electronics at PIO IX
in Buenos Aires, Argentina.
Nuno J. Moura has over 18 years of experience in administration and
finance. He served as Director of Finance and Administration for Gillette de
Brazil prior to joining Ensec, S.A. in 1995. He received a Masters degree in
Finance from Pontificia Universidade Catolica, Brazil.
Lucas Blanco joined Ensec, S.A. in 1984. Mr. Blanco received a degree in
Engineering from Faculdades de Engenharia Industrial, Brazil. Mr. Blanco has
held a variety of technical positions with the Company, and has direct
responsibility for managing Ensec, S.A.'s software and hardware engineers.
John De George joined Ensec Inc. in 1995 as its Senior Vice President-
Sales. Prior to that time, Mr. De George was sales manager for Vikonics, Inc.,
a manufacturer of large scale computer-based integrated security and life safety
systems in Teterboro, New Jersey from 1992 to 1995. Prior to that, he was
General Manager for Alphamation, Inc., a data/telecommunication and
document/image processing systems integrator located in Hauppauge, New York.
Mr. De George received a Bachelor of Sciences degree from Hofstra University in
Hempstead, New York.
Carlos Guimaraes joined the Company in June 1996 as a director. Mr.
Guimaraes is a Managing Director in the Emerging Markets Group of Lehman
Brothers, focusing exclusively on Brazil. Prior to joining Lehman Brothers,
from 1992 to 1995 Mr. Guimaraes was President of LTCB Latin America, Inc., the
investment banking subsidiary of The Long-Term Credit Bank of Japan, Ltd. Prior
to joining LTCB Latin America, Inc. in 1992, Mr. Guimaraes was a Managing
Director of Citibank, N.A., where he was responsible for the origination and
structuring of financial transactions for Brazilian customers. Mr. Guimaraes
received a Bachelor of Sciences degree in Economics from the Federal University
of Rio de Janeiro and a Masters degree in Business Administration from the
Wharton School of Business at the University of Pennsylvania.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
family relationships among any of the executive officers or directors of the
Company. The Company is currently seeking at least one additional individual to
serve on its Board of Directors.
Election of Directors
Pursuant to the Company's Articles of Incorporation, the Board of Directors
is divided into three classes, as nearly equal in number as possible, designated
Class I, Class II and Class III. The term of the initial Class I directors
terminates on the date of the 1997 annual meeting of stockholders; the term of
the initial Class II directors terminates on the date of the 1998 annual meeting
of stockholders and the term of the initial Class III directors terminates on
the date of the 1999 annual meeting of stockholders. At each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. Mr. Norman is currently
a Class I director, Messrs. da Silva and Guimaraes are currently Class II
directors and Mr. Finkel is currently a Class III director. For further
information, see "Description of Securities--Florida Law and Certain Charter and
Bylaw Provisions."
Pursuant to the terms of the Underwriting Agreement relating to the Company
Offering, the Underwriter has the right, until ___________, 1999 (three years
after the date of this Prospectus), to elect to have a designee attend all
meetings of the Board of Directors of the Company or to cause the Company to
nominate and use its best efforts to obtain election to the Board of Directors
of a person designated by the Underwriter.
34
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus.
The table is based on information obtained from the persons named below with
respect to the beneficial ownership of shares of Common Stock by (i) each person
known by the Company to be the owner of more than 5% of the aggregate
outstanding shares of Common Stock; (ii) each director; (iii) the Chief
Executive Officer of the Company; and (iv) all executive officers and directors
as a group. Charles N. Finkel, President and Chief Executive Officer of the
Company and Ensec Inc., and Chief Executive Officer of Ensec S.A. (the "Selling
Stockholder"), has agreed to sell up to 75,000 shares of Common Stock in the
event the Underwriter's Over-allotment Option is exercised with respect to a
number of shares equal to or greater than 75,000. The Company will not receive
any proceeds from the sale of shares by the Selling Stockholder.
<TABLE>
<CAPTION>
Percentage of Outstanding
Common Stock Beneficially Owned
-------------------------------
Number of Shares
of Common Stock Shares Prior to After
Names and Addresses of Beneficially to be Company Company
Beneficial Owners(1) Owned Sold Offering Offering(2)
- --------------------------- ---------------- ------ --------- -----------
<S> <C> <C> <C> <C>
Charles N. Finkel 3,500,000(3) 75,000 100% 65.4(3)
James K. Norman -0- -0- -0- *
Flavio R. da Silva -0- -0- -0- *
Carlos N. Guimaraes -0- -0- -0- *
All executive officers and
directors as a group
(6 persons) 3,500,000(3) 75,000 100% 65.4(3)
</TABLE>
______________________
* Less than 1%
(1) The address of each stockholder is 751 Park of Commerce Drive, Suite 104,
Boca Raton, Florida 33487. Unless otherwise indicated, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options, warrants or convertible
securities. None of the options granted by the Company under the Plan are
exercisable within 60 days of the date of this Prospectus.
(2) Includes in number of shares of Common Stock outstanding 250,000 shares
issuable upon exercise of the Bridge Warrants and excludes (i) 160,000
shares of Common Stock issuable by the Company upon exercise of the
Underwriter's Over-allotment Option in full; (ii) 1,840,000 shares of
Common Stock reserved for issuance upon exercise of the Company Offered
Redeemable Warrants, including those issuable upon exercise of the
Underwriter's Over-allotment Option in full; (iii) 320,000 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's Warrants and
the Company Offered Redeemable Warrants included therein; (iv) 173,040
shares reserved for issuance upon exercise of the Corporate Builders
Warrants; and (v) 450,000 shares reserved for issuance under the Plan,
pursuant to which options to purchase 395,000 of such reserved shares of
Common Stock have been granted.
(3) Such shares are indirectly owned by Mr. Finkel through wholly-owned
entities. See "Certain Relationships and Related Transactions." Mr.
Finkel's percentage ownership, and that of all executive officers and
directors as a group, will be 62.1% in the event the Underwriter's Over-
allotment Option is exercised in full.
38
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share, and 3,000,000 shares of Preferred Stock, par value $.01
per share. As of the date of this Prospectus, there are 3,500,000 shares of
Common Stock outstanding, held of record by two stockholders, and no shares of
Preferred Stock outstanding.
The following summary description of the Company's Common Stock and
Preferred Stock is qualified in its entirety by reference to the Articles and
Bylaws, copies of which are included as exhibits to the Registration Statement
of which this Prospectus is a part.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Bridge Investors in this Offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.
Preferred Stock
The Board of Directors has the authority, without further action of the
stockholders of the Company, to issue up to an aggregate of 3,000,000 shares of
Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of such series.
The Board of Directors, without stockholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock.
Company Offered Redeemable Warrants
The Company Offered Redeemable Warrants will be issued in registered form
pursuant to an agreement, dated the date of this Prospectus (the "Warrant
Agreement"), between the Company, the Underwriter and American Stock Transfer &
Trust Company (the "Warrant Agent"). The following discussion of certain terms
and provisions of the Company Offered Redeemable Warrants is qualified in its
entirety by reference to the detailed provisions of the Statement of Rights,
Terms, and Conditions for each Company Offered Redeemable Warrant which forms a
part of the Warrant Agreement. A form of the certificate representing the
Company Offered Redeemable Warrants and a form of the Warrant Agreement have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
One Company Offered Redeemable Warrant represents the right of the
registered holder thereof to purchase one share of Common Stock at an exercise
price of $7.00 per share, subject to adjustment (the "Purchase Price"). The
holders of the Company Offered Redeemable Warrants will be entitled to the
benefit of adjustments in their respective purchase prices and in the number of
shares of Common Stock and/or other securities deliverable upon the exercise
thereof in the event of a stock dividend, stock split, reclassification,
reorganization, consolidation or merger.
Unless previously called for repurchase, the Company Offered Redeemable
Warrants may be exercised immediately, until the close of business on
______________, 2001 (five years from the date of this Prospectus) (the
"Expiration Date"). On or after the Expiration Date, the Company Offered
Redeemable Warrants automatically become wholly void and of no value. The
Company may at any time extend the Expiration Date of all outstanding Company
Offered Redeemable Warrants, for such increased period of times as it may
determine. The Company Offered Redeemable Warrants may be exercised at the
office of the Warrant Agent.
40
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
The Company has the right at any time beginning ___________, 1997 (one year
from the date of this Prospectus), or such earlier date as the Underwriter may
determine, to repurchase the Company Offered Redeemable Warrants at a price of
$.10 each, by written notice mailed 30 days prior to the repurchase date to each
Redeemable Warrant holder at his address as it appears on the books of the
Warrant Agent. Such notice may only be given within three days following any
period of 20 consecutive trading days during which the high closing bid or
trading price of the shares of Common Stock (if then traded on the Nasdaq-SCM or
on a national securities exchange) equals or exceeds $10.50 per share, subject
to adjustments for stock dividends, stock splits and the like. If Company
Offered Redeemable Warrants are called for repurchase, they must be exercised
prior to the close of business on the day immediately preceding the date of any
such repurchase or the right to purchase the applicable shares of Common Stock
is forfeited.
No Company Offered Redeemable Warrant will be exercisable unless at the time
of exercise the Company had filed with the Commission a current prospectus
covering the shares of Common Stock issuable upon exercise of such Company
Offered Redeemable Warrant and such shares of Common Stock have been registered
or qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Company Offered Redeemable Warrant. The Company
will use its best efforts to have all such shares of Common Stock so registered
or qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of the Company Offered Redeemable
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to do so, there is no assurance that it will be able to do
so.
No holder, as such, of Company Offered Redeemable Warrants shall be entitled
to vote or receive dividends or be deemed the holder of shares of Common Stock
for any purposes whatsoever until such Company Offered Redeemable Warrants have
been duly exercised and the Purchase Price has been paid in full.
Transfer and Warrant Agent
The Company's transfer agent and registrar for the Common Stock and Warrant
Agent for the Company Offered Redeemable Warrants is American Stock Transfer &
Trust Company.
Limited Liability and Indemnification
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) the director's breach of, or failure to perform, those
duties constitutes: (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation to procure a judgment in its favor or by
or in the right of a stockholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or stockholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him or her and
incurred by him or her in his or her capacity or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the FBCA.
The Articles of the Company provide that the Company shall, to the fullest
extent permitted by applicable law, as amended from time to time, indemnify all
officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Florida Law and Certain Articles of Incorporation and Bylaw Provisions
The Company is subject to (i) Section 607.0901 of the FBCA, which generally
requires supermajority approval by disinterested directors or stockholders of
certain specified transactions between a corporation and holders of more than
10% of the outstanding shares of the corporation (or their affiliates), and (ii)
Section 607.0902 of the FBCA, which generally provides that shares acquired in
excess of certain specified thresholds will not possess any voting rights unless
such voting rights are approved by a majority vote of the corporation's
disinterested stockholders.
41
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
In addition, certain provisions of the Company's Articles summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
Classified Board of Directors. The Articles provide for the Board of
Directors to be divided into three classes of directors serving staggered three-
year terms. As a result, approximately one-third of the Board of Directors will
be elected each year. These provisions, when coupled with the provision of the
Articles authorizing only the Board of Directors to fill vacant directorships or
increase the size of the Board and prohibiting stockholder removal of directors
except for "cause" and upon the affirmative vote of 66 2/3% of the issued and
outstanding shares of Common Stock entitled to vote generally in the election of
directors, may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. The Articles provide
that stockholders may not take action by written consent, but only at duly
called annual or special meetings or stockholders. The Articles further provide
that special meetings of stockholders of the Company may be called only by the
Board of Directors or holders of not less than 50% of the votes entitled to be
cast at the special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Articles provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 120 days nor more than 180 days prior to the date of the
Company's notice of annual meeting provided with respect to the previous year's
annual meeting; provided, however, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
30 calendar days earlier than the date contemplated by the previous year's proxy
statement, notice by the stockholder, to be timely, must be received no later
than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever is first. The Articles also specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may
preclude stockholders from bringing matters before the stockholders at an annual
or special meeting or from making nominations for directors at an annual or
special meeting.
Authorized But Unissued Shares. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender, offer, merger or
otherwise, and thereby protect the continuity of the Company's management.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Company Offering, the Company will have outstanding
5,350,000 shares of Common Stock, after giving effect to the 250,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants but without giving
effect to shares of Common Stock issuable upon exercise of (i) the Company
Offered Redeemable Warrants, (ii) the Underwriter's Warrants, (iii) the
Underwriter's Over-allotment Option, (iv) the Corporate Builders Warrants, or
(v) options granted under the Plan. Of such 5,350,000 shares of Common Stock,
1,850,000 shares, consisting of the Company Offered Shares plus 250,000 to be
issued upon exercise of the Bridge Warrants (plus any additional shares sold
upon the exercise of the Underwriter's Over-allotment Option), will be freely
tradeable without restriction or further registration under the Act, except for
any shares held by "affiliates" of the Company within the meaning of the Act
which shares will be subject to the resale limitations of Rule 144 promulgated
under the Act. The Bridge Investors have agreed with the Underwriter not to
sell or otherwise dispose of any of the shares of Common Stock issuable upon
exercise of the Bridge Warrants for a period of 12 months after the date of the
consummation of the Company Offering and exercise of the Bridge Warrants without
the written consent of the Underwriter. The Underwriter may, in its sole
discretion, and at any time without notice, release all or any portion of the
shares owned by the Bridge Investors from such restrictions.
The remaining 3,500,000 shares (the "Restricted Shares") were issued by the
Company in private transactions in reliance upon one or more exemptions
contained in the Act. The Restricted Shares are deemed to be "restricted
securities" within the meaning of Rule 144 promulgated pursuant to the Act and
may be publicly sold only if registered under the Act or sold pursuant to
exemptions therefrom. As of the date of this prospectus, all of the Restricted
Shares will have been held for more than two years and are eligible for public
sale in accordance with the requirements of Rule 144, as described below. Mr.
Charles N. Finkel, President and Chief Executive Officer of the
42
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
Company and beneficial owner of all shares of Common Stock outstanding
immediately prior to the Offering, however, has agreed with the Underwriter not
to offer, sell, contract to sell or otherwise dispose of any of his shares for a
period of 18 months after the date of this Prospectus, without the Underwriter's
consent. In addition, Mr. Finkel has agreed with the Underwriter not to offer,
sell, contract to sell or otherwise dispose of 800,000 shares of Common Stock
beneficially owned by him for a period of ten years after the date of this
Prospectus, without the Underwriter's consent; provided, however, that such
restrictions will be released with respect to 500,000 of such shares if the
Company reports income before income taxes in excess of $7,000,000 for fiscal
1997 and with respect to the remaining 300,000 shares if the Company reports
income before income taxes in excess of $13,000,000 for fiscal 1998. The
Underwriter may, in its sole discretion, and at any time without notice, release
all or any portion of the shares owned by Mr. Finkel from such restrictions.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on Nasdaq-SCM, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of the Company for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above. The Commission is currently
considering a proposal to reduce the Rule 144 holding period for restricted
securities to one year.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Plan,
thereby permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. The Company has reserved
up to 450,000 shares of Common Stock for issuance under the Plan. As of the
date of this Prospectus, options to purchase 395,000 of such reserved shares of
Common Stock were outstanding under the Plan. See "Management--1996 Stock
Option Plan."
Prior to the Company Offering, there has been no public market for the
Common Stock or the Company Offered Redeemable Warrants, and no predictions can
be made as to the effect, if any, that sales of the Common Stock under Rule 144
will have on the market price of such securities from time to time. Sales of
substantial amounts of the Company's securities in the public market could have
a significant adverse effect on prevailing market prices and could impair the
Company's future ability to raise capital through the sale of its equity
securities. See "Risk Factors--Shares Eligible for Future Sale."
43
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
BRIDGE INVESTORS AND PLAN OF DISTRIBUTION
An aggregate of up to 250,000 shares of Common Stock may be offered and sole
pursuant to this Prospectus by the Bridge Investors. The shares sold hereunder
were issued to the Bridge Investors in connection with the Company's May 1996
Bridge Financing, in which the Company agreed to register the underlying shares
concurrently with the Company Offering and pay all expenses in connection
therewith (other than brokerage commissions and fees and expenses of counsel).
The Company also agreed to maintain an effective registration statement and
current prospectus covering the issuance and public sale of shares of Common
Stock issuable upon exercise of the Bridge Warrants for a period of 18 months
from the consummation of the Company Offering. Such shares have been included
in the Registration Statement of which this Prospectus forms a part. None of
the Bridge Investors has ever held any position or office with the Company or
had any other material relationship with the Company.
The following table sets forth certain information with respect to the
number of shares of Common Stock which will be beneficially owned by each Bridge
Investor upon the consummation of this Offering pursuant to the exercise of the
Bridge Warrants. The Company will not receive any proceeds from the sale of
shares by the Bridge Investors.
<TABLE>
<CAPTION>
Beneficial
Beneficial Ownership Ownership
Bridge Investor Prior to Sale (1) After Sale(1)(2)
- --------------------------------------- ----------------- ----------------
<S> <C> <C>
John Albanese & Anna M. Albanese,
JTWROS................................ 2,500 -0-
Raymond J. Anton....................... 2,500 -0-
Jessica R. Baron....................... 2,500 -0-
Dale A. Bearden........................ 5,000 -0-
Marc H. Bell........................... 2,500 -0-
Morris Bickoff & Delores Bickoff,
JTWROS................................ 2,500 -0-
Glenn Bierman.......................... 2,500 -0-
Howard J. Blatt, Trustee, under the
Rampart Brokerage
Corporation Pension Plan dated
January 1, 1981..................... 2,500 -0-
Helene R. Burgess...................... 10,000 -0-
Manfred Calmanowitz.................... 50,000 -0-
Andrew P. Carter, Jr., & Susan B.
Carter, JTWROS........................ 2,500 -0-
Paul T. Cohen.......................... 2,500 -0-
Priscilla M. Cooney.................... 2,500 -0-
Keith H. Cooper........................ 2,500 -0-
David Cornstein........................ 5,000 -0-
Roger Davidoff & Patrina Davidoff,
JTWROS................................ 2,500 -0-
Stuart Eisenberger..................... 2,500 -0-
Brian Ellis............................ 2,500 -0-
Bruce C. Flaim......................... 2,500 -0-
Robert A. Foisie....................... 5,000 -0-
John H. Francisco & Mildred J.
Francisco, JTWROS..................... 2,500 -0-
Eugene J. Friedman..................... 1,250 -0-
Richard Friedman....................... 2,500 -0-
Theodore H. Friedman & Eva Friedman,
JTWROS................................ 5,000 -0-
Lawrence S. Goldman.................... 2,500 -0-
HST Partners........................... 2,500 -0-
Richard Hofmann & Birte Hofmann, JTWROS 1,250 -0-
Ann Hu................................. 2,500 -0-
Inter Swiss Trading Co., Ltd........... 2,500 -0-
Martin C. Kass & Elaine R. Kass, JTWROS 1,250 -0-
Mitchell Knapp......................... 2,500 -0-
Ray Kralovic........................... 1,250 -0-
Lawrence Kupferberg.................... 2,500 -0-
Howard M. Lefkowitz.................... 2,500 -0-
Harvey R. Manes........................ 2,500 -0-
William A. Marconi..................... 1,250 -0-
</TABLE>
44
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
<TABLE>
<S> <C> <C>
Jeffrey Markowitz...................... 2,500 -0-
Michael Matwey, Jr..................... 2,500 -0-
Edward J. Miller....................... 1,250 -0-
Michael Miller......................... 5,000 -0-
Robert J. Miller....................... 1,250 -0-
Sari S. Miller & Stuart A. Myers,
Tenants in Common..................... 2,500 -0-
Azriel Nagar........................... 2,500 -0-
David A. Nisnewitz..................... 2,500 -0-
Richard A. Pizitz...................... 2,500 -0-
Renstone Limited....................... 2,500 -0-
Renwick Special Situations, L.P........ 2,500 -0-
Jayne E. Ricciardelli & Victor A.
Ricciardelli, JTWROS.................. 2,500 -0-
Robert Rickel.......................... 10,000 -0-
Ralph L. Rossi, Jr. & Maria L. Rossi,
JTWROS................................ 2,500 -0-
Richard Sage & Carol Sage.............. 2,500 -0-
Mahendra K. Sanghavi & Rita M.
Sanghavi, JTWROS...................... 1,250 -0-
Burton Satzberg & Judy Satzberg, JTWROS 1,250 -0-
Joseph Scibetta & Carmen Scibetta...... 2,500 -0-
Steven A. Seiden....................... 2,500 -0-
David R. Semmel........................ 2,500 -0-
Jeffrey Silverman...................... 5,000 -0-
Mark I. Silverman...................... 7,500 -0-
H. Diehl Sluss......................... 2,500 -0-
Beverly G. Smith....................... 2,500 -0-
Alison Snow............................ 7,500 -0-
Vincent Sperduto & Angelo Sperduto..... 2,500 -0-
Joseph L. Stanley...................... 2,500 -0-
Barry Sun & Janet Sun, JTWROS.......... 1,250 -0-
Delaware Charter AAF, Custodian,
Louise Thomas, IRA................... 1,250 -0-
Anne C. Thurman........................ 2,500 -0-
Terry S. Trabich....................... 1,250 -0-
John Ventura........................... 1,250 -0-
Steve M. Wallitt....................... 1,250 -0-
Harold L. Warren....................... 2,500 -0-
Michael J. Weiss....................... 2,500 -0-
Yetev Lev D'Jerusalem, B.F............. 2,500 -0-
------- ---
TOTAL............. 250,000 -0-
- ------------------
</TABLE>
(1) Assumes no additional shares are acquired.
(2) Assumes all of the shares are sold by each Bridge Investor.
The Common Stock issuable to the Bridge Investors upon exercise of the
Bridge Warrants may, commencing 12 months from the date of this Prospectus or
earlier with the consent of the Underwriter, be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. Such shares offered hereby may be
sold by one or more of the following methods, without limitation: (a) a block
trade in which a broker or dealer so engaged will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between end users and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Bridge Investors may arrange for other brokers or dealers to participate. Such
brokers or dealers may receive commissions or discounts from Bridge Investors in
amounts to be negotiated. Such brokers or dealers and any other participating
brokers or dealers may be deemed to be "underwriters" within the meaning of the
Securities Act, in connection with such sales.
45
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this Offering, the Company has registered the
offering of 1,600,000 of Company Offered Shares and 1,600,000 Company Offered
Redeemable Warrants in the Company Offering underwritten by Rickel & Associates,
Inc. The Company Offered Shares and Company Offered Redeemable Warrants have
been registered by the Company pursuant to a Company Prospectus included within
the Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
The validity of the securities offered by this Prospectus will be
passed upon for the Company by Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.,
West Palm Beach, Florida. Parker Chapin Flattau & Klimpl, LLP, New York, New
York, has acted as counsel to the Underwriter with respect to certain legal
matters related to this Offering.
EXPERTS
The consolidated financial statements of the Company for the two years
in the period ended December 31, 1995 are included herein and in this
Registration Statement in reliance upon the report of Grant Thornton LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
46
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Act with the Securities and Exchange Commission with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto: certain portions
have been omitted pursuant to rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge, at the Public Reference
Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, 1400 Citicorp Center, 500 West Madison, Chicago, Illinois 60661; and
7 World Trade Center, New York, New York 10048 and copies of all or any part
thereto may be obtained upon payment of the fees prescribed by the Commission.
Electronic registration statements made through the Electronic Data Gathering,
Analysis and Retrieval System are publicly available through the Commission's
World Wide Web site at http://www.sec.gov.
47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 607.0850(1) of the FBCA permits a Florida corporation to indemnify
any person who may be a party to any third party proceeding by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, against liability incurred in connection with such proceeding
(including any appeal thereof) if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA permits a Florida corporation to indemnify
any person who may be a party to a derivative action if such person acted in any
of the capacities set forth in the preceding paragraph, against expenses and
amounts paid in settlement not exceeding, in the judgement of the board of
directors, the estimated expenses of litigating the proceeding to conclusion,
actually and reasonably incurred in connection with the defense or settlement of
such proceeding including appeals, provided that the person acted under the
standards set forth in the preceding paragraph. However, no indemnification
shall be made for any claim, issue or matter for which such person is found to
be liable unless, and only to the extent that, the court determines that,
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses which the court deems proper.
Section 607.0850(4) of the FBCA provides that any indemnification made
under the above provisions, unless pursuant to a court determination, may be
made only after a determination that the person to be indemnified has met the
standard of conduct described above. This determination is to be made by a
majority vote of a quorum consisting of the disinterested directors of the board
of directors, by independent legal counsel, or by a majority vote of the
disinterested stockholders. The board of directors also may designate a special
committee of disinterested directors to make this determination.
Section 607.0850(3), however, provides that a Florida corporation must
indemnify any director or officer of a corporation who has been successful in
the defense of any proceeding referred to in Section 607.0850(1) or (2), or in
the defense of any claim, issue or matter therein, against expenses actually and
reasonably incurred by him in connection therewith.
Expenses incurred by a director or officer in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it is ultimately determined that
such director or officer is not entitled to indemnification under Section
607.0850.
Section 607.0850 of the FBCA further provides that the indemnification
provisions contained therein are not exclusive and it specifically empowers a
corporation to make any other further indemnification or advancement of expenses
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, for actions in an official capacity and in other capacities while
holding an office. However, a corporation cannot indemnify or advance expenses
if a judgment or other final adjudication establishes that the actions of the
director or officer were material to the adjudicated cause of action and the
director or officer (a) violated criminal law, unless the director or officer
had reasonable cause to believe his conduct was not unlawful, (b) derived an
improper personal benefit from a transaction, (c) was or is a director in a
circumstance where the liability under Section 607.0834 (relating to unlawful
distributions) applies, or (d) engages in willful misconduct or conscious
disregard for the best interests of the corporation in a proceeding by or in
right of the corporation to procure a judgment in its favor or in a proceeding
by or in right of a stockholder.
The Company's Articles provide for the obligatory indemnification of
directors and officers and the discretionary indemnification of employees and
agents. The general effect of the Articles provisions is to require
indemnification of any director or officer against any liability arising from
any action or suit to the fullest extent provided, authorized, allowed or not
prohibited by the FBCA. Advances against expenses are required to be made under
the Articles to any officer or director of the Company and may be made to any
employee or agent of the Company, and the indemnity coverage provided thereunder
includes liabilities under the federal securities laws as well as in other
contexts.
Pursuant to the Underwriting Agreement, the Company and the Underwriter
have agreed to indemnify each other under certain circumstances and conditions
against and from certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
II-1
<PAGE>
Reference is made to Section 10 of the Underwriting Agreement filed as
Exhibit 1.1 hereto and Article X of the Company's Articles filed as Exhibit 3.1
hereto.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................... $ 9,625
Nasdaq-SCM and Boston Stock Exchange Listing Fees.. $ 25,000
NASD Filing Fee.................................... $ 3,300
Accounting Fees and Expenses*...................... $ 60,000
Printing and Engraving*............................ $ 78,000
Legal Fees and Expenses*........................... $110,000
Blue Sky Fees and Expenses......................... $ 40,000
Transfer Agent and Registrar Fees*................. $ 2,000
Miscellaneous Expenses*............................ $ 55,075
--------
Total........................................... $375,000
========
- ----------
</TABLE>
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
The following chart summarizes all securities that the Company sold within
the past three years without registering such securities under the Securities
Act of 1933.
<TABLE>
<CAPTION>
Exemption from
Date of Type of Amount of Total Offering Registration
Offering Securities(1) Securities Sold Price(1) Relied Upon(2)
-------- ------------- --------------- -------- --------------
<S> <C> <C> <C> <C>
4/2/96 - 5/14/96 Units consisting of a 250,000 Units $2,500,000 SEC Rule 506
$25,000 Senior
Subordinated
Promissory Note and
warrants to purchase
2,500 shares of
Common Stock, par
value $.01
$2,500,000
==========
______________________________________
</TABLE>
(1) Rickel & Associates, Inc. served as placement agent for $2,000,000 of the
securities sold and in connection therewith received commissions of 8% and
a non-accountable expense allowance of 2% of the gross proceeds from the
$2,000,000 of securities sales, and received certain other itemized
expense reimbursements.
(2) All sales were made to persons whom the Company knew, or who the Company
had a reasonable belief to know, were "Accredited Investors" as such term
is defined under SEC Regulation D, Rule 501(a). No general solicitation or
advertising was employed in the offer or sale of any of the securities.
The Company disclosed to each investor, in the Company's private placement
memorandum, that the securities were "restricted" and could not be resold
unless registered or pursuant to an exemption from registration. The
Company placed a legend on all certificates evidencing the restricted
nature of such securities.
Item 27. Exhibits.
Exhibit
Number Description of Exhibits
- ------ -----------------------
1.1 Form of Underwriting Agreement
1.2 Form of Underwriter's Warrant
1.3* Share Escrow Agreement between the Underwriter and Charles N. Finkel
II-2
<PAGE>
1.4 Form of Warrant Agreement between the Company, the Underwriter and
American Stock Transfer & Trust Company
3.1 Articles of Incorporation of the Company, in effect as of the date
hereof
3.2 Bylaws of the Company, in effect as of the date hereof
4.1* Form of Common Stock Certificate
4.2 Form of Bridge Warrant
4.3 Form of 10% Senior Subordinated Note
5.1* Opinion of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.
10.1 1996 Stock Option Plan
10.2 Strategic Alliance Agreement between Lockheed Martin IMS and Ensec
Inc.
10.3 Teaming Agreement between Bell & Howell Postal Systems, Inc. and
Ensec Inc.
10.4 Card Access Systems Agreement between Ensec Inc. and Electronic Data
Systems Corporation, as amended to the date hereof
10.5 Software Value Added Reseller Agreement between Ensec Inc. and ICL
Enterprises
10.6 Agreement between Ensec Inc. and The Port Authority of New York and
New Jersey
10.7 Agreement for Purchase and Sale of the Bank Automation Division of
Ensec Engenharia E Sistemas de Seguranca, S.A. between De La Rue
Investimentos Ltda. and Ensec, S.A.
10.8* Employment Agreements between the Company and Charles N. Finkel,
James K. Norman, Flavio R. da Silva, Steven T. Geffin, Edward
Morelli, David J. Rottner, Nuno J. Moura, Lucas Blanco and John De
George
11.1 Statement Regarding Computation of Per Share Earnings
14.1* Material Foreign Patents
21.1 Subsidiaries of the Registrant
23.1 Consent of Grant Thornton LLP
24.1 Power of Attorney (included on signature page to Registration
Statement)
27.1 Financial Data Schedule
____________
*To be filed by amendment.
Item 28. Undertakings.
- The undersigned Registrant in all instances will provide to the
Underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
- Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the undersigned Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the undersigned Registrant of expenses incurred or paid by a director, officer
or controlling person of the undersigned Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
undersigned Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
- The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the undersigned Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of
1933 shall be deemed to be part of the registration statement
as of the time it was declared effective; and
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration
II-3
<PAGE>
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
- The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
undersigned Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sao Paulo, and Republic of Brazil, on the 18th
day of June, 1996.
ENSEC INTERNATIONAL, INC.
By: /s/ Charles N. Finkel
-------------------------------
Charles N. Finkel
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Charles N. Finkel, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Charles N. Finkel Chief Executive Officer, President June 18, 1996
- --------------------- and Director (Principal Executive
Charles N. Finkel Officer)
/s/ David J. Rottner Vice President, Chief Financial June 18, 1996
- --------------------
David J. Rottner Officer and Secretary (Principal
Accounting Officer)
/s/ James K. Norman Vice President and Director June 18, 1996
- -------------------
James K. Norman
/s/ Flavio R. da Silva Vice President and Director June 18, 1996
- ----------------------
Flavio R. da Silva
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Page
- ------ ----
1.1 Form of Underwriting Agreement........................................
1.2 Form of Underwriter's Warrant.........................................
1.3* Share Escrow Agreement between the Underwriter and Charles N. Finkel..
1.4 Form of Warrant Agreement between the Company, the Underwriter and
American Stock Transfer & Trust Company...............................
3.1 Articles of Incorporation of the Company, in effect as of the date
hereof................................................................
3.2 Bylaws of the Company, in effect as of the date hereof................
4.1* Form of Common Stock Certificate......................................
4.2 Form of Bridge Warrant................................................
4.3 Form of 10% Senior Subordinated Note..................................
5.1* Opinion of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A..............
10.1 1996 Stock Option Plan................................................
10.2 Strategic Alliance Agreement between Lockheed Martin IMS and Ensec
Inc...................................................................
10.3 Teaming Agreement between Bell & Howell Postal Systems, Inc. and Ensec
Inc...................................................................
10.4 Card Access Systems Agreement between Ensec Inc. and Electronic Data
Systems Corporation, as amended to the date hereof....................
10.5 Software Value Added Reseller Agreement between Ensec Inc. and ICL
Enterprises...........................................................
10.6 Agreement between Ensec Inc. and The Port Authority of New York and
New Jersey............................................................
10.7 Agreement for Purchase and Sale of the Bank Automation Division of
Ensec Engenharia E Sistemas de Seguranca, S.A. between De La Rue
Investimentos Ltda. and Ensec S.A.....................................
10.8* Employment Agreements between the Company and Charles N. Finkel,
James K. Norman, Flavio R. da Silva, Steven T. Geffin, Edward Morelli,
David J. Rottner, Nuno J. Moura, Lucas Blanco and John De George......
11.1 Statement Regarding Computation of Per Share Earnings.................
14.1* Material Foreign Patents..............................................
21.1 Subsidiaries of the Registrant........................................
23.1 Consent of Grant Thornton LLP.........................................
24.1 Power of Attorney (included on signature page to Registration
Statement)............................................................
27.1 Financial Data Schedule...............................................
____________
<PAGE>
*To be filed by amendment.
<PAGE>
Graphics Appendix
Inside front cover (INSERT PHOTO 1)
Inside front cover (INSERT PHOTO 2)
Inside front cover (INSERT PHOTO 3)
IBC (INSERT PHOTO)
BC (INSERT LOGO)
<PAGE>
EXHIBIT 1.1
ENSEC INTERNATIONAL, INC.
1,600,000 Shares of Common Stock
and
1,600,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
----------------------
_________________, 1996
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Ladies and Gentlemen:
Ensec International, Inc., a Florida corporation (the "Company"), and
Charles N. Finkel (the "Selling Shareholder") hereby confirm their agreement
with Rickel & Associates, Inc. ("you" or the "Underwriter") as set forth below.
The Company proposes to issue and sell to the Underwriter an aggregate
of (i) 1,600,000 shares (the "Firm Shares") of the Company's common stock, par
value $.01 per share (the "Common Stock") and (ii) 1,600,000 redeemable warrants
to purchase Common Stock (the "Firm Warrants"). The Company also proposes to
grant to the Underwriter an option to purchase (i) up to an additional 240,000
shares of Common Stock (of which the Selling Shareholder may sell 50,000 shares)
and (ii) up to an additional 240,000 redeemable warrants to purchase Common
Stock, as provided in section 2(c) of this agreement. Any and all shares of
Common Stock to be purchased by the Underwriter pursuant to such option are
referred to herein as the "Option Shares," and the Firm Shares and any Option
Shares are collectively referred to herein as the "Shares." Any and all
redeemable warrants to purchase Common Stock to be purchased by the Underwriter
pursuant to such option are referred to herein as the "Option Warrants," and the
Firm Warrants and any Option Warrants are collectively referred to herein as the
"Warrants." Any shares of Common Stock issuable upon the exercise of any
Warrants are referred to herein as "Warrant Shares." The Firm Shares and the
Firm Warrants are collectively referred to herein as the "Firm Securities"; the
Option Shares and the Option Warrants are collectively referred to herein as the
"Option Securities;" and the Firm Securities, the Option Securities and the
Warrant Shares are collectively referred to herein as the "Securities."
<PAGE>
Pursuant to an agreement to be entered into among the Company, the
Underwriter and American Stock Transfer & Trust Company (first anniversary of
the "Warrant Agreement"), each Warrant will be exercisable during the period
commencing on the first anniversary of the effective date of the Registration
Statement (as hereinafter defined) (the "Effective Date") and expiring on the
fifth anniversary thereof, subject to prior redemption by the Company (as
described below), at an initial exercise price (subject to adjustment as set
forth in the Warrant Agreement) equal to $7.00 per share. The Warrants will be
redeemable at a price of $.10 per Warrant, commencing on the first anniversary
of the Effective Date and prior to their expiration, upon not less than 30 days
prior written notice to the holders of the Warrants, provided the average
closing bid quotations of Common Stock as reported on The Nasdaq Stock Market if
traded thereon, or if not traded thereon, the average closing sale price if
listed on a national or regional securities exchange (or other reporting system
that provides last sales prices), shall have been at least 150% of the then
current Warrant exercise price (initially $10.50 per share, subject to
adjustment), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption, subject to
the right of the holder to exercise such Warrants prior to redemption.
1. Representations and Warranties of the Company. The Company and the
---------------------------------------------
Selling Shareholder, jointly and severally, represent and warrant to, and
agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-____) with
respect to the Securities and the Underwriter's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 (the "Act"), and one or more
amendments to that registration statement may have been so filed. Copies of
such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to you. After the execution of
this agreement, the Company will file with the Commission either (i) if the
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in that registration statement (or, if an amendment thereto shall have
been filed, in such amendment), with such changes or insertions as are required
by Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriter prior to the execution of this
agreement, or (ii) if that registration statement, as it may have been amended,
has not been declared by the Commission to be effective under the Act, an
amendment to that registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the Underwriter prior
to the execution of this agreement. As used in this agreement, the term
"Registration Statement" means that registration statement, as amended at the
time it was or is declared effective, and any amendment thereto that was or is
thereafter declared effective, including all financial schedules and exhibits
thereto and any information omitted therefrom pursuant to Rule
-2-
<PAGE>
430A under the Act and included in the Prospectus (as hereinafter defined); the
term "Preliminary Prospectus" means each prospectus subject to completion filed
with that registration statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
those copies for the purposes permitted by the Act.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When each Preliminary Prospectus and
each amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (b) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use therein.
(c) Each of the Company, Ensec Inc. and Ensec Engenharia Sistemas de
Seguranca, S.A. ("Ensec S.A."): has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its state of
incorporation and is duly qualified or authorized to transact business as a
foreign corporation and is in good
-3-
<PAGE>
standing in each jurisdiction where the ownership or leasing of its property or
the conduct of its business requires such qualification or authorization.
(d) Each of the Company, Ensec Inc. and Ensec S.A. has full corporate
power and authority to own or lease its property and conduct its business as now
being conducted and as proposed to be conducted as described in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(e) Each of the Company, Ensec Inc. and Ensec S.A. does not own,
directly or indirectly, any capital stock of any corporation, any interest in
any partnership or limited liability company or any other equity interest or
participation in any other person except as described in the Prospectus.
(f) Each of the Company, Ensec Inc. and Ensec S.A. has an authorized,
issued and outstanding capitalization as set forth in the Prospectus and the
audited financial statements as of December 31, 1995 for Ensec, S.A. and the
financial statements as of December 31, 1995 for Ensec, Inc. (the "Financial
Statements"). The Company directly owns 99.999% of the outstanding common stock
of Ensec S.A. and directly or indirectly owns 100% of the outstanding common
stock of Ensec, Inc. (each, an "Operating Company," and together, the "Operating
Companies"). All of the issued shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. There are no outstanding options, warrants or other rights
granted by the Company or the Operating Companies to purchase shares of its
Common Stock or other securities, other than as described in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus). The Shares and the Warrant Shares have been duly authorized, and
the Warrant Shares have been duly reserved for issuance, by all necessary
corporate action on the part of the Company and, when the Shares are issued and
delivered to and paid for by the Underwriter pursuant to this agreement and the
Warrants Shares are issued and delivered to and paid for by the holders of
Warrants upon exercise of the Warrants in accordance with the terms thereof, the
Shares and the Warrant Shares will be validly issued, fully paid, nonassessable
and free of preemptive rights and will conform to the description thereof in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No holder of outstanding securities of the Company is
entitled as such to any preemptive or other right to subscribe for any of the
Securities, and no person is entitled to have securities registered by the
Company under the Registration Statement or otherwise under the Act other than
as described in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
-4-
<PAGE>
(h) Since the inception of the Company in April 1996 all issuances of
securities of the Company were effected pursuant to valid private offerings
exempt from registration pursuant to section 4(2) of the Act. Since the
inception of the Company, no compensation was paid to or on behalf of any member
of the National Association of Securities Dealers, Inc. ("NASD"), or any
affiliate or employee thereof, in connection with any such private offering,
except as previously disclosed in writing to the Underwriter.
(i) The financial statements of the Company and the Operating
Companies included in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present the financial position of the Company and the Operating Companies as of
the dates indicated and the results of operations of the Company and the
Operating Companies for the periods specified. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied. The financial data set forth under the caption "Summary
Financial Information" in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary Prospectus), the information
included therein.
(j) Grant Thornton, L.L.P., who have certified certain financial
statements of the Company and the Operating Companies and delivered their report
with respect to the financial statements and schedules included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), are independent public
accountants with respect to the Company as required by the Act and the
applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company or the Operating Companies, whether or not arising in the ordinary
course of business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company or the Operating Companies and no
commitments made by the Company or the Operating Companies that, individually or
in the aggregate, are material with respect to the Company or the Operating
Companies, (iii) there has not been any change in the capital stock or
indebtedness of the Company or the Operating Companies, and (iv) there has been
no dividend or distribution of any kind declared, paid or made by the Company in
respect of any class of its capital stock.
(l) The Company has full corporate power and authority to enter into
and perform its obligations under this agreement and the Underwriter's Warrant
Agreement (as hereinafter defined). The execution and delivery of this
agreement and the Underwriter's Warrant Agreement have been duly authorized by
all necessary corporate action on the part of the Company and this agreement and
the Underwriter's Warrant
-5-
<PAGE>
Agreement have each been duly executed and delivered by the Company and each is
a valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law), and except as rights to indemnity and
contribution under this agreement may be limited by applicable law. The
issuance, offering and sale by the Company to the Underwriter of the Securities
pursuant to this agreement or the Underwriter's Securities pursuant to the
Underwriter's Warrant Agreement, the compliance by the Company with the
provisions of this agreement and the Underwriter's Warrant Agreement, and the
consummation of the other transactions contemplated in this agreement and the
Underwriter's Warrant Agreement do not (i) require the consent, approval,
authorization, registration or qualification of or with any court or
governmental or regulatory authority, except such as have been obtained, such as
may be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this agreement) under the Act, or (ii) conflict
with or result in a breach or violation of, or constitute a default under, any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease or
other agreement or instrument to which the Company or any Operating Company is a
party or by which the Company or any Operating Company or any of its property is
bound or subject, or the certificate of incorporation or by-laws of the Company
or any Operating Company, or any statute or any rule, regulation, judgment,
decree, or order of any court or other governmental or regulatory authority or
any arbitrator applicable to the Company or any Operating Company.
(m) No legal or governmental proceedings are pending to which the
Company or any Operating Company is a party or to which the property of the
Company is subject and no such proceedings have been threatened against the
Company or with respect to any of its property, except such as are described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (and, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus) or
filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation or by-laws, (ii) violation in any material respect of any law,
statute, regulation, ordinance, rule, order, judgment or decree of any court or
any governmental or regulatory authority applicable to the Company, or (iii)
default in any material respect in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
-6-
<PAGE>
agreement or instrument to which the Company is a party or by which it or any of
its property may be bound or subject.
(o) The Company currently owns or possesses adequate rights to use all
intellectual property, including all U.S. and foreign patents, trademarks,
service marks, trade names, copyrights, inventions, know-how, trade secrets,
proprietary technologies, processes and substances, or applications or licenses
therefor, that are described in the Prospectus (and if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and any other rights or
interests in items of intellectual property as are necessary for the conduct of
the business now conducted or proposed to be conducted by it as described in the
Prospectus (or, such Preliminary Prospectus); and, except as disclosed in the
Prospectus (and such Preliminary Prospectus), the Company is not aware of the
granting of any patent rights to, or the filing of applications therefor by,
others, nor is the Company aware of, nor has the Company received notice of,
infringement of or conflict with asserted rights of others with respect to any
of the foregoing. All such intellectual property rights and interests are (i)
valid and enforceable and (ii) to the best knowledge of the Company, not being
infringed by any third parties.
(p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the properties
and assets reflected in the Company's financial statements or as described in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind, except those reflected in
such financial statements or as described in the Registration Statement and the
Prospectus (and such Preliminary Prospectus). The Company occupies its leased
properties under valid and enforceable leases conforming to the description
thereof set forth in the Registration Statement and the Prospectus (and such
Preliminary Prospectus).
(r) The Company is not subject to registration as an "investment
company" under the Investment Company Act of 1940.
(s) The Company has obtained and delivered to the Underwriter the
agreements (the "Lock-up Agreements") with respect to all outstanding shares of
Common
-7-
<PAGE>
Stock or preferred stock to the effect that, among other things, each such
person (i) will not, commencing on the Effective Date and continuing for periods
of 12 or 18 months (as applicable) thereafter, directly or indirectly, sell,
offer or contract to sell or grant any option to purchase, transfer, assign or
pledge, or otherwise encumber, or dispose of any shares of Common Stock or
preferred stock or any securities convertible into or exercisable for Common
Stock or preferred stock now or hereafter owned by such person without the prior
written consent of the Underwriter, and (ii) will comply with any additional
restriction or condition on the disposition of such Common Stock or preferred
stock which may be required to qualify the offering of the Securities in any
state in accordance with the blue sky or securities laws of such state.
(t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(v) The Underwriter's Warrants will conform to the description thereof
in the Registration Statement and in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) and, when sold to and
paid for by the Underwriter in accordance with the Underwriter's Warrant
Agreement, will have been duly authorized and validly issued and will constitute
valid and binding obligations of the Company entitled to the benefits of the
Underwriter's Warrant Agreement. The Underwriter's Warrant Shares (as
hereinafter defined) and the Underwriter's Warrant Warrant Shares (as
hereinafter defined) have been duly authorized and reserved for issuance upon
exercise of the Underwriter's Warrants and the Underwriter's Warrant Warrants
(as hereinafter defined), respectively, by all necessary corporate action on the
part of the Company and, when issued and delivered and paid for upon such
exercise in accordance with the terms of the Underwriter's Warrant Agreement and
the Underwriter's Warrant Warrants, respectively, will be validly issued, fully
paid, nonassessable and free of
-8-
<PAGE>
preemptive rights and will conform to the description thereof in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(w) The Company has engaged Corporate Builders L.P. to serve as its
financial public relations firm.
(x) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for services as
a finder for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member, no securities of the Company have been acquired
by an NASD member except as has been previously disclosed in writing to the
Underwriter.
2. Representations and Warranties of the Selling Shareholder. The
---------------------------------------------------------
Selling Shareholder, represents and warrants to the Underwriter that:
(a) The Selling Shareholder (1) has the power and authority to
execute and deliver this agreement and the Power of Attorney Agreement
(hereinafter defined) on the terms and conditions set forth herein and therein,
(2) is, and when the Registration Statement shall become effective and at the
closing time will be, the owner of the Shares to be sold by such Selling
Shareholder to the Underwriter pursuant to the terms hereof, in each case free
and clear of all liens, charges, encumbrances and restrictions, (3) has paid to
the Company the full purchase price required to be paid for such Shares and (4)
has, and when the Registration Statement shall become effective and at the
closing time will have, the power and authority to convey good and valid title
to such Shares, in each case free and clear of all liens, charges, encumbrances
and restrictions.
(b) The Selling Shareholder has executed an agreement and power of
attorney (the "Power of Attorney Agreement") with Jeffrey Stoops, Esq., as
attorney-in-fact, and has delivered to such attorney-in-fact, pursuant to the
Power of Attorney Agreement, certificates in negotiable form for the Shares to
be sold by such Selling Shareholder. Copies of each Power of Attorney Agreement
have been delivered to you. Such certificates and the Shares represented thereby
are subject to the rights of the Underwriters hereunder and, to such extent, the
Power of Attorney granted by such Selling Shareholder to such attorney-in-fact
is irrevocable and shall not be terminated by law or upon the occurrence of any
event. If any such event shall occur, with or without notice to such attorney-
in-fact, such attorney-in-fact shall deliver such certificates in accordance
with the terms and provisions of this Agreement as if such event had not
occurred.
-9-
<PAGE>
(c) The Power of Attorney Agreement has been duly authorized,
executed and delivered by the Selling Shareholders, and this agreement has been
duly authorized, executed and delivered by the Selling Shareholder or by his
attorney-in-fact pursuant to the Power of Attorney Agreement. The Power of
Attorney Agreement and this agreement each constitute valid and binding
agreements of the Selling Shareholder enforceable in accordance with their
respective terms.
(d) Neither the execution and delivery or performance of this
agreement or the Power of Attorney Agreement, or the consummation of the
transactions herein and therein contemplated nor the compliance with the terms
hereof and thereof by the Selling Shareholder will conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, purchase agreement or other
agreement or instrument to which the Selling Shareholder is a party or by which
the Selling Shareholder or any of his or its property is bound or, under any
statute or under any order, rule or regulation applicable to the Selling
Shareholder or his or its property of any court or other governmental agency;
and no consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Selling Shareholder of
the transactions on the Selling Shareholder's part herein and therein
contemplated, except such as may be required under the Act or under state
securities or blue sky laws.
(e) The Selling Shareholder has not, and at the closing time and at
each option exercise time will not have, taken, directly or indirectly, any
action to cause or result in, or which has constituted, or might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of the Common Stock to facilitate the sale or the resale of any of the
Shares.
3. Purchase, Sale and Delivery of the Securities and the Warrant
-------------------------------------------------------------
Securities.
- ----------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Shares at a purchase
price of $5.625 per share and the Firm Warrants at a purchase price of $.09 per
warrant.
(b) Certificates in definitive form for the Firm Securities that
the Underwriter has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriter requests
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriter, against
payment by or on behalf of the Underwriter of the purchase prices therefor by
certified or official bank check or checks drawn upon or by a New York Clearing
House bank and payable in next-day funds to the order of the
-10-
<PAGE>
Company. Such delivery of and payment for the Firm Securities shall be made at
the offices of the Underwriter, 875 Third Avenue, New York, New York (the
"Underwriter's Office") at 9:30 A.M., New York time, on _______________, 1996,
or at such other place, time or date as the Underwriter and the Company may
agree upon, such time and date of delivery against payment being herein referred
to as the "Firm Closing Date." The Company will make such certificates for the
Firm Securities available for checking and packaging by the Underwriter, at the
Underwriter's option, at the offices in New York, New York of the Company's
transfer agent and registrar or the Underwriter's Office at least 24 hours prior
to the Firm Closing Date.
(c) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company and the Selling Shareholder hereby grant to the
Underwriter an option to purchase any or all of the Option Securities. The
purchase price to be paid for any of the Option Securities shall be the same
price per share or warrant as the price per share or warrant for the Firm
Securities set forth above in paragraph (a) of this section 3. The option
granted hereby may be exercised as to all or any part of the Option Securities
from time to time within 45 calendar days after the Firm Closing Date. The
Underwriter shall not be under any obligation to purchase any of the Option
Securities prior to the exercise of such option. The Underwriter may from time
to time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Securities as to which the Underwriter is then exercising the
option and the date and time for delivery of and payment for such Option
Securities. Any such date of delivery shall be determined by the Underwriter but
shall not be earlier than two business days or later than three business days
after such exercise of the option and, in any event, shall not be earlier than
the Firm Closing Date. The time and date set forth in such notice, or such
other time on such other date as the Underwriter and the Company may agree upon,
is herein called the "Option Closing Date" with respect to such Option
Securities. Upon exercise of the option as provided herein, the Company shall
become obligated to sell to the Underwriter, and, subject to the terms and
conditions herein set forth, the Underwriter shall become obligated to purchase
from the Company, the Option Securities as to which the Underwriter is then
exercising its option. The Selling Shareholder shall be entitled to sell 75,000
shares of the Option Shares. If the option is exercised as to all or any
portion of the Option Securities, certificates in definitive form for such
Option Securities, and payment therefor, shall be delivered on the related
Option Closing Date in the manner, and upon the terms and conditions, set forth
in paragraph (b) of this section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (c), to refer to such Option Securities and Option Closing Date,
respectively.
(d) On the Firm Closing Date, the Company will further issue and sell
to the Underwriter or, at the direction of the Underwriter, to bona fide
officers of the Underwriter, for an aggregate purchase price of $10.00, warrants
to purchase Common
-11-
<PAGE>
Stock and redeemable warrants to purchase Common Stock (the "Underwriter's
Warrants") entitling the holders thereof to purchase an aggregate of 160,000
shares of Common Stock and 160,000 redeemable warrants to purchase Common Stock
for a period of four years, such period to commence on the first anniversary of
the Effective Date. The Underwriter's Warrants shall be exercisable at a price
equal to 165% of the initial public offering price per share and warrant,
respectively and shall contain terms and provisions more fully described herein
below and as set forth more particularly in the warrant agreement relating to
the Underwriter's Warrants to be executed by the Company on the Effective Date
(the "Underwriter's Warrant Agreement"), including, but not limited to, (i)
customary anti-dilution provisions in the event of stock dividends, split
mergers, sales of all or substantially all of the Company's assets, sales of
stock below then prevailing market or exercise prices and other events, and (ii)
prohibitions of mergers, consolidations or other reorganizations of or by the
Company or the taking by the Company of other action during the five-year period
following the Effective Date unless adequate provision is made to preserve, in
substance, the rights and powers incidental to the Underwriter's Warrants. As
provided in the Underwriter's Warrant Agreement, the Underwriter may designate
that the Underwriter's Warrants be issued in varying amounts directly to bona
fide officers of the Underwriter. As further provided, no sale, transfer,
assignment, pledge or hypothecation of the Underwriter's Warrants shall be made
for a period of 12 months from the Effective Date, except (i) by operation of
law or reorganization of the Company, or (ii) to the Underwriter and bona fide
partners, directors and officers of the Underwriter and selling group members.
The shares of Common Stock issuable upon exercise of the Underwriter's Warrants
are referred to herein as the "Underwriter's Warrant Shares"; the warrants
issuable upon exercise of the Underwriter's Warrants are referred to herein as
the "Underwriter's Warrant Warrants"; the shares of Common Stock issuable upon
exercise of the Underwriter's Warrant Warrants are referred to herein as the
"Underwriter's Warrant Warrant Shares"; and the Underwriter's Warrant Shares,
the Underwriter's Warrant Warrants and the Underwriter's Warrant Warrant Shares
are collectively referred to herein as the "Underwriter's Securities."
4. Offering by the Underwriter. The Underwriter proposes to offer the
---------------------------
Firm Shares for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company. The Company and the Selling Shareholder
------------------------
covenant and agree with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this agreement, to
become effective as promptly as possible. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
During any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the
-12-
<PAGE>
Securities in accordance with the provisions hereof and of the Prospectus, as
then amended or supplemented, and (ii) will not file with the Commission any
prospectus or amendment referred to in the first sentence of section 1(a)
hereof, any amendment or supplement to such prospectus or any amendment to the
Registration Statement as to which the Underwriter shall not previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Underwriter shall not have given
its consent. The Company will prepare and file with the Commission, in
accordance with the rules and regulations of the Commission, promptly upon
request by the Underwriter or counsel to the Underwriter, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Shares by
the Underwriter, and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective by the Commission as
promptly as possible. The Company will advise the Underwriter, promptly after
receiving notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus or any
amendment or supplement thereto has been filed and will provide evidence
satisfactory to the Underwriter of each such filing or effectiveness.
(b) The Company will advise the Underwriter, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the Underwriter,
arrange for the qualification of the Securities for offering and sale under the
blue sky or securities laws of such jurisdictions as the Underwriter may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the
-13-
<PAGE>
Company will promptly notify the Underwriter thereof and, subject to section
4(a) hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or effects
such compliance.
(e) So long as any warrants are outstanding, the Company shall use its
best efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriter and any dealer as many copies of
each such Prospectus as the Underwriter or dealer may reasonably request. The
Company shall not call for redemption of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Underwriter of any material change in the
business, financial condition or prospects of the Company. So long as any of the
Warrants remain outstanding, the Company will timely deliver and supply to its
Warrant agent sufficient copies of the Company's current Prospectus, as will
enable such Warrant agent to deliver a copy of such Prospectus to any Warrant or
other holder where such Prospectus delivery is by law required to be made.
(f) The Company will, without charge, provide to the Underwriter and
to counsel for the Underwriter (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriter may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriter may reasonably request and (iii) so long as a prospectus relating to
the Securities is required to be delivered under the Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Underwriter may reasonably request. The Company will timely file, and
will provide or cause to be provided to the Underwriter and counsel to the
Underwriter a copy of the report on Form SR required to be filed by the Company
pursuant to Rule 463 under the Act.
(g) The Company, as soon as practicable, will make generally available
to its security holders and to the Underwriter an earnings statement of the
Company that satisfies the provisions of section 11(a) of the Act and Rule 158
thereunder.
(h) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriter's Warrants (including the underlying securities) outstanding from
time to time.
-14-
<PAGE>
(i) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(j) The Company will not, without the prior written consent of the
Underwriter, directly or indirectly offer, agree to sell, sell, grant any option
to purchase or otherwise dispose (or announce any offer, agreement to sell,
sale, grant of any option to purchase or other disposition) of any shares of
Common Stock, preferred stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock or preferred stock for a
period of 18 months after the Effective Date, except (i) the Shares and Warrants
issued pursuant to this agreement, (ii) the Warrant Shares issuable upon
exercise of the Warrants, (iii) the Underwriter's Warrant, (iv) the
Underwriter's Warrant Shares and Underwriter's Warrant Warrants issuable upon
the exercise of the Underwriter's Warrants, (v) the Underwriter's Warrant
Warrant Shares issuable upon exercise of the Underwriter's Warrant Warrants, and
(vi) up to a maximum of 335,000 shares of Common Stock issuable upon the
exercise of options granted under the Company's Stock Option Plan.
(k) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without your prior written consent,
which shall not be unreasonably withheld or delayed, issue any press release or
other public announcement or hold any press conference with respect to the
Company or its activities with respect to the Offering (other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations).
(l) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then immediately following the execution of this agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A and Rule 424(b) under the Act, copies of the
Prospectus including the information omitted in reliance on Rule 430A, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.
(m) The Company will cause the Securities to be included in The Nasdaq
Stock Market, Inc. ("Nasdaq") SmallCap Market, and use its best efforts to cause
the Securities to be listed on the Boston Stock Exchange (the "BSE") on the
Effective Date and to maintain such listings thereafter. The Company will file
with Nasdaq and the BSE all documents and notices that are required by Nasdaq
and the BSE, respectively, of companies with securities that are traded on the
Nasdaq SmallCap Market and the BSE.
(n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, (i) not to exceed 90 days, after each
annual fiscal period render and distribute reports to its stockholders which
will include audited
-15-
<PAGE>
statements of its operations and changes of financial position during such
period and its audited balance sheet as of the end of such period, as to which
statements the Company's independent certified public accountants shall have
rendered an opinion and (ii) not to exceed 45 days, after each of the first
three quarterly fiscal periods render and distribute reports to its stockholders
which will include unaudited statements of its operations and changes in
financial position during such period and year-to-date period and its unaudited
balance sheet as of the end of such period.
(o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Underwriter, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.
(p) The Company has appointed American Stock Transfer & Trust Company
as transfer agent for the Common Stock and warrant agent for the Warrants,
subject to the Closing. The Company will not change or terminate such
appointment for a period of three years from the Firm Closing Date without first
obtaining the written consent of the Underwriter. For a period of three years
after the Effective Date, the Company shall cause the transfer agent and warrant
agent to deliver promptly to the Underwriter a duplicate copy of the daily
transfer sheets relating to trading of the Securities. The Company shall also
provide to the Underwriter, promptly upon its request, up to four times in any
calendar year, copies of DTC or equivalent transfer sheets.
(q) The Company shall continue to engage Corporate Builders L.P. or,
if the Company terminates such engagement, shall immediately engage another
financial public relations firm acceptable to the Underwriter until the first
anniversary of the Closing Date.
(r) During the period of 180 days after the date of this agreement,
the Company will not at any time, directly or indirectly, take any action
designed to or that will constitute, or that might reasonably be expected to
cause or result in, the stabilization of the price of the Common Stock to
facilitate the sale or resale of any of the Shares.
(s) The Company will not take any action to facilitate the sale of any
shares of Common Stock pursuant to Rule 144 under the Act if any such sale would
violate any of the terms of the Lock-up Agreements.
(t) Prior to the 90th day after the Firm Closing Date, the Company
will provide the Underwriter and its designees with four bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Underwriter.
-16-
<PAGE>
(u) The Company shall consult with the Underwriter prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.
(v) The Company and the Underwriter will advise each other immediately
in writing as to any investigation, proceeding, order, event or other
circumstance, or any threat thereof, by or relating to the Commission or any
other governmental authority, that could impair or prevent this offering.
Except as required by law or as otherwise mutually agreed in writing, neither
the Company nor the Underwriter will acquiesce in such circumstances and each
will actively defend any proceedings or orders in that connection.
(w) On the Closing Date, the Company shall enter into an agreement
retaining the Underwriter as management and financial consultants to the Company
for a two-year period commencing as of the Closing at a fee equal to $2,500 per
month, payable in full at the Closing.
(x) The Company will, for a period of no less than three years
commencing immediately after the Effective Date, engage a designee by the
Underwriter as advisor (the "Advisor") to the Company's Board of Directors, who
shall attend meetings of the Board, receive all notices and other correspondence
and communications sent by the Company to its Board of Directors and receive
compensation equal to that of other non-officer directors; provided, that in
lieu of the Underwriter's right to designate an Advisor, the Underwriter shall
have the right during such three-year period, in its sole discretion, to
designate one person for election as a director of the Company and the Company
will utilize its best efforts to obtain the election of such person who shall be
entitled to receive the same compensation, expense reimbursements and other
benefits as set forth above. In addition, such Advisor shall be entitled to
receive reimbursement for all costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company,
during said three-year period, shall schedule no less than four formal meetings
(at least one of which shall be "in person" and the others may be held
telephonically) of its Board of Directors in each such year at which meetings
such Advisor shall be permitted to attend (in person, for each meeting held "in
person") as set forth herein; said meetings shall be held quarterly each year
and advance notice of such meetings identical to the notice given to directors
shall be given to the Advisor. The Company and its principal stockholders
shall, during such three year period, give the Underwriter timely prior written
notice of any proposed acquisitions, mergers, reorganizations or other similar
transactions. The Company shall indemnify and hold the Underwriter and such
Advisor or director harmless against any and all claims, actions, damages, costs
and expenses, and judgments
-17-
<PAGE>
arising solely out of the attendance and participation of such Advisor or
director at any such meeting described herein, and, if the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, it shall, if possible, include such Advisor or director as an insured
under such policy.
(y) The Company shall first submit to the Underwriter certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.
(z) The Company shall engage the Underwriter's counsel to provide the
Underwriter, at the closing of any sale of Securities hereunder and quarterly
thereafter, with an opinion, setting forth those states in which the Common
Stock and Warrants may be traded in non-issuer transactions under the blue sky
or securities laws of the 50 states. The Company shall pay such counsel a one-
time fee of $7,500 for such opinions at the closing of the sale of the Firm
Securities
(aa) The Company will prepare and file a registration statement with
the Commission pursuant to section 12(g) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and will use its best efforts to have such
registration statement declared effective by the Commission on an accelerated
basis on the day after the Effective Date. For this purpose the Company shall
prepare and file with the Commission a General Form of Registration of
Securities (Form 8-A or Form 10).
(bb) For so long as the Securities are registered under the 1934 Act,
the Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 150 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.
(cc) Prior to the Effective Date, the Company shall enter into an
employment contract (acceptable to the Underwriter) with such key officers as
may be selected by the Underwriter on terms and conditions reasonably
satisfactory to the Underwriter and shall obtain key-person life insurance in
the minimum amount of $2,000,000 on each such person on such terms and
conditions as are reasonably satisfactory to the Underwriter, assuming such
coverage is available on commercially reasonable terms.
(dd) Charles M. Finkel shall be President and Chief Executive Officer
of the Company on the Closing Dates.
-18-
<PAGE>
6. Covenants of the Selling Shareholder. The Selling Shareholder,
------------------------------------
covenants and agrees with the Underwriter that:
(a) During the period of 180 days commencing on the date hereof, the
Selling Shareholder will not at any time, directly and indirectly, take any
action designed to or which will constitute or which might reasonably be
expected to cause or result in the stabilization of the price of the Shares to
facilitate the sale or the resale of any of the Shares.
(b) If, subsequent to the date hereof, the Selling Shareholder shall
believe or have any reasonable grounds to believe that the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or that any of the
representations and warranties of the Company or the Selling Shareholder
contained herein or in any certificate or document contemplated under this
agreement to be delivered to you are false, the Selling Shareholder will
immediately notify the Underwriter to such effect.
(c) The Selling Shareholder will not, without your prior written
consent, sell, contract to sell or otherwise dispose of any shares of Common
Stock owned by or held of record in the name of the Selling Shareholder, except
the sale of the Firm Shares to the Underwriters, for a period of 18 months after
the Effective Date.
7. Expenses.
--------
(a) The Company shall pay all costs and expenses incident to the
performance of the obligations of the Company and the Selling Shareholder under
this agreement, whether or not the transactions contemplated hereby are
consummated or this agreement is terminated pursuant to section 10 hereof,
including all costs and expenses incident to (i) the preparation, printing and
filing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed with
respect to the Securities and any amendment thereto, any Preliminary Prospectus
and the Prospectus and any amendment or supplement thereto, this agreement, the
selected dealer agreement and the other agreements and documents governing the
underwriting arrangements and any blue sky memoranda, (ii) all reasonable and
necessary arrangements relating to the delivery to the Underwriter of copies of
the foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (iv) the
preparation, issuance and delivery to the Underwriter of any certificates
evidencing the Securities, including transfer agent's, warrant agent's and
registrar's fees or any transfer or other taxes payable thereon, (v) the
qualification of the Securities under state blue sky or securities laws,
including filing fees and fees and disbursements of counsel for the Underwriter
relating thereto (such counsel
-19-
<PAGE>
fees not to exceed $35,000, $15,000 of which shall be due and payable upon the
commencement of blue sky filing, together with the related filing fees) and any
fees and disbursements of local counsel, if any, retained for such purpose, (vi)
the filing fees of the Commission and the NASD relating to the Securities, (vii)
the inclusion of the Securities on the Nasdaq SmallCap Market and listing on the
BSE and in the Standard and Poor's Corporation Descriptions Manual, (viii) any
"road shows" or other meetings with prospective investors in the Securities,
including transportation, accommodation, meal, conference room, audio-visual
presentation and similar expenses of the Underwriter or its representatives or
designees (other than as shall have been specifically approved by the
Underwriter to be paid for by the Underwriter) and (ix) the placing of
"tombstone advertisements" in publications selected by the Underwriter and the
manufacture of prospectus memorabilia. In addition to the foregoing, the
Company shall reimburse the Underwriter for its expenses on the basis of a non-
accountable expense allowance in the amount of 3% of the gross offering proceeds
to be received by the Company, $50,000 of which has been paid by the Company to
the Underwriter. The Underwriter hereby acknowledges receipt of such $50,000,
which shall be credited against the non-accountable expense allowance to be paid
by the Company. The unpaid portion of the expense allowance, based on the gross
proceeds from the sale of the Firm Securities, shall be deducted from the funds
to be paid by the Underwriter in payment for the Firm Securities, pursuant to
section 3 of this agreement, on the Firm Closing Date. To the extent any Option
Securities are sold, any remaining non-accountable expense allowance based on
the gross proceeds from the sale of the Option Securities shall be deducted from
the funds to be paid by the Underwriter in payment for the Option Securities,
pursuant to section 3 of this agreement, on the Option Closing Date. The
Company warrants, represents and agrees that all such payments and
reimbursements will be promptly and fully made.
(b) Notwithstanding any other provision of this agreement, if the
offering of the Securities contemplated hereby is terminated for any reason, the
Company agrees that, in addition to the Company paying its own expenses as
described in subparagraph (a) above, (i) the Company shall reimburse the
Underwriter only for its actual accountable out-of-pocket expenses (in addition
to blue sky legal fees and expenses referred to in subparagraph (a) above), and
(ii) the Underwriter shall be entitled to retain the non-accountable expense
allowance paid by the Company pursuant to subparagraph (a) above; provided,
however, that the amount retained pursuant to this clause (ii) shall not exceed
the Underwriter's expenses on an accountable basis to the date of such
cancellation and that all unaccounted for amounts shall be refunded to the
Company. Such expenses shall include, but are not to be limited to, fees for
the services and time of counsel for the Underwriter to the extent not covered
by clause (i) above, plus any additional expenses and fees, including, but not
limited to, travel expenses, postage expenses, "ticket" charge, duplication
expenses, long-distance telephone expenses, and other expenses incurred by the
Underwriter in connection with the proposed offering.
-20-
<PAGE>
8. Warrant Solicitation Fee. The Company agrees to pay the Underwriter
------------------------
a fee of five percent (5%) of the aggregate exercise price of the Warrants if
(i) the market price of the Common stock is greater than the exercise price of
the Warrants on the date of exercise; (ii) the exercise of the Warrants is
solicited by a member of the NASD; (iii) the Warrants are not held in a
discretionary account; (iv) the disclosure of compensation arrangements is made
both at the time of this offering and at the time of the exercise of the
Warrant; and (v) the solicitation of the Warrant exercise is not in violation of
Rule 10b-6 under the 1934 Act. The Company agrees not to solicit the exercise
of any Warrant other than through the Underwriter and will not authorize any
other dealer to engage in such solicitation without the prior written consent of
the Underwriter which will not be unreasonably withheld. The Warrant
solicitation fee will not be paid in a non-solicited transaction. Any request
for exercise will be presumed to be unsolicited unless the customer states in
writing that the transaction was solicited and designates in writing the
broker/dealer to receive compensation for the exercise. No Warrant solicitation
by the Underwriter will occur for a period of 12 months after the Effective
Date.
9. Conditions of the Underwriter' Obligations. The obligations of the
-------------------------------------------
Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:
(a) If the registration statement, as heretofore amended, has not
been declared effective as of the time of execution hereof, the registration
statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 11 A.M., New York time, on the date on which the amendment to such
registration statement containing information regarding the initial public
offering price of the Shares has been filed with the Commission, or such later
time and date as shall have been consented to by the Underwriter; if required,
the Prospectus and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rule
424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
(b) The Underwriter shall have received opinions, dated the Firm
Closing Date, of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. and Duarte
Garcia e Caselli Guimaraes Advocacia S/C, counsel to the Company, to the effect
that:
-21-
<PAGE>
(1) Each of the Company, Ensec Inc. and Ensec Engenharia Sistemas de
Seguranca, S.A. ("Ensec S.A.") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which its ownership or leasing of any properties or the conduct of its business
requires such qualification;
(2) Each of the Company, Ensec Inc. and Ensec S.A. has full corporate
power and authority to own or lease its property and conduct its business as now
being conducted and as proposed to be conducted, in each case as described in
the Registration Statement and the Prospectus, and the Company has full
corporate power and authority to enter into this agreement and the Underwriter's
Warrant Agreement and to carry out all the terms and provisions hereof and
thereof to be carried out by it;
(3) Each of the Company, Ensec Inc. and Ensec S.A. has an authorized,
issued and outstanding capitalization as set forth in the Prospectus and the
audited financial statements as of December 31, 1995 for Ensec, S.A. and the
financial statements as of December 31, 1995 for Ensec, Inc. (the "Financial
Statements"). The Company directly owns 99.999% of the outstanding common stock
of Ensec S.A. and directly or indirectly owns 100% of the outstanding common
stock of Ensec, Inc. (each, an "Operating Company," and together, the "Operating
Companies"). There are no outstanding options, warrants or other rights granted
by the Company to purchase shares of its Common Stock, preferred stock or other
securities other than as described in the Prospectus; the Shares have been duly
authorized and the Warrant Shares, the Underwriter's Warrant Shares and the
Underwriter's Warrant Warrant Shares have been duly reserved for issuance by all
necessary corporate action on the part of the Company and, when issued and
delivered to and paid for by the Underwriter pursuant to this agreement, as to
the Shares, the holders of the Warrants pursuant to the terms thereof, as to the
Warrant Shares, the Underwriter pursuant to the Underwriter's Warrant, as to the
Underwriter's Warrant Shares, pursuant to the Underwriter's Warrant Warrants, as
to the Underwriter's Warrant Warrant Shares, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus; no holder of outstanding securities of the Company is
entitled as such to any preemptive or other right to subscribe for any of the
Shares, the Warrant Shares, the Underwriter's Warrant Shares or the
Underwriter's Warrant Warrant Shares; and no person is entitled to have
securities registered by the Company under the Registration Statement or
otherwise under the Act other than as described in the Prospectus;
(4) the Shares have been approved for inclusion in the Nasdaq SmallCap
Market and for listing on the BSE;
(5) the execution and delivery of this agreement by the Company and
the Selling Shareholder, or his duly authorized attorney-in-fact, and the
-22-
<PAGE>
Underwriter's Warrant Agreement by the Company have been duly authorized by all
necessary corporate action on the part of the Company and this agreement and the
Underwriter's Warrant Agreement have been duly executed and delivered by the
Company and the Selling Shareholder, and each is a valid and binding agreement
of the Company and the Selling Shareholder, enforceable against the Company and
the Selling Shareholder in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this agreement and the Underwriter's Warrant Agreement may be
limited by applicable law;
(6) the Underwriter's Warrants conform to the description thereof in
the Registration Statement and in the Prospectus and are duly authorized and
validly issued and constitute valid and binding obligations of the Company
entitled to the benefits of the Underwriter's Warrant Agreement;
(7) the statements set forth under the heading "Description of Capital
Stock," "Shares Eligible for Future Sale," "Certain Relationships and Related
Transactions" and "Underwriting" (with respect to the Underwriting Agreement) in
the Prospectus, insofar as those statements purport to summarize the terms of
the capital stock and warrants of the Company, provide a fair summary of such
terms; the statements in the Prospectus, insofar as those statements constitute
matters of law or legal conclusions, or summaries of the contracts and
agreements referred to therein, constitute a fair summary of those matters,
legal conclusions, contracts and agreements and include all material terms
thereof, as applicable;
(8) none of (A) the execution and delivery of this agreement and the
Underwriter's Warrant Agreement, (B) the issuance, offering and sale by the
Company or the Selling Shareholder to the Underwriter of the Securities pursuant
to this agreement and the Underwriter's Warrant Securities pursuant to the
Underwriter's Warrant Agreement, nor (C) the compliance by the Company with the
other provisions of this agreement and the Underwriter's Warrant Agreement and
the consummation of the transactions contemplated hereby and thereby, (1)
requires the consent, approval, authorization, registration or qualification of
or with any court or governmental authority, except such as have been obtained
and such as may be required under state blue sky or securities laws, or (2)
conflicts with or results in a breach or violation of, or constitutes a default
under, any contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument to which the Company or any Operating
Company is a party or by which the Company or any Operating Company or any of
its property is bound or subject, of which such counsel is aware after
reasonable inquiry, or the certificate of incorporation or by-laws of the
Company or any Operating Company, or any material statute or any judgment,
decree, order, rule or regulation of any court or other
-23-
<PAGE>
governmental or regulatory authority applicable to the Company or any Operating
Company;
(9) to the best of such counsel's knowledge, (A) no legal or
governmental proceedings are pending to which the Company, the Selling
Shareholder or any Operating Company is a party or to which the property of the
Company, the Selling Shareholder or any Operating Company is subject and (B) no
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(10) the Company and each Operating Company possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate federal, state or foreign regulatory agencies or bodies
necessary to conduct its business as described in the Registration Statement and
the Prospectus, and, to the best of such counsel's knowledge after due inquiry,
there are no pending or threatened proceedings relating to the revocation or
modification of any such license, order, authorization, approval, certificate or
permit, except as disclosed in the Registration Statement and the Prospectus.
(11) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(12) the registration statement originally filed with respect to the
Shares and each amendment thereto and the Prospectus (in each case, other than
the financial statements and schedules and other financial and statistical
information contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable requirements of
the Act and the rules and regulations of the Commission thereunder; and
(13) the Company is not subject to registration as an "investment
company" under the Investment Company Act of 1940.
Such counsel shall also state that such counsel has participated in the
preparation of the Registration Statement and the Prospectus and that nothing
has come to such counsel's attention that has caused them to believe that the
Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the
-24-
<PAGE>
Prospectus, as of its date or as of the Firm Closing Date, contained an untrue
statement of material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriter, in form and substance acceptable to
the Underwriter, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriter's reliance upon such opinion is justified.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Underwriter shall have received from Grant Thornton, L.L.P. a
letter dated the Effective Date and a letter dated the Firm Closing Date, in
form and substance satisfactory to the Underwriter, to the effect that (i) they
are independent public accountants with respect to the Company within the
meaning of the Act and the applicable rules and regulations thereunder; (ii) in
their opinion, the financial statements examined by them and included in the
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
applicable rules and regulations thereunder; (iii) based upon procedures set
forth in detail in such letter, nothing has come to their attention which causes
them to believe that (A) the financial information set forth under "Summary
Financial Information" in the Prospectus was not determined on a basis
substantially consistent with that used in determining the corresponding amounts
in the financial statements included in the Registration Statement or (B) at a
specified date not more than five days prior to the date of this agreement,
there has been any change in the capital stock of the Company or any increase in
the long-term debt of the Company or any decrease in working capital or net
assets as compared with the amounts shown in the December 31, 1995 balance sheet
included in the Registration Statement or, during the period from July 17, 1995
to a specified date not more than five days prior to the date of this agreement,
there were any decreases, as compared with the corresponding period in the
preceding quarter, in revenues, or any increase in certain specified expense
items of the Company, except in all instances for changes, increases or
decreases which the Registration Statement and the Prospectus disclose have
occurred or may occur; and (iv) in addition to the examination referred to in
their opinions and the limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures, not constituting an audit,
with respect to certain amounts, percentages and financial information which are
included in the Registration Statement and Prospectus and which are specified by
the Underwriter, and have found such amounts, percentages and financial
information to be in agreement with the relevant accounting,
-25-
<PAGE>
financial and other records of the Company identified in such letter.
References to the Registration Statement and the Prospectus in this paragraph
(c) with respect to the letter referred to above shall include any amendment or
supplement thereto at the date of such letter.
(d) The representations and warranties of the Company contained in
this agreement shall be true and correct as if made on and as of the Firm
Closing Date; the Registration Statement shall not include any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, shall not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Firm Closing Date.
(e) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been any material adverse change, or any development involving a prospective
material adverse change, in the business, operations, condition (financial or
otherwise), earnings or prospects of the Company, except in each case as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto).
(g) The Underwriter shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (d) through (f) above.
(h) The Common Stock shall be qualified in such jurisdictions as the
Underwriter may reasonably request pursuant to section 5(c), and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Firm Closing Date.
(i) The Company shall have executed and delivered to the Underwriter
the Underwriter's Warrant Agreement and a certificate or certificates evidencing
the Underwriter's Warrants, in each case in a form acceptable to the
Underwriter.
-26-
<PAGE>
(j) On or before the Firm Closing Date, the Underwriter and counsel
for the Underwriter shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company.
All opinions, certificates, letters and documents delivered pursuant to
this agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriter and counsel for the Underwriter shall reasonably
request.
The respective obligations of the Underwriter to purchase and pay for
any Option Securities shall be subject, in its discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
10. Indemnification and Contribution.
--------------------------------
(a) The Company and the Selling Shareholder agree to indemnify and
hold harmless the Underwriter and each person, if any, who controls any
Underwriter within the meaning of section 15 of the Act or section 20 of the
1934 Act against any losses, claims, damages, amounts paid in settlement or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon:
(1) any breach of any representation or warranty of the Company
or the Selling Shareholder contained in section 1 of this agreement,
(2) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement originally filed with
respect to the Securities or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto or (B) any application
or other document, or any amendment or supplement thereto, executed by the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Securities under the
Blue Sky or securities laws thereof or filed with the Commission or any
securities association or securities exchange (each an "Application"), or
(3) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading,
-27-
<PAGE>
and will reimburse, as incurred, the Underwriter and such controlling person for
any legal or other expenses reasonably incurred by the Underwriter or such
controlling person in connection with investigating, defending against or
appearing as a third-party witness in connection with any loss, claim, damage,
liability, action, investigation, litigation or proceeding; provided, however,
-------- -------
that the Company and the Selling Shareholder will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or any Application in reliance upon and in conformity with written
information furnished to the Company and the Selling Shareholder by any
Underwriter specifically for use therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have. The Company and
the Selling Shareholder will not, without the prior written consent of the
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Underwriter or any
person who controls any Underwriter within the meaning of section 15 of the Act
or section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter will indemnify and hold harmless the Company, the
Selling Shareholder, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of section 15 of the Act or section 20 of the Exchange Act against,
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, but only insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company and the Selling Shareholder by Underwriter specifically for use therein;
and, subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company, the Selling Shareholder or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or any action in respect
-28-
<PAGE>
thereof. This indemnity agreement will be in addition to any liability which
the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying party under
this section 10, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
section 10. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this section 10 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this section 10 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with
-29-
<PAGE>
the statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof).
The relative benefits received by the Company on the one hand and the
Underwriter on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (before deducting expenses) received by the
Company and the Selling Shareholder bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Shareholder or the Underwriter, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and the other equitable considerations appropriate in the
circumstances. The Company, the Selling Shareholder and the Underwriter agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to in the first sentence of this paragraph (d). Notwithstanding any other
provision of this paragraph (d), no Underwriter shall be obligated to make
contributions hereunder that in the aggregate exceed the total public offering
price of the Shares purchased by such Underwriter under this agreement, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this paragraph
(d), each person, if any, who controls an Underwriter within the meaning of
section 15 of the Act or section 20 of the 1934 Act shall have the same rights
to contribution as the Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of section 15 of the Act or
section 20 of the 1934 Act, shall have the same rights to contribution as the
Company.
11. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company, any of its officers
or directors, or the Selling Shareholder and the Underwriter set forth in this
agreement or made by or on behalf of them, respectively, pursuant to this
agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or the Selling Shareholder,
any of its officers or directors, any Underwriter or any controlling person
referred to in section 10 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in sections 7 and 10 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this agreement.
-30-
<PAGE>
12. Termination.
-----------
(a) This agreement may be terminated with respect to the Firm
Securities or any Option Shares in the sole discretion of the Underwriter by
notice to the Company and the Selling Shareholder given prior to the Firm
Closing Date or the related Option Closing Date, respectively, in the event that
the Company or the Selling Shareholder shall have failed, refused or been unable
to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or if at or prior to the
Firm Closing Date or such Option Closing Date, respectively,
(1) the Company or the Selling Shareholder sustains a loss by
reason of explosion, fire, flood, accident or other calamity, which, in the
opinion of the Underwriter, substantially affects the value of the properties of
the Company or the Selling Shareholder or which materially interferes with the
operation of the business of the Company regardless of whether such loss shall
have been insured; there shall have been any material adverse change, or any
development involving a prospective material adverse change (including, without
limitation, a change in management or control of the Company), in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto);
(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company or the Selling
Shareholder, by any person or by any federal, state, foreign or other
governmental or regulatory commission, board or agency wherein any unfavorable
result or decision could materially adversely affect the business, operations,
condition (financial or otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock or Warrants shall have been
suspended by the Commission, the NASD or the BSE, or trading in securities
generally on the New York Stock Exchange shall have been suspended or minimum or
maximum prices shall have been established on either such exchange or quotation
system;
(4) a banking moratorium shall have been declared by New York
or United States authorities; or
(5) there shall have been (A) an outbreak of hostilities
between the United States and any foreign power (or, in the case of any ongoing
hostilities, a material escalation thereof), (B) an outbreak of any other
insurrection or armed conflict involving the United States or (C) any other
calamity or crisis or material change in financial, political or economic
conditions, having an effect on the financial markets that, in any case referred
to in this clause (5), in the sole judgment of the Underwriter makes it
-31-
<PAGE>
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration Statement; or
(6) the Company's and Selling Shareholders' counsel or
independent public accountants are unable to deliver any opinion, report or
certificate relating to this offering which is qualified in any material respect
(other than, in the case of this accountant's audit report, qualification with
respect to the viability of the Company as a going concern).
(b) Termination of this agreement pursuant to this section 12 shall
be without liability of any party to any other party except as provided in
section 6(b) and section 10 hereof.
13. Information Supplied by the Underwriter. The statements set forth
---------------------------------------
in the last paragraph on the front cover page and in the third paragraph under
the heading "Underwriting" in any Preliminary Prospectus or the Prospectus (to
the extent such statements relate to the Underwriter) constitute the only
information furnished by the Underwriter to the Company for the purposes of
sections 1(b) and 10(b) hereof. The Underwriter confirms that such statements
(to such extent) are correct.
14. Notices. All notice hereunder to or upon either party hereto shall
-------
be deemed to have been duly given for all purposes if in writing and (i)
delivered in person or by messenger or an overnight courier service against
receipt, or (ii) send by certified or registered mail, postage paid, return
receipt requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:
To the Company: 751 Park of Commerce Drive
Boca Raton, Florida 33487
Attn: President
Fax: (561) 997-2511
To the Underwriter: 875 Third Avenue
New York, New York 10022
Attn: Corporate Finance Department
Fax: (212) 754-9646
To the Selling Shareholder: 751 Park of Commerce Drive
Boca Raton, Florida 33487
Fax: (561) 997-2511
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any
-32-
<PAGE>
such notice shall be, in the case of clause (i), the date of the receipt; in the
case of clause (ii), five business days after such notice or demand is sent;
and, in the cas of clause (iii), the business day next following the date such
notice is sent.
15. Amendment. Except as otherwise provided herein, no amendment of
---------
this agreement shall be valid or effective, unless in writing and signed by or
on behalf of the parties hereto.
16. Waiver. No course of dealing or omission or delay on the part of
------
either party hereto in asserting or exercising any right hereunder shall
constitute or operate as a waiver of any such right. No waiver of any provision
hereof shall be effective, unless in writing and signed by or on behalf of the
party to be charged therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default, unless expressly
so stated in writing.
17. Applicable Law. This agreement shall be governed by, and
--------------
interpreted and enforced in accordance with, the laws of the State of New York
without regard to principles of choice of law or conflict of laws.
18. Jurisdiction. Each of the parties hereto hereby irrevocably
------------
consents and submits to the exclusive jurisdiction of the Supreme Court of the
State of New York and the United States District Court for the Southern District
of New York in connection with any suit, action or other proceeding arising out
of or relating to this agreement or the transactions contemplated hereby, waives
any objection to venue in the County of New York, State of New York, [or such
District] and agrees that service of any summons, complaint, notice or other
process relating to such suit, action or other proceeding may be effected in the
manner provided by clause (ii) of Section 13.
19. Remedies. In the event of any actual or prospective breach or
--------
default by either party hereto, the other party shall be entitled to equitable
relief, including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
20. Attorneys' Fees. The prevailing party in any suit, action or other
---------------
proceeding arising out of or relating to this agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.
21. Severability. The provisions hereof are severable and in the event
------------
that any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect,
-33-
<PAGE>
and any invalid or unenforceable provision shall be deemed, without further
action on the part of the parties hereto, amended and limited to the extent
necessary to render the same valid and enforceable.
22. Counterparts. This agreement may be executed in counterparts, each
------------
of which shall be deemed an original and which together shall constitute one and
the same agreement.
23. Successors. This agreement shall inure to the benefit of and be
----------
binding upon the Underwriter, the Company, the Selling Shareholder and their
respective successors and assigns. Nothing expressed or mentioned in this
agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this agreement, or
any provisions herein contained, this agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company and the Selling Shareholder contained in section
10 of this agreement shall also be for the benefit of any person or persons who
control any Underwriter within the meaning of section 15 of the Act or section
20 of the Exchange Act and (ii) the indemnities of the Underwriter contained in
section 10 of this agreement shall also be for the benefit of the directors of
the Company, the officers of the Company and the Selling Shareholder who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of section 15 of the Act or section 20 of the
Exchange Act. No purchaser of Securities from the Underwriter shall be deemed a
successor because of such purchase.
24. Titles and Captions. The titles and captions of the articles and
-------------------
sections of this agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.
25. Grammatical Conventions. Whenever the context so requires, each
-----------------------
pronoun or verb used herein shall be construed in the singular or the plural
sense and each capitalized term defined herein and each pronoun used herein
shall be construed in the masculine, feminine or neuter sense.
26. References. The terms "herein," "hereto," "hereof," "hereby," and
----------
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.
27. Entire Agreement. This Agreement embodies the entire agreement of
----------------
the parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.
-34-
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, the Selling
Shareholder and the Underwriter.
Very truly yours,
ENSEC INTERNATIONAL, INC.
By:______________________________________
Name:
Title:
CHARLES N. FINKEL
By:______________________________________
Name: Charles N. Finkel
The foregoing agreement is hereby confirmed and accepted as of the date first
above written.
RICKEL & ASSOCIATES, INC.
By:___________________________
Name: Gregg Smith
Title: Managing Director
-35-
<PAGE>
EXHIBIT 1.2
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS
WARRANT MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION
STATEMENT OR OF A POST-EFFECTIVE AMENDMENT THERETO UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), COVERING THIS WARRANT OR THE
SECURITIES UNDERLYING THIS WARRANT, OR UNTIL THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK AND REDEEMABLE WARRANTS
ENSEC INTERNATIONAL, INC.
(a Florida corporation)
Dated: , 1996
THIS CERTIFIES THAT, for value received, Rickel & Associates, Inc.
(the "Underwriter") or its registered assigns (the Underwriter and any such
registered assign, a "Holder") is the owner of warrants (the "Underwriter's
Warrant") to purchase from Ensec International, Inc., a Florida corporation (the
"Company"), during the period and at the prices hereinafter specified, up to
160,000 shares of the Company's common stock, par value $.01 per
<PAGE>
share (the "Common Stock"), and up to 160,000 redeemable common stock purchase
warrants (the "Warrants" and, together with the Common Stock, the "Securities").
This Underwriter's Warrant is issued pursuant to an Underwriting
Agreement dated , 1996 between the Company and the
Underwriter in connection with a public offering through the Underwriter (the
"Public Offering") of (i) 1,600,000 shares of Common Stock and 1,600,000
warrants, and (ii) pursuant to this Underwriter's over-allotment option (the
"Over-allotment Option"), an additional 240,000 shares of Common Stock (of
which Charles N. Finkel may sell 50,000 shares) and 240,000 warrants
(collectively, the warrants to purchase such 1,840,000 shares and the warrants
issuable upon exercisable upon exercise of this Warrant are called the
"Warrants"). The Warrants will be issued pursuant to, and subject to the terms
and conditions set forth in, an agreement between the Company, the Underwriter
and American Stock Transfer & Trust Company (the "Warrant Agreement").
1. Exercise of the Underwriter's Warrant.
-------------------------------------
(a) The rights represented by this Underwriter's Warrant shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions as set forth herein:
(i) During the period from , 1996 to, 1997,
inclusive, the Holder shall have no right to purchase any Securities
hereunder.
(ii) Between , 1997 and ,
2001, inclusive, the Holder shall have the option to purchase 160,000 shares of
Common Stock and 160,000 Warrants hereunder at a price of $7.00 per share and
$.165 per Warrant, respectively, the purchase price of the Common Stock and the
Warrants being 165% of the public offering prices for the Securities
2
<PAGE>
set forth in the Prospectus forming a part of the registration statement on Form
SB-2 (File No. 333-____) of the Company, as amended (the "Registration
Statement").
(iii) After , 2001, the Holder shall have no right to
purchase any Securities hereunder and this Underwriter's Warrant shall expire
effective at 5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Warrant may be
exercised at any time within the period above specified, in whole or in part, by
(i) the surrender of this Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of shares of Common Stock and Warrants specified in the above-
mentioned purchase form together with applicable stock transfer taxes, if any;
and (iii) delivery to the Company of a duly executed agreement signed by the
person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of Paragraph 5 and subparagraphs (b), (c)
and (d) of Paragraph 6 hereof. This Underwriter's Warrant shall be deemed to
have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Underwriter's Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 1, and the person or persons in whose name or names the
certificates for the Securities shall be issuable upon such exercise shall
become the holder or holders of record of such Common Stock and Warrants at that
time and date. The Common Stock and Warrants so purchased shall be delivered to
the Holder within a reasonable time, not
3
<PAGE>
exceeding ten business days, after the rights represented by this Underwriter's
Warrant shall have been so exercised.
2. Restrictions on Transfer. This Underwriter's Warrant shall not
------------------------
be sold, transferred, assigned, pledged or hypothecated for a period of one year
commencing on , 1996, except that it may be transferred to successors
of the Holder, and may be assigned in whole or in part to any person who is an
officer of the Underwriter or a partner, officer of any other member of the
selling group during such period. Any such assignment shall be effected by the
Holder by (i) completing and executing the transfer form at the end hereof and
(ii) surrendering this Underwriter's Warrant with such duly completed and
executed transfer form for cancellation, accompanied by funds sufficient to pay
any transfer tax, at the office or agency of the Company referred to in
Paragraph 1 hereof, accompanied by a certificate (signed by a duly authorized
representative of the Holder), stating that each transferee is a permitted
transferee under this Paragraph 2; whereupon the Company shall issue, in the
name or names specified by the Holder, a new Underwriter's Warrant or
Underwriter's Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Securities as are then purchasable hereunder. The
Holder acknowledges that this Underwriter's Warrant may not be offered or sold
except pursuant to an effective registration statement under the Act or an
opinion of counsel satisfactory to the Company that an exemption from
registration under the Act is available.
3. Covenants of the Company.
------------------------
(a) The Company covenants and agrees that all Common Stock issuable
upon the exercise of this Underwriter's Warrant will, upon issuance thereof and
payment therefor in accordance with the terms hereof, and all Common Stock
issuable upon exercise of the Warrants
4
<PAGE>
underlying this Underwriter's Warrant will, upon the issuance thereof and
payment therefor in accordance with the terms of the Warrant Agreement, be duly
and validly issued, fully paid and nonassessable and no personal liability will
attach to the Holder thereof by reason of being such a Holder, other than as set
forth herein.
(b) The Company covenants and agrees that during the period within
which this Underwriter's Warrant may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of this Underwriter's Warrant and the Warrants included
therein.
(c) The Company covenants and agrees that for so long as the
Securities shall be outstanding (unless the Securities shall no longer be
registered under Paragraph 12(b) or 12(g) of the Securities Exchange Act of
1934) the Company shall use its best efforts to cause all shares of Common Stock
issuable upon the exercise of the Underwriter's Warrant and the Warrants
included therein, to be included on the Nasdaq Stock Market or listed on a
national securities exchange.
4. No Rights as Stockholder. This Underwriter's Warrant shall not
------------------------
entitle the Holder to any voting rights or other rights as a stockholder of the
Company, either at law or in equity, and the rights of the Holder are limited to
those expressed in this Underwriter's Warrant and are not enforceable against
the Company except to the extent set forth herein.
5. Registration Rights.
-------------------
(a) During the period of four years from , 1997,
the Company shall advise the Holder, whether the Holder holds this Underwriter's
Warrant or has exercised this Underwriter's Warrant and holds Common Stock and
Warrants, or Common Stock underlying the
5
<PAGE>
Warrants (the "Warrant Shares"), by written notice at least 30 days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under the
Act, covering any securities of the Company, for its own account or for the
account of others, and upon the request of the Holder made during such four-year
period, include in any such post-effective amendment or registration statement
such information as may be required to permit a public offering of any of the
Common Stock or Warrants issuable hereunder, and/or the Warrant Shares (the
"Registrable Securities"); provided, that this Paragraph 5(a) shall not apply to
any registration statement filed pursuant to Paragraph 5 (b) hereof or to
registrations of shares in connection with an employee benefit plan or a merger,
consolidation or other comparable acquisition or solely for registration of non-
convertible debt or preferred equity securities of the Company; and provided,
further, that, notwithstanding the foregoing, the Holder shall have no right to
include any Registrable Securities in any new registration statement or post-
effective amendment thereto unless as of the effective date thereof the
Registration Statement (as it may hereafter be amended or supplemented) or any
new registration statement under which the Registrable Securities are registered
shall have ceased to be effective or the prospectus contained in such
Registration Statement shall have ceased to be current. The Company shall
supply prospectuses in order to facilitate the public sale or other disposition
of the Registrable Securities, use its best efforts to register and qualify any
of the Registrable Securities for sale in such states in which the Common Stock
and Warrants are offered and sold in the Public Offering as such Holder
reasonably designates, furnish indemnification in the manner provided in
Paragraph 6 hereof, and do any and all other acts and things which may be
necessary to enable such Holder to consummate the public sale of the
6
<PAGE>
Registrable Securities; provided, that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction. The Holder shall furnish information reasonably
requested by the Company in accordance with such post-effective amendments or
registration statements, including its intentions with respect thereto, and
shall furnish indemnification as set forth in Paragraph 6. The Company shall
continue to advise the Holders of the Registrable Securities of its intention to
file a registration statement or amendment pursuant to this Paragraph 5(a) until
the earliest of (i) , 2001; or (ii) such time as all of the
Registrable Securities have been registered and sold under the Act; or (iii)
such time as all of the Registrable Securities have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent public distribution of
them shall not require registration or qualification of them under the Act; or
(iv) such time as in the opinion of legal counsel for the Company, the
Registrable Securities may be offered and sold by the holders thereof without
being registered under the Act and such securities, upon receipt by the
purchasers thereof pursuant to such sale, will not constitute "restricted
securities" as such term is defined in Rule 144 under the Act.
(b) If any 51% holder (as defined below) shall give notice to the
Company at any time during the four-year period beginning one year
from , 1996 to the effect that such Holder desires to register under the
Act any Registrable Securities, under such circumstances that a public
distribution (within the meaning of the Act) of any such Registrable Securities
will be involved (and the Registration Statement or any new registration
statement under which such Registrable Securities are registered shall have
ceased to be effective or the Prospectus contained
7
<PAGE>
therein shall have ceased to be current), then the Company will as promptly as
practicable after receipt of such notice, but not later than 30 days after
receipt of such notice, at the Company's option, file a post effective amendment
to the current Registration Statement or a new registration statement pursuant
to the Act to the end that the Registrable Securities may be publicly sold under
the Act as promptly as practicable thereafter and the Company will use its best
efforts to cause such registration to become and remain effective as provided
herein (including the taking of such steps as are reasonably necessary to obtain
the removal of any stop order); provided, that such 51% holder shall furnish the
Company with appropriate information in connection therewith as the Company may
reasonably request; and provided, further, that the Company shall not be
required to file such a post-effective amendment or registration statement
pursuant to this Paragraph 5(b) on more than two occasions; and provided,
further, that the registration rights of the 51% holder under this Paragraph
5(b) shall be subject to the "piggyback" registration rights of other holders of
securities of the Company to include such securities in any registration
statement or post-effective amendment filed pursuant to this Paragraph 5(b).
The Company will maintain such registration statement or post-effective
amendment current under the Act for a period of at least nine months from the
effective date thereof. The Company shall supply prospectuses in order to
facilitate the public sale of the Registrable Securities, use its best efforts
to register and qualify any of the Registrable Securities for sale in such
states in which the Common Stock and Warrants are offered and sold in the Public
Offering as such holder reasonably designates and furnish indemnification in the
manner provided in Paragraph 6 hereof, provided that, without limiting the
foregoing, the Company shall not be obligated to execute or file any general
consent to service of
8
<PAGE>
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b), at his
or its option, and subject to the limitations set forth in Paragraph 1(a)
hereof, request the registration of any of the Registrable Securities in a
filing made by the Company prior to the acquisition of the Securities upon
exercise of this Underwriter's Warrant. The Holder may thereafter exercise this
Underwriter's Warrant at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement which relates to the
Common Stock underlying the Underwriter's Warrants and Warrants included
therein.
(d) The term "51% holder," as used in this Paragraph 5, shall include
any owner or combination of owners of Underwriter's Warrants or Registrable
Securities if the aggregate number of shares of Common Stock and Warrant Shares
included in and underlying the Underwriter's Warrants and Registrable Securities
held of record by it or them, would constitute a majority of the aggregate of
such shares of Common Stock and Warrant Shares underlying the Underwriter's
Warrant and Registrable Securities as of the date of the initial issuance of the
Underwriter's Warrant.
(e) The following provisions of this Paragraph 5 shall also be
applicable:
(i) Within ten (10) days after receiving any notice pursuant to
Paragraph 5(b), the Company shall give notice to the other Holders of
Underwriter's Warrants or Registrable Securities, advising that the Company is
proceeding with such post-effective amendment or registration and offering to
include therein the Registrable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection
9
<PAGE>
therewith as shall be necessary or appropriate and as the Company shall
reasonably request in writing. Following the effective date of such post-
effective amendment or registration statement, the Company shall, upon the
request of any Holder of Registrable Securities, forthwith supply such number of
prospectuses meeting the requirements of the Act, as shall be reasonably
requested by such Holder. The Company shall use its best efforts to qualify the
Registrable Securities for sale in such states in which the Common Stock and
Warrants are offered and sold in the Public Offering as the 51% holder shall
reasonably designate at such times as the registration statement is effective
under the Act; provided, that, without limiting the foregoing, the Company shall
not be obligated to execute or file any general consent to service of process or
to qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Paragraph 5(a) hereof
notwithstanding that the Registrable Securities subject to this Underwriter's
Warrant may be included in any such registration. The Company shall also comply
with the one request for registration made by the 51% holder pursuant to
Paragraph 5(b) hereof at the Company's own expense and without charge to any
holder of the Registrable Securities, but the expenses of registration pursuant
to the second request, if any, for registration pursuant to Paragraph 5(b) shall
be borne by the Company and the Holders of Registrable Securities included
therein in proportion to the aggregate offering prices of the securities being
offered by the Company included therein and the aggregate offering price of the
Registrable Securities included therein. Notwithstanding the foregoing, any
Holder whose Registrable Securities are included in any such registration
statement pursuant to this Paragraph 5 shall, however, bear the fees of any
counsel retained by him and any transfer taxes or
10
<PAGE>
underwriting discounts or commissions applicable to the Registrable Securities
sold by him pursuant thereto and, in the case of a registration pursuant to
Paragraph 5(a) hereof, any additional registration or "blue sky" or state
securities fees attributable to the registration or qualification of such
Holder's Registrable Securities.
(iii) If the underwriter or managing underwriter in any
underwritten offering made pursuant to Paragraph 5(a) hereof shall advise the
Company that it declines to include a portion or all of the Registrable
Securities requested by the Holders to be included in the registration
statement, then distribution of all or a specified portion of the Registrable
Securities shall be excluded from such registration statement (in case of an
exclusion as to a portion of such Registrable Securities, such portion to be
allocated among such Holders in proportion to the respective numbers of
Registrable Securities requested to be registered by each such Holder). In such
event the Company shall give the Holder prompt notice of the number of
Registrable Securities excluded. Further, in such event the Company shall,
commencing six months after the completion of such underwritten offering, file
and use its best efforts to have declared effective, at its sole expense
(subject to the last sentence of Paragraph 5(a)(ii)), a registration statement
relating to such excluded securities.
(iv) Notwithstanding anything to the contrary contained herein,
the Company shall have the right at any time after it shall have given written
notice pursuant to Paragraph 5(a) or 5(b) (irrespective of whether a written
request for inclusion of any Registrable Securities shall have been made) to
elect not to file or to delay any such proposed registration statement or post
effective amendment thereto, or to withdraw the same after the filing but prior
to the effective date thereof. In addition, the Company may delay the filing of
any registration
11
<PAGE>
statement or post effective amendment requested pursuant to Paragraph 5(b)
hereof by not more than 120 days if the Company, prior to the time it would
otherwise have been required to file such registration statement or post-
effective amendment thereto, determines in good faith that the filing of the
registration statement would require the disclosure of non-public material
information that, in its judgment, would be detrimental to the Company if so
disclosed or would otherwise adversely affect a financing, acquisition,
disposition, merger or other material transaction.
(v) If a registration pursuant to Paragraph 5(a) hereof involves
an underwritten offering, the Company shall have the right to select the
investment banker or investment bankers and manager or managers that will serve
as underwriters with respect to the underwritten offering. No Holder of
Registrable Securities may participate in any underwritten offering under this
Agreement unless such Holder completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwritten offering, in each case, in the form and
upon terms reasonably acceptable to the Company and the underwriters. The
requested registration pursuant to Paragraph 5 (b) hereof shall not involve an
underwritten offering unless the Company shall first give its written approval
of each underwriter that participates in the offering, such approval not to be
unreasonably withheld.
6. Indemnification.
---------------
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the
12
<PAGE>
"Distributing Holder"), each person, if any, who controls (within the meaning of
the Act) the Distributing Holder, and each officer, employee, partner or agent
of the Distributing Holder, if the Distributing Holder is a broker or dealer,
and each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter and each officer, employee, agent or partner of such underwriter
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such underwriter or any other person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which such statements were made, not
misleading; and will reimburse the Distributing Holder and each such underwriter
or such other person for any legal or other expenses reasonably incurred by the
Distributing Holder, or underwriter or such other person, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case (i) to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, such preliminary
prospectus, such final prospectus or such amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder, any other Distributing Holder or any such underwriter for use in the
preparation thereof, or (ii) such losses,
13
<PAGE>
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or omission made in or from any preliminary prospectus,
but corrected in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement relating
to the Registrable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed such
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, such preliminary prospectus, such final prospectus or
such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
14
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 6.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Adjustments of Warrant Price and Number of
------------------------------------------
Shares of Common Stock.
----------------------
(a) Computation of Adjusted Price. Except as hereinafter provided,
-----------------------------
in case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the Public Offering (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Paragraph 7(f) hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe
15
<PAGE>
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed pursuant to
Paragraph 7(j) hereof) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than both the "Market Price" (as defined in
Paragraph 7 (a)(vi) hereof) per share of Common Stock on the trading day
immediately preceding such issuance or sale and the Underwriter's Warrant Price
(as defined below) in effect immediately prior to such issuance or sale, or
without consideration, then forthwith upon such issuance or sale, the
Underwriter's Warrant Price in respect of the Common Stock issuable upon
exercise of this Underwriter's Warrant (but not the exercise price of the
Warrants issuable upon exercise of this Underwriter's Warrant, which shall be
adjusted only in accordance with the Warrant Agreement) shall (until another
such issuance or sale) be reduced to the price (calculated to the nearest full
cent) determined by multiplying the Underwriter's Warrant Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Underwriter's
Warrant Price immediately prior to such issuance or sale plus (2) the
consideration received by the Company upon such issuance or sale, and the
denominator of which shall be the product of (x) the total number of shares of
Common Stock outstanding immediately after such issuance or sale, multiplied by
(y) the Underwriter's Warrant Price immediately prior to such issuance or sale;
provided, however, that in no event shall the Underwriter's Warrant Price be
adjusted pursuant to this computation to an amount in excess of the
Underwriter's Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Paragraph 7(c)
16
<PAGE>
hereof. For the purposes of this Paragraph 7, the term "Underwriter's Warrant
Price" shall mean the exercise price per share of Common Stock issuable upon
exercise of the Underwriter's Warrant (initially $10.50 per share), as adjusted
from time to time pursuant to the provisions of this Paragraph 7.
For the purposes of any computation to be made in accordance with this
Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders
17
<PAGE>
entitled to receive such dividend or other distribution and shall be deemed to
have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subparagraph (ii) of this Paragraph
7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date shall
be deemed to be the average of the last reported sale price, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the last three trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or as reported in the Nasdaq Stock Market, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on the Nasdaq Stock Market, the closing bid quotation as furnished by
the National Association of Securities Dealers, Inc. through Nasdaq or a similar
organization if Nasdaq is no longer reporting such information, or if the Common
Stock is not quoted on Nasdaq, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available
18
<PAGE>
to it for the day immediately preceding such issuance or sale, the day of such
issuance or sale and the day immediately after such issuance or sale. If the
Common Stock is listed or admitted to trading on a national securities exchange
and also quoted on the Nasdaq Stock Market, the Market Price shall be determined
as hereinabove provided by reference to the prices reported in the Nasdaq Stock
Market; provided that if the Common Stock is listed or admitted to trading on
the New York Stock Exchange, the Market Price shall be determined as hereinabove
provided by reference to the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. Except in the case of the Company issuing rights to subscribe for
- ----------
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Underwriter's Warrant
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or (b) the Market
Price on the trading day immediately preceding such issuance, or (ii) without
consideration, the Underwriter's Warrant Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
Paragraph 7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to
19
<PAGE>
be issued and outstanding at the time all the outstanding options, rights or
warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in the options, rights or warrants at the time of
issuance, plus the consideration (determined in the same manner as consideration
received on the issue or sale of shares in accordance with the terms of
Paragraph 7(a) hereof), if any, received by the Company for the options, rights
or warrants, and if no minimum purchase price is provided in the options, rights
or warrants, then the minimum purchase price shall be equal to zero; provided,
however, that upon the expiration or other termination of the options, rights or
warrants, if any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this subparagraph
(b) (and for the purposes of subparagraph (v) of Paragraph 7(a) hereof) shall be
reduced by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Warrant Price then in
effect shall forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Paragraph 7(a) hereof)
received by the Company for such securities, plus the minimum consideration, if
any,
20
<PAGE>
receivable by the Company upon the conversion or exchange thereof; provided,
however, that upon the expiration or other termination of the right to convert
or exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subparagraph (ii) (and for the purpose of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
(iii) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subparagraph (i) of
this Paragraph 7(b), or in the price per share at which the securities
referred to in subparagraph (ii) of this Paragraph 7(b) are convertible or
exchangeable, or if any such options, rights or warrants are exercised at a
price greater than the minimum purchase price provided for in such options,
rights or warrants, or any such securities are converted or exercised for more
than the minimum consideration receivable by the Company upon such conversion or
exchange, the options, rights or warrants or conversion or
21
<PAGE>
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price with respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; provided, however, that no adjustment shall be made
pursuant to this subparagraph (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7, or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subparagraph (iv) of Paragraph 7(f), an adjustment to the Warrant Price and
the number of securities issuable upon exercise of the Warrants will be required
to be made pursuant to this Paragraph 7 and the Warrant Agreement, respectively.
(c) Subdivision and Combination. In case the Company shall at any
---------------------------
time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock (but not the number of Warrants, which are subject to
adjustment as set forth in the Warrant Agreement) issuable upon the exercise of
the Underwriter's Warrant shall be adjusted to the
22
<PAGE>
nearest full whole number by multiplying a number equal to the Underwriter's
Warrant Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of the Underwriter's Warrant
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Underwriter's Warrant Price.
(e) Reclassification, Consolidation, Merger, etc. In case of any
--------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Underwriter's Warrant immediately prior to any such
events (but not the shares of Common Stock issuable upon exercise of any
Warrants underlying the Underwriter's Warrant) at a price equal to the product
of (x) the number of shares issuable upon exercise of the Underwriter's Warrant
(but not the shares of Common Stock issuable upon exercise of any Warrants
underlying the Underwriter's Warrant) and (y) the Warrant Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Underwriter's Warrant.
23
<PAGE>
(f) No Adjustment of Warrant Price in Certain Cases. Notwithstanding
-----------------------------------------------
anything herein to the contrary, no adjustment of the Warrant Price shall be
made:
(i) Upon the issuance or sale of the Underwriter's Warrant, the
shares of Common Stock or Warrants issuable upon the exercise of the
Underwriter's Warrant or the shares of Common Stock issuable upon exercise of
the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of Common Stock
or Warrants issued by the Company in the Public Offering (including pursuant to
the Over-allotment Option) or other shares of Common Stock or warrants issued by
the Company upon consummation of the Public Offering, or (B) the shares of
Common Stock (or other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the Company's
incentive stock option plan in effect on the date hereof or as hereafter amended
in accordance with the terms thereof or any other employee or executive stock
option plan approved by stockholders of the Company or the sale by the Company
of any shares of Common Stock pursuant to the exercise of any such options, or
(ii) the sale by the Company of any shares of Common Stock pursuant to the
exercise of any options or warrants issued and outstanding on the date of
closing of the sale of Common Stock and Warrants pursuant to the Public Offering
or (iii) the issuance or sale by the Company of any shares of Common Stock
pursuant to the Company's restricted stock plan in effect on the date hereof; or
(iv) If the amount of said adjustment shall be less than two
cents (2c) per share of Common Stock.
24
<PAGE>
(g) Adjustment of Warrants Underlying Underwriter 's Warrant. With
--------------------------------------------------------
respect to the Warrants underlying the Underwriter's Warrant, the exercise price
of such Warrants and the number of shares of Common Stock purchasable pursuant
to such Warrants shall be automatically adjusted in accordance with the
applicable provisions of the Warrant Agreement, upon the occurrence, at any time
after the date hereof, of any of the events described in the Warrant Agreement
requiring such adjustment, with the same force and effect as if such Warrants
had been issued as of this date, whether or not such Warrants shall have been
exercised (or are exercisable) at the time of the occurrence of such event and
whether or not such Warrants shall be issued and outstanding at the time of the
occurrence of such event. Thereafter, such Warrants shall be exercisable at
such Warrant's adjusted exercise price for such adjusted number of shares of
Common Stock or other securities, properties or rights as provided for in the
Warrant Agreement.
(h) Redemption of Underwriter's Warrant. Notwithstanding anything to
-----------------------------------
the contrary contained in this Agreement or elsewhere, the Underwriters Warrant
cannot be redeemed by the Company under any circumstances.
(i) Dividends and Other Distributions with Respect to Outstanding
-------------------------------------------------------------
Securities. In the event that the Company shall at any time after the Closing
- ----------
Date and prior to the exercise and expiration of the Underwriter's Warrant
declare a dividend (other than a dividend consisting solely of shares of Common
Stock or a cash dividend or distribution payable out of current or retained
earnings) or otherwise distribute to the holders of Common Stock any monies,
assets, property, rights, evidences of indebtedness, securities (other than such
a cash dividend or distribution or dividend consisting solely of shares of
Common Stock), whether issued by the Company or by another person or entity, or
any other thing of value, the Holders of the
25
<PAGE>
unexercised Underwriter's Warrant shall thereafter be entitled, in addition to
the shares of Common Stock or other securities receivable upon the exercise
thereof, to receive, upon the exercise of such Underwriter's Warrant, the same
monies, property, assets, rights, evidences of indebtedness, securities or any
other thing of value that they would have been entitled to receive at the time
of such dividend or distribution as if the Holders were the owners of the shares
of Common Stock underlying the Underwriter's Warrant (but not the shares of
Common Stock issuable upon exercise of any Warrants underlying the Underwriter's
Warrant). At the time of any such dividend or distribution, the Company shall
make appropriate reserves to ensure the timely performance of the provisions of
this Paragraph 7(i).
(j) Subscription Rights for Shares of Common Stock or Other
-------------------------------------------------------
Securities. In case the Company or an affiliate of the Company shall at any
- ----------
time after the date hereof and prior to the exercise of the Underwriter's
Warrant in full issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the holders of
Common Stock, the Holders of the unexercised Underwriter's Warrant shall be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Underwriter's Warrant, to receive such
rights at the time such rights are distributed to the other stockholders of the
Company but only to the extent of the number of shares of Common Stock, if any,
for which the Underwriter's Warrant remains exercisable other than shares of
Common Stock issuable upon exercise of the Warrants underlying Underwriter's
Warrant.
(k) Notice in Event of Dissolution. In case of the dissolution,
------------------------------
liquidation or winding-up of the Company, all rights under the Underwriter's
Warrant shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of
26
<PAGE>
such dissolution, liquidation or winding-up and not later than five (5) days
prior to such effectiveness. Notice of such termination of purchase rights
shall be given to the registered Holders of the Underwriter's Warrant, as the
same shall appear on the books and records of the Company, by registered mail at
least thirty (30) days prior to such termination date.
(l) Computations. The Company may retain a firm of independent public
------------
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Paragraph, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Paragraph 7.
8. Fractional Shares.
-----------------
(a) The Company shall not be required to issue fractions of shares of
Common Stock or fractional Warrants on the exercise of this Underwriter's
Warrant; provided, however, that if the Holder exercises the Underwriter's
Warrant in full, any fractional shares of Common Stock shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock.
(b) The Holder of this Underwriter's Warrant, by acceptance hereof,
expressly waives his right to receive any fractional share of Common Stock or
fractional Warrant upon exercise of this Underwriter's Warrant.
9. Redemption of Warrants Underlying the Underwriter's Warrant. The
-----------------------------------------------------------
Warrants underlying the Underwriter's Warrant are redeemable by the Company at a
redemption price of $.10 per Warrant, in whole or in part, commencing on the
first anniversary of the date hereof (or earlier with the consent of the
underwriter) and prior to their expiration upon not less
27
<PAGE>
than thirty (30) days' prior written notice to the holders of the Warrants;
provided, that the average closing bid quotation of the Common Stock as reported
on The Nasdaq Stock Market, if traded thereon, or if not traded thereon, the
average closing sale price if listed on a national securities exchange (or other
reporting system that provides last sales prices), has been at least 150% of the
then current Exercise Price for a period of 20 consecutive trading days ending
on the third day prior to the date on which the Company gives notice of
redemption. Any redemption in part shall be made pro rata to all Warrant
holders. The redemption notice shall be mailed to the holders of the Warrants
at their respective addresses appearing in the Warrant register. Holders of the
Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption (at which time this
Underwriter's Warrant shall no longer be exercisable for Warrants).
10. Miscellaneous.
-------------
(a) This Underwriter's Warrant shall be governed by and in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
(b) All notices, requests, consents and other communications hereunder
shall be made in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(i) if to a Holder, to the address of such Holder as shown on the books of the
Company, or (ii) if to the Company, 751 Park of Commerce Drive, Boca Raton,
Florida 33487.
(c) The Company and the Underwriter may from time to time supplement
or amend this Underwriter's Warrant without the approval of any other Holders in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or
28
<PAGE>
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Underwriter may deem necessary or desirable and which the Company and the
Underwriter deem not to materially adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Underwriter's Warrant by
or for the benefit of the Company and the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Warrant shall be construed to give
to any person or corporation other than the Company and the Underwriter and any
other registered Holder or Holders, any legal or equitable right, and this
Underwriter's Warrant shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Warrant
to be signed by its duly authorized officer and to be dated ,1996.
ENSEC INTERNATIONAL, INC.
By: ___________________________________
Name:
Title:
29
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of the Underwriter's Warrant)
The undersigned, the Holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant for, and to purchase thereunder, _______ shares of Common
Stock and/or _______ Warrants of Ensec International, Inc. and herewith makes
payment of $_______________ therefor, and requests that the certificates for
Common Stock and/or Warrants be issued in the name(s) of, and delivered to
______________________________________________ whose addresses is (are)
______________________________________________________ and whose social security
or taxpayer identification number(s) is (are) _________________________.
Dated: ______________________
_____________________________
_____________________________
Address
_____________________________
Telephone
* Signature must conform in all respects to name of registered Holder.
<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of the Underwriter's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the right to purchase shares of
Common Stock and/or Warrants of Ensec International, Inc. represented by the
foregoing Underwriter's Warrant to the extent of ______________________________
shares of Common Stock and/or ___________ Warrants, and appoints
__________________________, attorney to transfer such rights on the books of
Ensec International, Inc., with full power of substitution in the premises.
Dated: _________________________
________________________________
(name of holder)
________________________________
Address
________________________________
In the presence of:
________________________________
________________________________
31
<PAGE>
ENSEC INTERNATIONAL, INC.
a Florida corporation,
RICKEL & ASSOCIATES, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- ------- ----
<S> <C> <C>
1. Appointment of Warrant Agent ................................ 6
2. Form of Warrant ............................................. 6
3. Countersignature and Registration ........................... 7
4. Transfers and Exchanges ..................................... 8
5. Exercise of Warrants; Payment of Warrant Solicitation Fee ... 9
6. Payment of Taxes ............................................ 12
7. Mutilated or Missing Warrants ............................... 13
8. Reservation of Common Stock ................................. 13
9. Adjustments of Warrant Price and Number of Securities ....... 14
10. Fractional Interests ........................................ 24
11. Notices to Warrantholders ................................... 24
12. Disposition of Proceeds on Exercise of Warrants ............. 26
13. Redemption of Warrants ...................................... 26
14. Merger or Consolidation or Change of Name of Warrant
Agent ...................................................... 27
15. Duties of Warrant Agent ..................................... 28
16. Change of Warrant Agent ..................................... 30
17. Identity of Transfer Agent .................................. 31
18. Notices ..................................................... 32
19. Supplements and Amendments .................................. 33
20. New York Contract ........................................... 33
21. Benefits of this Agreement .................................. 33
22. Successors .................................................. 34
</TABLE>
<PAGE>
WARRANT AGREEMENT, dated as of June ___, 1996, among ENSEC INTERNATIONAL,
INC., a Florida corporation (the "Company"), RICKEL & ASSOCIATES, INC.
("Rickel"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent (the
"Warrant Agent").
The Company proposes to issue and sell through an initial public offering
(the "IPO") underwritten by Rickel (the "Underwriter"), an aggregate of up to
1,600,000 shares of common stock, par value $.01 per share (the "Common Stock")
, and 1,600,000 redeemable Common Stock purchase warrants and, pursuant to the
Underwriter's overallotment option (the "Overallotment Option"), up to an
additional 240,000 shares of Common Stock (of which Charles N. Finkel may sell
50,000 shares) and 240,000 Warrants (collectively, the warrants to purchase such
1,840,000 shares of common stock and the Underlying Warrants hereinafter defined
are called the "Warrants");
Each Warrant will entitle the holder to purchase one share of Common Stock;
In connection with the IPO the Company proposes to sell to the Underwriter
warrants (the "Underwriter's Warrant") to purchase up to 160,000 shares of
Common Stock and up to 160,000 warrants (the "Underlying Warrants");
The Company desires the Warrant Agent to act on behalf of the Company, and
the Warrant Agent is willing so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants;
THEREFORE, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints
-----------------------------
the Warrant Agent to act as Warrant Agent for the Company in accordance with the
instructions hereinafter set forth in this Agreement, and the Warrant Agent
hereby accepts such
<PAGE>
appointment.
Upon the execution of this Agreement, certificates representing 1,600,000
Warrants to purchase up to an aggregate of 1,600,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 9 hereof) shall
be executed by the Company and delivered to the Warrant Agent.
Upon the exercise of the Overallotment Option, certificates representing up
to 240,000 Warrants to purchase up to an aggregate of 240,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 9 hereof)
shall be executed by the Company and delivered to the Warrant Agent.
Upon exercise of the Underwriter's Warrant as provided therein,
certificates representing up to 160,000 Warrants to purchase up to an aggregate
of 160,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 9 hereof) shall be executed by the Company and delivered to
the Warrant Agent.
Section 2. Form of Warrant. The text of the Warrants and the form of
----------------
election to purchase Common Stock to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto (the provisions of which
---------
are hereby incorporated herein). All of the certificates for the Warrants may
have such letters, numbers or other marks of identification or designation and
such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. Each Warrant shall initially entitle the
2
<PAGE>
registered holder thereof to purchase one share of Common Stock at a purchase
price of seven dollars ($7.00) (as adjusted as hereinafter provided, the
"Warrant Price"), at any time during the period (the "Exercise Period")
commencing on 1997, the first anniversary of the date of the
---------------
Company's prospectus (the "Prospectus") pursuant to which the Warrants are being
sold in the IPO) and expiring at 5:00 p.m. New York time, on , 2001
------------
(the fifth anniversary of the date of the Prospectus). The Warrant Price and
the number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or Vice President
of the Company, and attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
In the event the aforesaid expiration date of the Warrants falls on a day
that is not a business day, then the Warrants shall expire at 5:00 p.m. New York
time on the next succeeding business day. For purposes hereof, the term
"business day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in New York City, New York, are authorized or
obligated by law to be closed.
Section 3. Countersignature and Registration. The Warrant Agent shall
----------------------------------
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the
3
<PAGE>
respective holders thereof. The Warrants shall be countersigned manually or by
facsimile by the Warrant Agent (or by any successor to the Warrant Agent then
acting as warrant agent under this Agreement) and shall not be valid for any
purpose unless so countersigned. The Warrants may, however, be so countersigned
by the Warrant Agent (or by its successor as Warrant Agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer,
------------------------
from time to time, any outstanding Warrants upon the books to be maintained by
the Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock. No certificates for
Warrants shall be issued except for (i) Warrants initially issued hereunder in
accordance with Section 1 hereof, (ii) Warrants issued upon any transfer or
exchange of Warrants, (iii) Warrants issued in replacement of lost, stolen,
destroyed or mutilated certificates for Warrants pursuant to Section 7 hereof,
and (iv) at the option of the Board of Directors of the Company, Warrants in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Warrant Price
4
<PAGE>
or the number of shares of Common Stock purchasable upon exercise of the
Warrants made pursuant to Section 9 hereof.
Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee.
----------------------------------------------------------
Subject to the provisions of this Agreement, each registered holder of Warrants
shall have the right, at any time during the Exercise Period, to exercise such
Warrants and purchase the number of fully paid and non-assessable shares of
Common Stock specified in such Warrants upon presentation and surrender of such
Warrants to the Company at the corporate office of the Warrant Agent, with the
exercise form on the reverse thereof duly executed, and upon payment to the
Company of the Warrant Price, determined in accordance with the provisions of
Sections 2, 9 and 10 of this Agreement, for the number of shares of Common Stock
in respect of which such Warrants are then exercised. Payment of such Warrant
Price shall be made in cash or by certified or bank check payable to the
Company. Subject to Section 6 hereof, upon such surrender of Warrants and
payment of the Warrant Price, the Warrant Agent on behalf of the Company shall
cause to be issued and delivered with all reasonable dispatch to or upon the
written order of the registered holder of such Warrants and in such name or
names as such registered holder may designate, a certificate or certificates for
the number of full shares of Common Stock so purchased upon the exercise of such
Warrants. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares of Common Stock immediately prior to the close
of business on the date of the surrender of such Warrants and payment of the
Warrant Price as aforesaid. The rights of purchase represented by the Warrants
shall be exercisable during the Exercise Period, at the election of the
registered holders thereof, either as an entirety or from
5
<PAGE>
time to time for a portion of the shares specified therein and, in the event
that any Warrant is exercised in respect of less than all of the shares of
Common Stock specified therein at any time prior to the date of expiration of
the Warrants, a new Warrant or Warrants will be issued to the registered holder
for the remaining number of shares of Common Stock specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose. Upon the exercise of any one
or more Warrants, the Warrant Agent shall promptly notify the Company in writing
of such fact and of the number of securities delivered upon such exercise and,
subject to the provisions below, shall cause all payments of an amount, in cash
or by check made payable to the order of the Company, equal to the aggregate
Warrant Price for such Warrants, less any amounts payable to the Underwriter, as
provided below, to be deposited promptly in the Company's bank account. The
Company and Warrant Agent shall determine, in their sole and absolute
discretion, whether a Warrant certificate has been properly completed for
exercise by the registered holder thereof.
Anything in the foregoing to the contrary notwithstanding, no Warrant will
be exercisable and the Company shall not be obligated to deliver any securities
pursuant to the exercise of any warrant unless at the time of exercise the
Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of such Warrant and such registration
statement shall have been declared and shall remain effective and shall be
current,
6
<PAGE>
and such shares have been registered or qualified or be exempt under the
securities laws of the state or other jurisdiction of residence of the holder of
such Warrant and the exercise of such Warrant in any such state or other
jurisdiction shall not otherwise be unlawful. During the Exercise Period, the
Company shall use its best efforts to have a current registration statement on
file with the Securities and Exchange Commission covering the issuance of Common
Stock underlying the Warrants so as to permit the Company to deliver to each
person exercising a Warrant a prospectus meeting the requirements of Section
10(a)(3) of the Act and otherwise complying therewith, and will deliver such
prospectus to each such person. During the Exercise Period, the Company shall
also use its best efforts to effect appropriate qualifications of the Common
Stock underlying the Warrants under the laws and regulations of the states and
other jurisdictions in which the Common Stock and Warrants are sold by the
Underwriter in the IPO in order to comply with applicable laws in connection
with the exercise of the Warrants.
(a) If at the time of exercise of any Warrant (i) the market price of
the Common Stock is equal to or greater than the then exercise price of the
Warrant, (ii) the exercise of the Warrant is solicited by the Underwriter at
such time as it is a member of the National Association of Securities Dealers,
Inc. ("NASD") , (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangement is made in documents provided to the
holders of the Warrants, and (v) the solicitation of the exercise of the Warrant
is not in violation of Rule 10b-6 (as such rule or any successor rule may be in
effect as of such time of exercise) promulgated under the Securities Exchange
Act of 1934, as amended, then the Underwriter shall be entitled to receive from
the Company following exercise of each of the
7
<PAGE>
Warrants so exercised a fee of five percent (5%) of the aggregate exercise price
of the Warrants so exercised (the "Exercise Fee") The procedures for payment of
the Exercise Fee are set forth in Section 5(b) below.
(b) (i) Within five (5) days after the last day of each month
commencing with __________________, 1996, the Warrant Agent will notify the
Underwriter of each Warrant certificate which has been properly completed for
exercise by holders of Warrants during the last month. The Warrant Agent will
provide the Underwriter with such information, in connection with the exercise
of each Warrant, as the Underwriter shall reasonably request.
(ii) The Company hereby authorizes and instructs the Warrant
Agent to deliver to the Underwriter the Exercise Fee, if payable, in respect of
each exercise of Warrants, promptly after receipt by the Warrant Agent from the
Company of a check payable to the order of the Underwriter in the amount of such
Exercise Fee. In the event that an Exercise Fee is paid to the Underwriter with
respect to a Warrant which the Company or the Warrant Agent determines is not
properly completed for exercise or in respect of which the Underwriter is not
entitled to an Exercise Fee, the Underwriter will return such Exercise Fee to
the Warrant Agent which shall forthwith return such fee to the Company.
The Underwriter and the Company may at any time during business hours
examine the records of the Warrant Agent, including its ledger of original
Warrant certificates returned to the Warrant Agent upon exercise of Warrants.
Notwithstanding any provision to the contrary, the provisions of paragraph 5 (a)
and 5 (b) may not be modified, amended or deleted without the prior written
consent of the Underwriter.
Section 6. Payment of Taxes. The Company will pay any documentary
-----------------
stamp taxes
8
<PAGE>
attributable to the initial issuance of Common Stock issuable upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
or delivery of any certificates for shares of Common Stock in a name other than
that of the registered holder of Warrants in respect of which such shares are
issued, and in such case neither the Company nor the Warrant Agent shall be
required to issue or deliver any certificate for shares of Common Stock or any
Warrant until the person requesting the same has paid to the Company the amount
of such tax or has established to the Company's satisfaction that such tax has
been paid or that no such tax is required to be paid.
Section 7. Mutilated or Missing Warrants. In case any of the Warrants
------------------------------
shall be mutilated, lost, stolen or destroyed, the Company may, in its
discretion, issue and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction and, in case of a lost, stolen or destroyed
Warrant, indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such reasonable charges as the Company or the Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been reserved, and
----------------------------
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of
9
<PAGE>
purchase represented by the Warrants, and the transfer agent for the shares of
Common Stock and every subsequent transfer agent for any shares of Common Stock
issuable upon the exercise of any of the aforesaid rights of purchase are
irrevocably authorized and directed at all times to reserve such number of
authorized shares of Common Stock as shall be required for such purpose. The
Company agrees that all shares of Common Stock issued upon exercise of the
Warrants shall be, at the time of delivery of the certificates for such shares
against payment of the Warrant Price therefor, validly issued, fully paid and
nonassessable and listed on any national securities exchange or included in any
interdealer automated quotation system upon or in which the other shares of
outstanding Common Stock are then listed or included. The Company will keep a
copy of this Agreement on file with the transfer agent for the shares of Common
Stock (which may be the Warrant Agent) and with every subsequent transfer agent
for any shares of Common Stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.
10
<PAGE>
Section 9. Adjustments of Warrant Price and Number of Securities.
------------------------------------------------------
(a) Computation of Adjusted Price. Except as hereinafter
-----------------------------
provided, in case the Company shall, at any time after the date of closing of
the sale of securities pursuant to the IPO (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Section 9 (f) hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock (other than the issuances or
sales of Common Stock pursuant to rights to subscribe for such Common Stock
distributed pursuant to Section 9(h) hereof) and shares of Common Stock issued
upon the direct or indirect conversion or exchange of securities for shares of
Common Stock, for a consideration per share less than both the "Market Price"
(as defined in Section 9(a)(vi) hereof) per share of Common Stock on the
trading day immediately preceding such issuance or sale and the Warrant Price
in effect immediately prior to such issuance or sale, or without consideration,
then forthwith upon such issuance or sale, the Warrant Price shall (until
another such issuance or sale) be reduced to the price (calculated to the
nearest full cent) determined by multiplying the Warrant Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of
which shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Warrant Price
immediately prior to such issuance or sale plus (2) the consideration received
by the Company upon such issuance or sale, and the denominator of which shall
be the product of (x) the total number of shares of Common Stock outstanding
immediately after such issuance or sale, multiplied by (y) the Warrant Price
immediately prior to such issuance or sale; provided, however, that in no event
shall the Warrant Price be
11
<PAGE>
adjusted pursuant to this computation to an amount in excess of the Warrant
Price in effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 9(c)
hereof.
For the purposes of any computation to be made in accordance with this
Section 9(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash received by
the Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have
12
<PAGE>
been issued without consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 9(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, warrants or rights and upon the conversion or exchange
of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the last three trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the Nasdaq Stock Market, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the Nasdaq Stock Market, the closing bid quotation as
furnished by the National Association of Securities Dealers, Inc. through Nasdaq
or a similar organization if Nasdaq is no longer reporting such information, or
if the Common Stock is not quoted on Nasdaq, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day
13
<PAGE>
of such issuance or sale and the day immediately after such issuance or sale. If
the Common Stock is listed or admitted to trading on a national securities
exchange and also quoted on the Nasdaq Stock Market, the Market Price shall be
determined as hereinabove provided by reference to the prices reported in the
Nasdaq Stock Market; provided that if the Common Stock is listed or admitted to
trading on the New York Stock Exchange, the Market Price shall be determined as
hereinabove provided by reference to the prices reported by such exchange.
(b) Options, Rights, Warrants and Convertible and
---------------------------------------------
Exchangeable Securities. Except in the case of the Company issuing rights to
- -----------------------
subscribe for shares of Common Stock distributed pursuant to Section 9(h)
hereof, if the Company shall at any time after the Closing Date issue options,
rights or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock, in each
case other than the issuances or sales referred to in section 9 (f) hereof, (i)
for a consideration per share less than the lesser of (a) the Warrant Price in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, or (b) the Market Price on the
trading day immediately preceding such issuance, or (ii) without consideration,
the Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Section 9(a) hereof; provided that:
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the outstanding options, rights or
warrants shall be deemed to be issued and outstanding at the time all the
outstanding options, rights or warrants
14
<PAGE>
were issued, and for a consideration equal to the minimum purchase price per
share provided for in the options, rights or warrants at the time of issuance,
plus the consideration (determined in the same manner as consideration received
on the issue or sale of shares in accordance with the terms of Section 9(a)), if
any, received by the Company for the options, rights or warrants, and if no
minimum purchase price is provided in the options, rights or warrants, then the
minimum purchase price shall be equal to zero; provided, however, that upon the
expiration or other termination of the options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purposes of subsection (v) of Section 9(a) hereof) shall be reduced by such
number of shares as to which options, warrants or rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Section 9 (a)) received
by the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof; provided,
15
<PAGE>
however, that upon the expiration or other termination of the right to convert
or exchange such convertible or exchangeable securities (whether by reason of
redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subsection (ii) (and for the purpose of subsection
(v) of Section 9(a) hereof) shall be reduced by such number of shares as to
which the conversion or exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be issued
and outstanding, and the Warrant Price then in effect shall forthwith be
readjusted and thereafter be the price which it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued or
issuable upon the conversion or exchange of those convertible or exchangeable
securities as to which the conversion or exchange rights shall not have expired
or terminated unexercised. No adjustment will be made pursuant to this
subsection (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of subsection
(i) of this subsection 9 (b).
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(i) of this Section 9 (b), or in the price per share at which the securities
referred to in subsection (ii) of this Section 9(b) are convertible or
exchangeable, or if any such options, rights or warrants are exercised at a
price greater than the minimum purchase price provided for in such options,
rights or warrants, or any such securities are converted or exercised for more
than the minimum consideration receivable by the Company upon such conversion or
exchange, the options, rights or warrants
16
<PAGE>
or conversion or exchange rights, as the case may be, shall be deemed to have
expired or terminated on the date when such price change became effective in
respect of shares not theretofore issued pursuant to the exercise or conversion
or exchange thereof, and the Company shall be deemed to have issued upon such
date new options, rights or warrants or convertible or exchangeable securities
at the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities; provided, however, that no adjustment
shall be made pursuant to this subsection (iii) with respect to any change in
the price per share provided for in any of the options, rights or warrants
referred to in subsection (b) (i) of this Section 9 (b), or in the price per
share at which the securities referred to in subsection (b) (ii) of this Section
9(b) are convertible or exchangeable, which change results from the application
of the anti-dilution provisions thereof in connection with an event for which,
subject to subsection (iv) of this Section 9(f), an adjustment to the Warrant
Price and the number of securities issuable upon exercise of the Warrants will
be required to be made pursuant to this Section 9.
(c) Subdivision and Combination. In case the Company shall at any
---------------------------
time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Warrant Price pursuant to the provisions of this Section 9, the number of shares
of Common Stock issuable upon the exercise of the Warrants shall be adjusted to
the nearest full whole number by multiplying a number equal to the Warrant Price
in effect immediately prior to such
17
<PAGE>
adjustment by the number of shares of Common Stock issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Warrant Price.
(e) Reclassification, Consolidation, Merger etc. In case of any
-------------------------------------------
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Warrant Price in effect immediately prior to the record
date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder had exercised the Warrant.
(f) No Adjustment of Warrant Price in Certain Cases.
-----------------------------------------------
Notwithstanding
Notwithstanding anything herein to the contrary, no adjustment of the Warrant
Price shall be made:
(i) Upon the issuance or sale of the Underwriter's Warrant,
the
18
<PAGE>
shares of Common Stock or Warrants issuable upon the exercise of the
Underwriter's Warrant or the shares of Common Stock issuable upon exercise of
the Warrants underlying the Underwriter's Warrant; or
(ii) Upon the issuance or sale of (A) the shares of Common
Stock or Warrants issued by the Company in the IPO (including pursuant to the
Over-allotment Option) or other shares of Common Stock or warrants issued by the
Company upon consummation of the IPO or, (B) the shares of Common Stock (or
other securities) issuable upon exercise of Warrants; or
(iii) Upon (i) the issuance of options pursuant to the
Company's incentive stock option plan in effect on the date hereof or as
hereafter amended in accordance with the terms thereof or any other employee or
executive stock option plan approved by stockholders of the Company or the sale
by the Company of any shares of Common Stock pursuant to the exercise of any
such options, or (ii) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock and Warrants pursuant to the IPO
or (iii) the issuance or sale by the Company of any shares of Common Stock
pursuant to the Company's restricted stock plan in effect on the date hereof;
or
(iv) If the amount of said adjustment shall be less than two
cents (2c) per share of Common Stock.
(g) Dividends and Other Distributions with Respect to Outstanding
---------------------------------------------- --------------
Securities. In the event that the Company shall at any time after the Closing
- ----------
Date and prior to the exercise or expiration of all Warrants declare a dividend
(other than a dividend consisting
19
<PAGE>
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to the holders of
Common Stock any monies, assets, property, rights, evidences of indebtedness,
securities (other than such a cash dividend or distribution or dividend
consisting solely of shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same monies, property, assets,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution as if the Holders were the owners of the shares of Common Stock
underlying such Warrants. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 9(g).
(h) Subscription Rights for Shares of Common Stock or Other
-------------------------------------------------------
Securities. In case the Company or an affiliate of the Company shall at anytime
- ----------
after the date hereof and prior to the exercise of all the Warrants issue any
rights to subscribe for shares of Common Stock or any other securities of the
Company or of such affiliate to all the holders of Common Stock, the Holders of
the unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights at the time such rights are distributed to the other
stockholders of the Company but only to the extent of the number of shares of
Common Stock, if any, for which the Warrants remain exercisable.
(i) Notice in Event of Dissolution. In case of the dissolution,
------------------------------
liquidation
20
<PAGE>
or winding-up of the Company, all rights under the Warrants shall terminate on a
date fixed by the Company, such date to be no earlier than ten (10) days prior
to the effectiveness of such dissolution, liquidation or winding-up and not
later than five (5) days prior to such effectiveness. Notice of such termination
of purchase rights shall be given to each registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(j) Computations. The Company may retain a firm of independent
------------
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Section 9, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Section 9.
Section 10. Fractional Interests. The Warrants may only be exercised to
---------------------
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the Market Price on the last
trading day prior to the exercise date.
Section 11. Notices to Warrantholders.
--------------------------
(a) Upon any adjustment of the Warrant Price and the number of
shares of Common Stock issuable upon exercise of a Warrant, then and in each
such case, the Company shall give written notice thereof to the Warrant Agent,
which notice shall state the Warrant
21
<PAGE>
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of a Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. The Company shall also mail such notice to the
holders of the Warrants at their respective addresses appearing in the Warrant
register. Failure to give or mail such notice, or any defect therein, shall not
affect the validity of the adjustments.
(b) In case at any time after the Closing Date:
(i) the Company shall pay dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to the
holders of Common Stock; or
(ii) the Company shall offer for subscription pro rata to all
of the holders of Common Stock any additional shares of stock of any class or
other rights; or
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of substantially all of its assets to another
corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice to the Warrant Agent and the holders of
the Warrants in the manner set forth in Section 11(a) of the date on which (A) a
record shall be taken for such dividend, distribution or subscription rights, or
(B) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in
22
<PAGE>
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or windingup, as the case may be. Such notice shall be given at
least ten (10) days prior to the action in question and not less than ten (10)
days prior to the record date in respect thereof. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any of the
matters set forth in this Section 11(b).
(c) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents that are sent to its stockholders
to be sent by first-class mail, postage prepaid, on the date of mailing to such
stockholders, to each registered holder of Warrants at his address appearing in
the Warrant register as of the record date for the determination of the
stockholders entitled to such documents.
Section 12. Disposition of Proceeds on Exercise of Warrants.
-----------------------------------------------
(a) The Warrant Agent shall promptly forward to the Company all
monies received by the Warrant Agent for the purchase of shares of Common Stock
through the exercise of these Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.
Section 13. Redemption of Warrants. The Warrants are redeemable by the
-----------------------
Company commencing on the first anniversary the date of the Prospectus, in whole
or in part, on not less than thirty (30) days' prior written notice at a
redemption price of $.10 per Warrant (or earlier with the prior consent of
Rickel), provided the average closing bid quotation of the Common
23
<PAGE>
Stock as reported on the Nasdaq Stock Market, if traded thereon, or if not
traded thereon, the average closing sale price if listed on a national
securities exchange (or other reporting system that provides last sale prices),
has been at least 150% of the then current Exercise Price of the Warrants, for a
period of 20 consecutive trading days ending on the third day prior to the date
on which the Company gives notice of redemption. Any redemption in part shall be
made pro rata to all Warrant holders. The redemption notice shall be mailed to
the holders of the Warrants at their respective addresses appearing in the
Warrant register. Any such notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given in accordance with this Agreement
whether or not the registered holder receives such notice. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a registered holder
of a Warrant (i) to whom notice was not mailed or (ii) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. Holders
of the Warrants will have exercise rights until the close of business on the day
immediately preceding the date fixed for redemption.
Section 14. Merger or Consolidation or Change of Name of Warrant Agent.
-----------------------------------------------------------
Any corporation or company which may succeed to the corporate trust business of
the Warrant Agent by any merger or consolidation or otherwise shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
that such corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 16 of this Agreement. In case at the
24
<PAGE>
time such successor to the Warrant Agent shall succeed to the agency created by
this Agreement any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in this Agreement.
Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the
------------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of fact and recitals contained herein and in
the Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the covenants in this Agreement or in the
Warrants to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or
25
<PAGE>
responsibility to the Company or to any holder of any Warrant in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate or other
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges incurred by the Warrant Agent in the
execution of this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, willful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expenses unless the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with reasonable security and indemnity
for any costs and expenses which may be incurred, but this provision shall not
affect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant
26
<PAGE>
Agent without the possession of any of the Warrants or the production thereof at
any trial or other proceeding. Any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the registered holders
of the Warrants, as their respective rights and interests may appear.
(g) The Warrant Agent and any stockholder, director, officer,
partner or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity. (h)
The Warrant Agent shall act hereunder solely as agent and its duties shall be
determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees, and the Warrant Agent shall not be
answerable or accountable for any such attorneys, agents or employees or for any
loss to the Company resulting from such neglect or misconduct, provided
reasonable care had been exercised in the selection and continued employment
thereof.
(j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or a Vice President or its Secretary or an Assistant
Secretary or its Treasurer or an Assistant
27
<PAGE>
Treasurer (unless other evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors may be evidenced to
the Warrant Agent by a copy thereof certified by the Secretary or an Assistant
Secretary of the Company.
Section 16. Change of Warrant Agent. The Warrant Agent may resign and
------------------------
be discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by mailing such
notice to the holders at their respective addresses appearing on the Warrant
register, of such resignation, specifying a date when such resignation shall
take effect. The Warrant Agent may be removed by like notice to the Warrant
Agent from the Company and the like mailing of notice to the holders of the
Warrants. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of action, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
thirty (30) days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or after the Company has received such notice from a registered holder of a
Warrant (who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of any Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor Warrant Agent, whether appointed by the Company or by such a
court, shall be a bank or trust company, in good standing, incorporated under
New York or federal law. After appointment, the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibility as if it had been
originally named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent all
canceled Warrants,
28
<PAGE>
records and property at the time held by it hereunder, and execute and deliver
any further assurance or conveyance necessary for this purpose. Failure to file
or mail any notice provided for in this Section, however, or any defect therein,
shall not affect the validity of the resignation or removal of the Warrant Agent
or the appointment of the successor Warrant Agent, as the case may be.
Section 17. Identity of Transfer Agent. Forthwith upon the appointment
---------------------------
of any transfer agent (other than American Stock Transfer & Trust Company) for
the shares of Common Stock or of any subsequent transfer agent for the shares of
Common Stock, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
Section 18. Notices. Any notice pursuant to this Agreement to be given
--------
by the Warrant Agent or the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
Ensec International, Inc.
751 Park of Commerce Drive
Boca Raton, Florida 33487
Attention: President
and a copy thereof to:
Gunster, Yoakley, Valdes-Fauli & Stewart, P.A.
One Biscayne Tower - Suite 3400
Miami, Florida 33131
Attention: Jeffrey Stoops, Esq.
Any notice pursuant to this Agreement to be given by the Company or the
registered
29
<PAGE>
holder of any Warrant to the Warrant Agent shall be sufficiently given if sent
by first-class mail, postage prepaid, addressed (until another address is filed
in writing by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Executive Vice President
Any notice pursuant to this Agreement to be given by the Warrant Agent or
the Company to the Underwriter shall be sufficiently given if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Warrant Agent) as follows:
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Attention: Gregg Smith
and a copy thereof to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Timothy I. Kahler, Esq.
Section 19. Supplements and Amendments. The Company and the Warrant
---------------------------
Agent may from time to time supplement or amend this Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which
30
<PAGE>
shall not materially adversely affect the interest of the holders of Warrants;
and in addition the Company and the Warrant Agent may modify, supplement or
alter this Agreement with the consent in writing of the registered holders of
the Warrants representing not less than a majority of the Warrants then
outstanding.
Section 20. New York Contract. This Agreement and each Warrant issued
------------------
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York without
regard to the conflicts of law principles thereof.
Section 21. Benefits of this Agreement. Nothing in this Agreement shall
---------------------------
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
Section 22. Successors. All the covenants and provisions of this
-----------
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their
31
<PAGE>
respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
ENSEC INTERNATIONAL, INC.
By:
--------------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
--------------------------------
RICKEL & ASSOCIATES, INC.
By:
--------------------------------
32
<PAGE>
No. W VOID AFTER , 2001
----------------------- -------------
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
ENSEC INTERNATIONAL, INC.
CUSIP [ ]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share (the "Common Stock"), of Ensec International, Inc., a Florida
corporation (the "Company"), at any time from , 1996 (the "Initial
--------------
Warrant Exercise Date"), and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Exercise Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company, 99 Wall Street, New York, New York
10005, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $7.00, subject to adjustment (the "Exercise Price"), in lawful money
of the United States of America in cash or by certified or bank check made
payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement, dated as of , 1996 (the "Warrant
---------------
Agreement"), among the Company, Rickel & Associates, Inc. ("Rickel") and the
Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
A-1
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares will be issued. In the case of the
exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the date which is the fifth anniversary of the Initial Warrant
Exercise Date]; provided, that if such date is not a business day, it shall mean
5:00 p.m., New York City time, on the next following business day. For purposes
hereof, the term "business day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in New York City, New York, are
authorized or obligated by law to be closed.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless at the time of exercise
the Company has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
securities issuable upon exercise of the Warrants represented hereby and such
registration statement has been declared and shall remain effective and shall be
current, and such securities have been registered or qualified or be exempt
under the securities laws of the state or other jurisdiction of residence of the
Registered Holder and the exercise of the Warrants represented hereby in any
such state or other jurisdiction shall not otherwise be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon the presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder, as such, shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing ________________, 1997 [the first anniversary
of the date of the Prospectus] (or earlier with the consent of Rickel), provided
that the average closing bid quotation of the Common Stock
A-2
<PAGE>
as reported on The Nasdaq Stock Market, if traded thereon, or is not traded
thereon, the average closing sale price if listed on national exchange (or other
reporting system that provides last sale prices), shall have for a period of 20
consecutive days on which such market is open for trading ending on the third
day prior to the date on which the Company gives the Notice of Redemption (as
defined below) equaled or exceeded 150% of the then current Exercise Price.
Notice of redemption (the "Notice of Redemption") shall be given by the Company
no less than thirty days before the date fixed for redemption, all as provided
in the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no right with respect to this Warrant except to
receive the $.10 per Warrant upon surrender of this Certificate.
Under certain circumstances described in the Warrant Agreement, Rickel
shall be entitled to receive as a solicitation fee an aggregate of five
percent (5%) of the Exercise Price of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of law
principles thereof.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated __________________________, 1996
SEAL ENSEC INTERNATIONAL, INC.
By:
------------------------------------
President
By:
------------------------------------
Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
-----------------------------------------
Authorized Officer
A-3
<PAGE>
EXERCISE FORM
-------------
To Be Executed by the Registered Holder
in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
(please print or type name and address)
and be delivered to
__________________________
__________________________
__________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Rickel & Associates,
Inc., please check the following box. [ ]
2. The exercise of this warrant was solicited by
_______________________________________________________________
A-4
<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. [ ]
Dated: __________________________ X________________________________
________________________________
________________________________
Address
________________________________
Social Security or Taxpayer
Identification Number
________________________________
Signature Guaranteed
A-5
<PAGE>
ASSIGNMENT
----------
To be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
______________________________________ as its/his/her attorney-in-fact to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated: ______________________ x_______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE EXERCISE FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, BROKER, DEALER, CREDIT UNION, SAVINGS ASSOCIATION OR OTHER
ENTITY WHICH IS A MEMBER IN GOOD STANDING OF THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM.
A-6
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
ENSEC INTERNATIONAL, INC.
ARTICLE I
---------
Name, Principal Place of Business and
Initial Registered Agent and Office
The name of the Corporation is Ensec International, Inc. The principal
place of business and mailing address of this Corporation shall be 751 Park of
Commerce Drive, Suite 104, Boca Raton, Florida 33487.
The street address of the initial registered office of this Corporation
is 777 South Flagler Drive, East Tower, Suite 500, West Palm Beach, Florida
33401. The name of the initial registered agent of this Corporation at such
address is VALDES-FAULI CORPORATE SERVICES, INC. Pursuant to Section
607.0501(3), Florida Statutes, a written acceptance is attached.
ARTICLE II
----------
Purpose and Powers
The purpose for which the Corporation is organized is to engage in or
transact any and all lawful activities or business for which a corporation may
be incorporated under the laws of the State of Florida. The Corporation shall
have all of the corporate powers enumerated in the Florida Business Corporation
Act.
ARTICLE III
-----------
Capital Stock
The aggregate number of shares of all classes of capital stock which
this Corporation shall have authority to issue is Twenty Three Million
(23,000,000), consisting of (i) Twenty Million (20,000,000) shares of common
stock, par value $.01 per share (the "Common Stock"), and (ii) Three Million
(3,000,000) shares of preferred stock, par value $.01 per share (the "Preferred
Stock").
The designation and the preferences, limitations and relative rights of
the Common Stock and the Preferred Stock of the Corporation are as follows:
<PAGE>
A. Provisions Relating to the Common Stock.
---------------------------------------
1. Except as otherwise required by law or as may be provided by the
resolutions of the Board authorizing the issuance of any class or series of
Preferred Stock, as hereinbelow provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.
2. Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as and if
declared by the Board, out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled (if any) or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
B. Provisions Relating to the Preferred Stock.
------------------------------------------
1. The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications, limitations
and restrictions thereof as are stated and expressed herein and in the
resolution or resolutions providing for the issue of such class or series
adopted by the Board of Directors as hereinafter prescribed.
2. Authority is hereby expressly granted to and vested in the Board
to authorize the issuance of the Preferred Stock from time to time in one or
more classes or series, to determine and take necessary proceedings fully to
effect the issuance and redemption of any such Preferred Stock and, with respect
to each class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
a. Whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;
b. The number of shares to constitute the class or series
and the designations thereof;
c. The preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
2
<PAGE>
d. Whether or not the shares of any class or series shall
be redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which such shares shall be
redeemable and the manner of redemption;
e. Whether or not the shares of a class or series shall
be subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
f. The dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, the conditions upon which and
the times when such dividends are payable, the preference to or the relation to
the payment of the dividends payable on any other class or classes or series of
stock, whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
g. The preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of the Corporation;
h. Whether or not the shares of any class or series shall
be convertible into, or exchangeable for, the shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Corporation and the conversion price or prices or ratio or ratios
or the rate or rates at which such conversion or exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
i. Such other special rights and protective provisions with
respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other series thereof in any or all of the foregoing respects.
The Board may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock, designated
for such class or series, and the shares so subtracted shall become authorized,
unissued and undesignated shares of the Preferred Stock.
3
<PAGE>
ARTICLE IV
----------
Existence
The Corporation shall exist perpetually unless sooner dissolved according to
law.
ARTICLE V
---------
Management of the Corporation
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and shareholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by these Articles of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. Any action required or permitted to be taken by the shareholders
of the Corporation must be effected at a duly called Annual or Special Meeting
of Shareholders of the Corporation and may not be effected by any consent in
writing by such shareholders.
C. Special Meetings of Shareholders of the Corporation may be
called by the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption) (the "Full Board"), or by the holders of
not less than fifty percent (50%) of all the votes entitled to be cast on any
issue at the proposed special meeting if such holders of stock sign, date and
deliver to the Corporation's Secretary one or more written demands for the
meeting describing the purpose or purposes for which the special meeting is to
be held.
ARTICLE VI
----------
Number of Directors; Vacancies and Removal
A. The initial number of directors of the Corporation shall be
three (3). The number of directors may be either increased or diminished from
time to time in the manner provided in the Bylaws, but shall never be less than
one (1) nor more than twenty-five (25). The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third (33 1/3%) of the Full Board.
The term of the Class I directors shall terminate on the date of the 1997 annual
meeting of shareholders, the term
4
<PAGE>
of the Class II directors shall terminate on the date of the 1998 annual meeting
of shareholders and the term of the Class III directors shall terminate on the
date of the 1999 annual meeting of shareholders. At each annual meeting of
shareholders beginning in 1997, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three (3) year term. If
the number of directors has changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional directors of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director.
B. A director shall hold office until the annual meeting for the
year in which his term expires and until his successors shall be elected and
shall qualify, subject, however, to the director's prior death, resignation,
retirement, disqualification or removal from office. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, any vacancy on
the Board of Directors, howsoever resulting (including vacancies created as a
result of a resolution of the Board of Directors increasing the authorized
number of directors), may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
C. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least two-thirds (66 2/3%) of the voting power of all
of the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors. "Cause" shall be defined as a
breach of fiduciary duty involving personal dishonesty, an intentional failure
to perform stated duties as a director which results in substantial loss to the
Corporation or a willful violation of any law, rule, regulation or final cease
and desist order which results in substantial loss to the Corporation.
D. Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the Corporation shall be given in the manner provided in
Article VII herein and the Bylaws of the Corporation.
ARTICLE VII
-----------
Shareholder Nomination of Director Candidates
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation.
Nominations of persons for election to the Board at an annual or special meeting
of shareholders may be made (i) by or at the direction of the Board by any
nominating committee of or person appointed by the Board or (ii) by any
shareholder of the Corporation entitled to vote for the election of directors at
the meeting who
5
<PAGE>
complies with the procedures set forth in this Article VII; provided, however,
that nominations of persons for election to the Board at a special meeting may
be made only if the election of directors is one of the purposes described in
the special meeting notice required by Section 607.0705 of the Florida Business
Corporation Act. Nominations of persons for election at annual meetings, other
than nominations made by or at the direction of the Board, including by any
nominating committee, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than one hundred twenty (120) days nor more than one
hundred eighty (180) days in advance of the date of the Corporation's notice of
annual meeting provided with respect to the previous year's annual meeting;
provided, however, that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed to be more than thirty (30)
calendar days earlier than the date contemplated by the previous year's proxy
statement, such notice by the shareholder to be timely must be received no later
than the close of business on the tenth (10th) day following the date on which
notice of the date of the annual meeting is given to shareholders or made
public, whichever first occurs. Such shareholder's notice to the Secretary
shall set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director at the annual meeting; (i) the name,
age, business address and residence address of the proposed nominee, (ii) the
principal occupation or employment of the proposed nominee, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by the proposed nominee, and (iv) any other information relating to the
proposed nominee that is required to be disclosed in solicitations for proxies
for election of directors pursuant to Rule 14a under the Securities Exchange Act
of 1934, as amended; and (b) as to the shareholder giving the notice of nominees
for election at the annual meeting, (i) the name and record address of the
shareholder, and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the shareholder. The Corporation
may require any proposed nominee for election at an annual or special meeting of
shareholders to furnish such other information as may reasonably be required by
the Corporation to determine the eligibility of such proposed nominee to serve
as a director of the Corporation. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth herein. The Chairman of the meeting shall, if the facts warrant,
determine and declare in the meeting that a nomination was not made in
accordance with the requirements of this Article VII, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
ARTICLE VIII
------------
Acquisition Offers
The Board of Directors of the Corporation shall consider all factors
it deems relevant in evaluating any proposed tender offer or exchange offer for
the Corporation or any Subsidiary's stock, any proposed merger or consolidation
of the Corporation or a Subsidiary with or into another entity and any proposal
to purchase or otherwise acquire all or substantially all the assets of the
Corporation or any Subsidiary. The Board of Directors shall evaluate whether
the
6
<PAGE>
proposal is in the best interests of the Corporation and its subsidiaries by
considering the best interests of the shareholders and other factors the
directors determine to be relevant, including the social, legal and economic
effects on employees, customers and the communities served by the Corporation
and any Subsidiary. The Board of Directors shall evaluate the consideration
being offered to the shareholders in relation to the then current market value
of the Corporation or any Subsidiary in a freely negotiated transaction, and the
Board of Directors' estimate of the future value of stock of the Corporation or
any Subsidiary as an independent entity.
ARTICLE IX
----------
Incorporator
The name and address of the person signing these Articles is:
Jeffrey A. Stoops 777 South Flagler Drive
Suite 500, East Tower
West Palm Beach, Florida 33401
ARTICLE X
---------
Indemnification
Provided the person proposed to be indemnified satisfies the requisite
standard of conduct for permissive indemnification by a corporation as
specifically set forth in the applicable provisions of the Florida Business
Corporation Act (currently, Sections 607.0850(1) and (2) of the Florida
Statutes), as the same may be amended from time to time, the Corporation shall
indemnify its officers and directors, and may indemnify its employees and
agents, to the fullest extent provided, authorized, permitted or not prohibited
by the provisions of the Florida Business Corporation Act and the Bylaws of the
Corporation, as the same may be amended and supplemented, from and against any
and all of the expenses or liabilities incurred in defending a civil or criminal
proceeding, or other matters referred to in or covered by said provisions,
including advancement of expenses prior to the final disposition of such
proceedings and amounts paid in settlement of such proceedings, both as to
action in his or her official capacity and as to action in another capacity
while an officer, director, employee or other agent. The indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote of
shareholders or Disinterested Directors or otherwise. Such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent, and shall inure to the benefit of the heirs and personal
representatives of such a person. Except as otherwise required by law, an
adjudication of liability shall not affect the right to indemnification for
those indemnified.
7
<PAGE>
ARTICLE XI
----------
Amendment
The Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation in the manner prescribed by the
laws of the State of Florida and all rights conferred upon shareholders are
granted subject to this reservation; provided, however, that, notwithstanding
any other provision of these Articles of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
votes of the holders of any class or series of the stock of this Corporation
required by law or by these Articles of Incorporation, the affirmative vote of
(a) the holders of at least two-thirds (66 2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class;
or (b) a majority of "Disinterested Directors", as defined in Florida Statutes
Section 607.0901(1)(h) as in effect on the date hereof, and the holders of at
---
least a majority of the voting power of the then-outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal any of Articles V, VI, VII, VIII, X and XI.
/s/ Jeffrey A. Stoops
----------------------------------
Jeffrey A. Stoops
Incorporator
8
<PAGE>
Exhibit 3.2
BYLAWS
OF
ENSEC INTERNATIONAL, INC.
Adopted by the Board of Directors on the 2nd day of April, 1996.
ARTICLE I
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Annual Meeting. The annual meeting of the shareholders of this
--------------
Corporation shall be held annually at the time and place designated by the Board
of Directors of the Corporation. Business transacted at the annual meeting
shall include the election of directors of the Corporation, in accordance with
the applicable provisions of the Articles of Incorporation, and all other duties
and powers conferred upon the shareholders by the laws of the State of Florida.
Section 2. Special Meetings. Special meetings of the shareholders shall
----------------
be held when directed by the Board of Directors through a resolution adopted by
a majority of the total number of directors (whether or not any vacancies of
previously authorized directorships exist at the time the Board is presented
with such resolution), or when requested in writing by the holders of not less
than fifty percent (50%) of all the shares entitled to vote on any issue at the
meeting, upon the giving of notice as provided in Article I, Section 4 of these
Bylaws. The call for the meeting shall be issued by the Secretary or the
shareholders requesting the special meeting, unless the President, the Board of
Directors or such shareholders designate another person to do so.
<PAGE>
Section 3. Place. Meetings of shareholders may be held within or outside
-----
of the State of Florida. If no place is designated in the notice for a meeting
of shareholders, the place of meeting shall be the principal office of the
Corporation.
Section 4. Notice. Except as provided in the Florida Business Corporation
------
Act ("the Act"), written notice stating the place, day and hour of the meeting,
and in the case of a special meeting, or as otherwise provided by law, the
purpose or purposes for which the meeting is called, shall be delivered to each
shareholder of record entitled to vote at such meeting. Such notice shall be
given at least ten (10) but not more than sixty (60) days before the date of the
meeting, by first class mail by the Secretary or, in the case of a special
meeting duly called by the shareholders, the shareholders requesting the
special meeting, unless the President, the Board of Directors or such
shareholders designate another person to do so. Such notice shall be mailed to
each shareholder at his or her address as it appears on the books of the
Corporation. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than first
class. Such notice is deemed delivered when deposited in the United States mail
with postage prepaid thereon.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to
----------------------------
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. If, however, after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting
2
<PAGE>
shall be given as provided in Article I, Section 4 of these Bylaws to each
shareholder of record on the new record date entitled to vote at such meeting.
Section 6. Waiver of Notice of Shareholders Meetings. Whenever any notice
-----------------------------------------
is required to be given to any shareholder, a waiver thereof in writing signed
by the shareholder or shareholders entitled to such notice, whether before,
during or after the time of the meeting stated therein and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records,
shall be equivalent to the giving of such notice. Attendance by a shareholder
at a meeting shall constitute a waiver of: (a) lack of notice or defective
notice of such meeting, unless the shareholder at the beginning of the meeting
objects to holding the meeting; or (b) lack of defective notice of a particular
matter at a meeting that is not within the purpose or purposes described in the
meeting notice, unless the person objects to considering that particular matter
when it is presented. Unless otherwise required by the Articles of
Incorporation, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders need be specified in any written
waiver of notice.
Section 7. Fixing Record Date. For the purpose of determining
------------------
shareholders entitled to notice of, or to vote at, any meeting of shareholders
or any adjournment thereof, or to demand a special meeting, or to receive
payment of any distribution, or in order to make a determination of shareholders
for any other purpose, the Board of Directors may fix in advance a date as the
record date for any determination of shareholders, such date in any case to be
not more than seventy (70) days prior to the date on which the particular action
requiring such determination of shareholders is to be taken. A determination of
shareholders entitled to notice of, or to vote at, any meeting of shareholders
shall apply to any adjournment thereof, unless the Board of
3
<PAGE>
Directors fixes a new record date for the adjourned meeting, which it must do if
the meeting is adjourned to a date more than one hundred twenty (120) days after
the date fixed for the original meeting.
Section 8. Voting Record. After fixing a record date for a meeting of
-------------
shareholders, the Corporation shall prepare an alphabetical list of the names of
all shareholders who are entitled to notice of such meeting, arranged by voting
group, with the address of, and the number and class and series, if any, of the
shares held by, each shareholder. The shareholders' list must be available for
inspection by any shareholder for a period of ten (10) days prior to the meeting
or such shorter time as exists between the record date and the meeting and
continuing through the meeting at the Corporation's principal office, at a place
identified in the meeting notice in the city where the meeting will be held, or
at the office of the Corporation's transfer agent or registrar. Any shareholder
of the Corporation or his agent or attorney is entitled on written demand to
inspect the shareholders' list (subject to the requirements of the Act), during
regular business hours and at the shareholder's expense, during the period it is
available for inspection. The Corporation shall make the shareholders' list
available at the meeting of shareholders, and any shareholder or his agent or
attorney is entitled to inspect the list at any time during the meeting or any
adjournment.
If the requirements of this Section have not been substantially complied
with, the meeting shall be adjourned until such time as the Corporation complies
with such requirements on demand of any shareholder in person or by proxy who
failed to get such access. If no such demand is made, failure to comply with
the requirements of this Section shall not affect the validity of any action
taken at such meeting.
4
<PAGE>
Section 9. Shareholder Quorum and Voting. Shares entitled to vote as a
-----------------------------
separate voting group may take action on a matter at a meeting only if a quorum
of those shares exists with respect to that matter. Except as otherwise
provided in the Articles of Incorporation or by the Act, a majority of the
shares entitled to vote on the matter by each voting group, represented in
person or by proxy, shall constitute a quorum at any meeting of shareholders,
but in no event shall a quorum consist of less than one-third of the shares of
each voting group entitled to vote. If less than a majority of outstanding
shares entitled to vote are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further notice.
After a quorum has been established at any shareholders' meeting, the subsequent
withdrawal of shareholders, so as to reduce the number of shares entitled to
vote at the meeting below the number required for a quorum, shall not affect the
validity of any action taken at the meeting or any adjournment thereof. For
purposes of determining a quorum, abstentions and broker non-votes shall be
deemed to be shares entitled to vote on a matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless a new record date is or must be set for that
adjourned meeting. When a specified item of business is required to be voted on
by a class or series of stock, a majority of the shares of such class or series
shall constitute a quorum for the transaction of such item of business by that
class or series.
Section 10. Votes Per Share. Except as otherwise provided in the Articles
---------------
of Incorporation or by the Act, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders.
5
<PAGE>
Section 11. Manner of Action. If a quorum is present, action on a matter
----------------
(other than the election of directors) by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless a greater or lesser number of affirmative votes is
required by the Articles of Incorporation, the Bylaws or by law.
Section 12. Voting for Directors. At each election for directors, every
--------------------
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him or her for as many persons
as there are directors to be elected at that time and for whose election he or
she has a right to vote. Unless otherwise and affirmatively provided for in the
Articles of Incorporation, cumulative voting is not authorized and the directors
shall be elected by a plurality of the votes cast by the shares entitled to vote
in such election at a meeting at which a quorum is present.
Section 13. Voting of Shares. A shareholder may vote at any duly called
----------------
and noticed meeting of shareholders of the Corporation, either in person or by
proxy.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent or proxy designated by the bylaws of the
corporate shareholder or, in the absence of any applicable bylaw, by such person
as the board of directors of the corporate shareholder may designate. Proof of
such designation may be made by presentation of a certified copy of the Bylaws
or other instrument of the corporate shareholder. In the absence of any such
designation or, in the case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder shall be presumed to
possess, in that order, authority to vote such shares.
6
<PAGE>
Shares held by an administrator, executor, guardian, personal
representative or conservator may be voted by him or her, either in person or by
proxy, without a transfer of such shares into his or her name. Shares standing
in the name of a trustee may be voted by him or her, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him or her
without a transfer of such shares into his or her name or the name of his or her
nominee.
Shares held by or under the control of a receiver, a trustee in bankruptcy
proceedings or an assignee for the benefit of creditors may be voted by such
person without the transfer thereof into his or her name.
If a share or shares stand of record in the names of two or more persons,
whether as fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety or otherwise, or if two or more persons have the
same fiduciary relationship with respect to the same shares, unless the
Secretary of the Corporation is given notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, then acts with respect to voting shall
have the following effect: (a) if only one votes, in person or by proxy, that
act binds all; (b) if more than one votes, in person or by proxy, the act of the
majority so voting binds all; (c) if more than one votes, in person or by proxy,
but the vote is evenly split on any particular matter, each faction is entitled
to vote the share or shares in question proportionally; or (d) if the instrument
or order so filed shows that any such tenancy is held in unequal interest, a
majority or a vote evenly split for purposes hereof shall be a majority or a
vote evenly split in interest. The principles of this paragraph shall apply,
insofar as possible, to execution of proxies, waivers, consents, or objections
and for the purpose of ascertaining the presence of a quorum.
7
<PAGE>
Section 14. Proxies. Any shareholder of the Corporation, other person
-------
entitled to vote on behalf of a shareholder pursuant to the Act, or attorney-in-
fact for such persons, may vote the shareholder's shares in person or by proxy.
Any shareholder of the Corporation may appoint a proxy to vote or otherwise act
for him or her by signing an appointment form, either personally or by an
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form.
An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to eleven (11) months, unless a longer period
is expressly provided in the appointment form.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest.
Section 15. Voting Trusts. One or more shareholders may create a voting
-------------
trust, conferring on a trustee the right to vote or otherwise act for them, by
signing an agreement setting out the provisions of the trust and transferring
their shares to the trustee. When a voting trust agreement is signed, the
trustee shall prepare a list of the names and addresses of all owners of
beneficial interest in the trust, together with the number and class of shares
each transferred to the trust, and deliver copies of the list and agreement to
the Corporation's principal office.
8
<PAGE>
After filing a copy of the list and agreement in the Corporation's principal
office, such copies shall be open to inspection by any shareholder of the
Corporation, subject to the requirements of the Act, or to any beneficiary of
the trust under the agreement during business hours. The trustee must also
deliver a copy of each extension of the voting trust agreement, and a list of
beneficial owners under such extended agreement, to the Corporation's principal
office.
Section 16. Shareholders' Agreements. Two or more shareholders may
------------------------
provide for the manner in which they will vote their shares, and providing for
such other matters as are permitted by the Act, by signing an agreement for that
purpose. When a shareholders' agreement is signed, the shareholders who are
parties thereto shall deliver copies of the agreement to the Corporation's
principal office. After filing a copy of the agreement in the Corporation's
principal office, such copies shall be open to inspection by any shareholder of
the Corporation, subject to the requirements of the Act, or any party to the
agreement during business hours.
Section 17. Nominations for Director. Nominations for election to the
------------------------
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the Corporation entitled to vote
for the election of directors; provided, however, that such shareholder complies
with the procedures for nomination of directors set forth in this Section 17 and
the Articles of Incorporation. Nominations, other than those made by or on
behalf of the Board of Directors of the Corporation, shall be made in writing
and shall be delivered or mailed to the Secretary of the Corporation at the
principal executive office of the Corporation, not less than one hundred twenty
(120) days and not more than one hundred eighty (180) days prior to any meeting
of shareholders called for the election of directors; provided, however, that if
no annual meeting was held in the previous year or the date of the annual
9
<PAGE>
meeting has been changed to be more than thirty (30) calendar days earlier than
the date contemplated by the previous year's statement, such notice by the
shareholder to be timely must be received no later than the close of business on
the tenth (10th) day following the date on which notice of the date of the
annual meeting is given to shareholders or made public, whichever first occurs.
Such notification shall contain the following information to the extent known to
the notifying shareholder: (a) as to each person whom the shareholder proposes
to nominate for election or re-election as a director at the annual meeting; (i)
the name, age, business address and residence address of the proposed nominee,
(ii) the principal occupation or employment of the proposed nominee, (iii) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the proposed nominee, and (iv) any other information
relating to the proposed nominee that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder
giving the notice of nominees for election at the annual meeting, (i) the name
and record address of the shareholder, and (ii) the class and number of shares
of capital stock of the Corporation which are beneficially owned by the
shareholder. The Corporation may require any proposed nominee for election at
an annual or special meeting of shareholders to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth herein. The Chairman of the meeting
shall, if the facts warrant, determine and declare in the meeting that a
nomination was not made in accordance with the requirements of this
10
<PAGE>
Section 17, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
Section 18. Inspectors of Election. Prior to each meeting of
----------------------
shareholders, the Board of Directors or the President may appoint one or more
Inspectors of Election. Upon his appointment, each such Inspector shall take
and sign an oath to faithfully execute the duties of Inspector at such meeting
with strict impartiality and to the best of his ability. Such Inspector(s)
shall determine the number of shares outstanding, the number of shares present
at the meeting and whether a quorum is present at such meeting. The
Inspector(s) shall receive votes and ballots and shall determine all challenges
and questions as to the right to vote and shall thereafter count and tabulate
all votes and ballots and determine the result. Such Inspector(s) shall do such
further acts as are proper to conduct the elections of directors and the vote
on other matters with fairness to all shareholders. The Inspector(s) shall make
a certificate of the results of the elections of directors and the vote on other
matters. No Inspector shall be a candidate for election as a director of the
Corporation.
ARTICLE II
DIRECTORS
---------
Section 1. Functions. Except as provided in the Articles of Incorporation
---------
or by law, all corporate powers shall be exercised by or under the authority of,
and the business and affairs of this Corporation shall be managed under the
direction of, the Board of Directors.
Section 2. Number. The Board of Directors of the Corporation shall
------
consist of a number of persons fixed by a resolution of the Board of Directors
from time to time; provided,
11
<PAGE>
however, that the Board of Directors shall not consist of less than one (1)
person, and not more than twenty-five (25) persons.
Section 3. How Selected. Unless appointed to fill a vacancy, directors
------------
shall be elected at the annual meeting of shareholders or at a special meeting,
in accordance with Article VI of the Articles of Incorporation, as it may be
amended from time to time.
Section 4. Qualifications. Directors must be natural persons over the age
--------------
of 18 years old, but need not be residents of the State of Florida or
shareholders of this Corporation.
Section 5. Removal of Directors. Any director, or the entire Board of
--------------------
Directors, may be removed with cause, by action of the shareholders, and in
accordance with the Articles of Incorporation. A removal of any director by the
action of the shareholders must receive the approval by an affirmative vote of
shareholders holding not less than two-thirds (66 2/3%) of all issued and
outstanding shares of the Corporation at any meeting called for such purpose. A
director may not be removed without such a meeting, notwithstanding any other
provisions of these Bylaws. If a director was elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove that director. The notice of the meeting at which a vote is
taken to remove a director must state that the purpose or one of the purposes of
the meeting is the removal of the director or directors.
Section 6. Resignation. Any director may resign at any time by delivering
-----------
written notice to the Corporation, the Board of Directors or its Chairman. Such
resignation is effective when the notice is delivered unless the notice
specifies a later effective date, in which event the Board of Directors may fill
the pending vacancy before the effective date if the Board of Directors provides
that the successor does not take office until the effective date.
12
<PAGE>
Section 7. Vacancies. A director shall hold office until the annual
---------
meeting for the year in which his term expires and until his successors shall be
elected and shall qualify, subject, however, to the director's prior death,
resignation, retirement, disqualification, or removal from office. Any vacancy
occurring in the Board of Directors, including any vacancy created by reason of
an increase in the number of directors, may be filled by the affirmative vote of
a majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall have
been elected.
Section 8. Regular Meetings. An annual regular meeting of the Board of
-----------------
Directors shall be held without notice as soon as practicable after the annual
meeting of shareholders for the purpose of the election of officers and the
transaction of such other business as may come before the meeting, and at such
other time and place as may be determined by the Board of Directors. The Board
of Directors may, with or without notice, at any time and from time to time,
decide the time and place, either within or outside of the State of Florida, for
the holding of the annual regular meeting or additional regular meetings of the
Board of Directors. Meetings of the Board of Directors may be called by the
Chairman of the Board, the President of the Corporation, or a majority of the
Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of Directors
-----------------
may be called by the Chairman of the Board, the President of the Corporation, or
a majority of the Board of Directors.
The person or persons authorized to call special meetings of the Board of
Directors may designate any place, either within or outside of the State of
Florida, as the place for holding any
13
<PAGE>
special meeting of the Board of Directors called by them. If no designation is
made, the place of meeting shall be the principal office of the Corporation in
the State of Florida.
Notice of any special meeting of the Board of Directors may be given by any
reasonable means, whether oral or written, and at any reasonable time prior to
such meeting. The reasonableness of any notice given in connection with any
special meeting of the Board of Directors shall be determined in light of all of
the pertinent circumstances. It shall be presumed that notice of any special
meeting given at least two (2) days prior to such special meeting, either orally
(by telephone or in person), or by written notice delivered personally or mailed
to each director at his or her business or residence address, is reasonable. If
mailed, such notice of any special meeting shall be deemed to be delivered on
the second day after it is deposited in the United States mail, so addressed,
with postage thereon prepaid. If notice is given by electronic transmission,
such notice shall be deemed to be delivered when the notice is delivered by the
electronic device. Neither the business to be transacted at, nor the purpose or
purposes of, any special meetings of the Board of Directors need be specified in
the notice or in any written waiver of notice of such meeting.
Section 10. Waiver of Notice of Meeting. Notice of a meeting of the Board
---------------------------
of Directors need not be given to any director who signs a written waiver of
notice either before, during or after the meeting. Attendance of a director at
a meeting shall constitute a waiver of notice of such meeting and waiver of any
and all objections to the place of the meeting, the time of the meeting and the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
14
<PAGE>
Section 11. Quorum and Voting. A majority of the number of directors
-----------------
fixed in the manner provided by these Bylaws shall constitute a quorum for the
transaction of business; provided however, that whenever, for any reason, a
vacancy occurs in the Board of Directors, a quorum shall consist of a majority
of the remaining directors until the vacancy has been filled. The act of the
majority of the directors present at a meeting at which a quorum is present when
the vote is taken shall be the act of the Board of Directors.
A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
Section 12. Presumption of Assent. A director of this Corporation who is
---------------------
present at a meeting of its Board of Directors, or a committee of the Board of
Directors, at which action on any corporate matter is taken shall be presumed to
have assented to the action taken, unless he or she (i) objects at the beginning
of the meeting (or promptly upon his or her arrival) to holding the meeting or
transacting specified business at the meeting, or (ii) votes against such action
or abstains from the action taken; or (iii) has his or her dissent entered into
the minutes of the meeting or filed with the person acting as the secretary of
the meeting before the adjournment thereof or immediately thereafter, unless the
dissenting director voted in favor of such action.
Section 13. Meetings of the Board of Directors by Means of a Conference
-----------------------------------------------------------
Telephone or Similar Communications. Members of the Board of Directors may
- ------------------------------------
participate in a meeting of such Board by means of a conference telephone or
similar communications equipment if all
15
<PAGE>
persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
Section 14. Action Without a Meeting. Any action required or permitted to
------------------------
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all of the directors of this Corporation, or all the members
of the committee, as the case may be. Action taken under this Section is
effective when the last director or member of the committee signs the consent,
unless the consent specifies a different effective date. Such consent shall
have the effect as a meeting vote and may be described as such in any document.
Section 15. Compensation. Each director may be paid his expenses, if any,
------------
of attendance at each meeting of the Board of Directors and a committee thereof,
and may be paid a stated salary as a director or a fixed sum for attendance at
each meeting of the Board of Directors (or a committee thereof) or both, as may
from time to time be determined by action of the Board of Directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 16. Director Conflicts of Interests. No contract or other
-------------------------------
transaction between this Corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of the
directors of this Corporation are directors or officers or are financially
interested shall be either void or voidable because of such relationship or
interest, or because such director or directors of this Corporation are present
at the meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction, or because his or
their vote(s) are counted for such purpose, if:
16
<PAGE>
(a) The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the vote(s) or written consent(s) of such interested director(s); or
(b) The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote taken at an annual or special meeting of
shareholders; or
(c) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the Board of Directors, a committee
thereof or the shareholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------
Section 1. Standing Committees. The following standing committees may be
-------------------
formed:
(a) Executive Committee.
Section 2. Executive Committee. The Board of Directors may designate from
-------------------
among its members an executive committee of not less than three (3) nor more
than seven (7) members, which shall have and may exercise all the authority of
the Board of Directors, except that no such committee shall have the authority
to:
(a) Approve or recommend to shareholders actions or proposals required by
law to be approved by shareholders;
17
<PAGE>
(b) Designate candidates for the office of director, for purposes of proxy
solicitation or otherwise;
(c) Fill vacancies on the Board of Directors or any committee thereof;
(d) Adopt, amend or repeal the Bylaws;
(e) Authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board of Directors;
(f) Authorize or approve the issuance or sale of, or any contract to issue
or sell, shares or designate the terms of the series of a class of shares.
The Board, by resolution adopted in accordance with this Section 2, may
designate one or more directors as alternate members of any such committee who
may act in the place and stead of any absent member or members at any meeting of
such committee.
Section 3. Other Committees. The Board of Directors or the Chairman of
----------------
the Board may appoint other committees from time to time for such purposes and
with such powers as the Board or Chairman may determine.
Section 4. Term. The term of each standing committee and each additional
----
committee appointed shall continue until the next annual meeting of shareholders
following its appointment, at which time the existence of the committee shall
automatically terminate unless the committee is reappointed in the annual
meeting of directors held immediately thereafter; provided, however, that the
existence of any committee may be terminated at any time by affirmative action
of the Board.
Section 5. Meetings. Each committee shall hold as many meetings as are
--------
necessary to continue or complete the performance of its duties.
18
<PAGE>
Section 6. Record of Meetings. Each committee shall keep or cause to be
------------------
kept minutes of each meeting held, and each set of minutes shall include a
description of all matters considered and all decisions, if any, made. The
minutes of all meetings held since the time of the last preceding regular Board
of Directors meeting shall be filed with the Chairman of the Board at or prior
to the next regular meeting of the Board of Directors, and copies of the minutes
shall be presented to the Board of Directors as part of the committee's reports.
ARTICLE IV
OFFICERS
--------
Section 1. Officers. If so appointed by the Board of Directors, the
--------
officers of this Corporation shall consist of a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers as appointed by
the Board of Directors. Any two (2) or more offices may be held by the same
person; however, such a person shall, when acting on behalf of the Corporation
in his capacity as an officer of the Corporation, designate in which capacity or
capacities he is acting and shall be deemed to act only in the capacity(ies) so
designated.
Section 2. Appointment and Term of Office. The officers of the
------------------------------
Corporation shall be appointed annually by the Board of Directors at the first
meeting of the Board held after the shareholders' annual meeting. If the
appointment of officers does not occur at this meeting, the appointment shall
occur as soon thereafter as practicable. Each officer shall hold office until a
successor has been duly appointed and qualified, or until an earlier
resignation, removal from office, or death.
Section 3. Removal of Officers. Any officer of the Corporation may be
-------------------
removed from his or her office or position at any time, with or without cause,
by a majority vote of the Board
19
<PAGE>
of Directors. Any officer or assistant officer, if appointed by another officer
pursuant to authority, if any, received from the Board of Directors, may
likewise be removed by such officer.
Section 4. Resignation. Any officer of the Corporation may resign at any
-----------
time from his or her office or position by delivering notice to the Corporation,
the Board of Directors or its Chairman. Such resignation is effective when the
notice is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date if the Board provides that the successor does not take
office until the effective date.
Section 5. Duties. If so appointed by the Board of Directors, the
------
officers of this Corporation shall have the following duties:
(a) President. Unless otherwise designated by the Board of
---------
Directors, the President shall be the Chief Executive Officer of the Corporation
and shall, subject to the control of the Board of Directors, in general,
supervise and control all of the business and affairs of the Corporation, and
shall preside at all meetings of the shareholders, the Board of Directors and
all committees of the Board of Directors on which he or she may serve. In
addition, the President shall have the following powers and duties.
(1) He or she may cause to be called special meetings of the
shareholders and directors in accordance with these Bylaws.
(2) He or she shall appoint and remove, employ and
discharge, and fix the compensation of all servants, agents, employees and
clerks of the Corporation, other than the duly elected officers, subject to
policies adopted by the Board of Directors.
20
<PAGE>
(3) He or she shall sign and make all contracts and
agreements in the name of the Corporation, and see that they are properly
carried out.
(4) He or she shall see that the books, reports, statements,
and certificates of the Corporation are properly kept, made, and filed according
to law.
(5) He or she shall sign all certificates of stock, notes,
drafts, or bills of exchange, warrants or other orders for the payment of money
duly drawn by the treasurer.
(6) He or she shall enforce these Bylaws and perform all of
the duties incident to the position and office, and which are required by law.
(7) He or she shall solely and personally be responsible for
collecting, accounting for, and paying of all taxes imposed upon the Corporation
by any governmental authority, whether municipal, county, state or federal. This
power is personal and exclusive to the Chief Executive Officer and may not be
delegated by him or her or regulated by the Board, nor shall it descend to any
other officer.
(b) Vice President. One or more Vice Presidents may be designated by
--------------
that title or such additional title or titles as the Board of Directors may
determine. The duties of the Vice Presidents shall be as follows:
During the absence and inability of the President to perform his or her
duties or exercise his powers, as set forth in these Bylaws or in the acts under
which this Corporation is organized, the same shall be performed and exercised
by a Vice President (in such order of seniority as may be determined by the
Board of Directors or, failing such determination, as may be designated by the
Chairman of the Board); and when so acting, he or she shall have the powers and
be subject to all responsibilities hereby given to or imposed upon the
President. The Vice
21
<PAGE>
Presidents shall have such powers and perform such duties as usually pertain to
their office, or as are assigned to them by the President or the Board of
Directors.
(c) Secretary. The Secretary shall have such powers and perform
---------
such duties as are incident to the Office of Secretary of a Corporation, or as
are assigned to him or her by the President or the Board of Directors, including
the following:
(1) He or she shall keep the resolutions, forms of written
consent, minutes of the meetings of the Board of Directors and of the
shareholders, and other official records of the Corporation in appropriate
books.
(2) He or she shall give and serve all notices of the
Corporation.
(3) He or she shall be custodian of the records and of the
corporate seal, and affix the latter when required to authenticate the records
of the Corporation.
(4) He or she shall keep the stock and transfer books in the
manner prescribed by law, so as to show at all times the amount of capital
stock, the manner and the time the same was paid in, the names of the owners
thereof, alphabetically arranged, their respective places of residences, their
post office addresses, the number of shares owned by each, the time at which
each person became such owner, and the amount paid thereon; and keep such stock
and transfer books open daily during the business hours and at the main office
of the Corporation, subject to the inspection of such shareholders as are
authorized to inspect the same, as provided in Article I, Section 8 of these
Bylaws.
(5) He or she shall sign all certificates of stock.
22
<PAGE>
(6) He or she shall present to the Board of Directors all
communications addressed to him or her officially by the President or any
officer or shareholder of the Corporation.
(7) He or she shall attend to all correspondence and perform
all the duties incident to the Office of Secretary.
(d) Treasurer. The Treasurer shall have custody of all corporate
---------
funds and financial records, shall keep full and accurate accounts of receipts
and disbursements and shall perform such other duties as may be prescribed by
the Board of Directors or the President.
Section 6. Other Officers, Employees, and Agents. Each and every other
-------------------------------------
officer, employee, and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him or her by the Board of Directors, the officer appointing
him or her, and such officer or officers who may from time to time be designated
by the Board to exercise supervisory authority.
ARTICLE V
SHARES OF STOCK
---------------
Section 1. Certificates for Shares. The Board of Directors shall
-----------------------
determine whether shares of the corporation shall be uncertificated or
certificated. If certificated shares are issued, certificates representing
shares in the Corporation shall be signed (either manually or by facsimile) by
the President or Vice President and the Secretary or an Assistant Secretary and
may be sealed with the seal of the Corporation or a facsimile thereof. A
certificate which has been signed by an officer or officers who later shall have
ceased to be such officer when the certificate is issued shall nevertheless be
valid. Upon receipt of the consideration for which the Board of Directors
23
<PAGE>
has authorized for the issuance of the shares, such shares so issued shall be
fully paid and nonassessable.
Each share certificate representing shares shall state upon the face
thereof: (a) the name of the Corporation; (b) that the Corporation is organized
under the laws of the State of Florida; (c) the name of the person or persons to
whom issued; (d) the number and class of shares, and the designation of the
series, if any, which such certificate represents; and (e) if different classes
of shares or different series within a class are authorized, a summary of the
designation, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined for
each series (and the authority of the Board of Directors to determine variations
for future series), or in the alternative, that the Corporation will provide the
shareholder with a full statement of this information on request and without
charge.
Section 2. Issuance of Shares. All certificates issued shall be
------------------
registered and numbered in the order in which they are issued. They shall be
issued in consecutive order, and on the face of each share shall be entered the
name of the person owning the shares represented by the certificate, the number
of shares represented by the certificate, and the date of issuance of the
certificate. Upon issuance, the certificate shall be signed by the President or
a Vice President, and countersigned by the Secretary or an assistant secretary,
and sealed with the seal of the Corporation. No certificate shall be issued for
any share until such share is fully paid.
Section 3. Transfer of Shares; Ownership of Shares. Transfers of shares
---------------------------------------
of stock of the Corporation shall be made only on the stock transfer books of
the Corporation, and only after the surrender to the Corporation of the
certificates representing such shares, if any, by the person in whose name the
shares stand on the books of the Corporation, or his duly authorized
24
<PAGE>
legal representative. In all cases of transfer, the former certificate must be
surrendered and cancelled before a new certificate will be issued. In case of
transfer by an attorney-in-fact, the power of attorney, duly executed and
acknowledged, shall be deposited with the Secretary of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Corporation shall
--------------------------------------
issue a new stock certificate in the place of any certificate previously issued
if the holder of record of the certificate: (a) makes proof in affidavit form
that it has been lost, destroyed or wrongfully taken; (b) requests the issuance
of a new certificate before the Corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and without notice of any
adverse claim; (c) at the discretion of the Board of Directors, gives bond in
such form and amount as the Corporation may require, to indemnify the
Corporation, the transfer agent and registrar against any claim that may be made
on account of the alleged loss, destruction or theft of such certificate; and
(d) satisfies any other reasonable requirements imposed by the Corporation.
ARTICLE VI
ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS
--------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or a
designee of the President shall have the power to vote and to otherwise act on
behalf of the Corporation, in person or by proxy, at any meeting of shareholders
on, or with respect to, any action of shareholders of any other Corporation in
which this Corporation may hold securities and to otherwise exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in other corporations.
25
<PAGE>
ARTICLE VII
DIVIDENDS
---------
Section 1. Declaration. The Board of Directors may by resolution or
-----------
vote declare such dividends as are permitted pursuant to Florida law, and which
are not otherwise prohibited by any other applicable law or regulation, whenever
in their opinion the condition of the Corporation's affairs will render it
expedient for such dividends to be declared; provided, however that no such
dividends shall be declared when the Corporation is insolvent, when such payment
would render the Corporation insolvent, or when the declaration or payment
thereof would be contrary to applicable laws or regulations or to any
restrictions contained in the Articles of Incorporation.
Section 2. Types. The following types of dividends may be declared from
-----
time to time by the Board of Directors:
(a) Dividends in cash or property; provided, however, that such
dividends may be paid only out of the unreserved and unrestricted earned surplus
of the Corporation.
(b) Dividends in cash paid for out of current net profits or
retained earnings in accordance with the provisions of Florida Statutes, or any
successor statute.
(c) Dividends paid in the Corporation's own authorized but
unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(1) If the dividend is payable in its own shares having a
par value, such shares shall be issued at not less than the par value, and there
shall be transferred to stated capital at the time such dividend is paid an
amount of surplus equal to the aggregate par value of the shares to be issued as
a dividend;
26
<PAGE>
(2) If a dividend is payable in its own shares without par
value, such shares shall be issued at such stated value as shall be fixed by the
Board of Directors by a resolution adopted at the time such dividend is
declared, and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus equal to the aggregate stated value so
fixed in respect to such shares, and the amount per share so transferred to
stated capital shall be disclosed to the shareholders receiving such dividend
concurrently with the payment thereof.
(d) No dividend payable in shares of any class shall be paid to
the holders of the shares of any other class unless the Articles of
Incorporation so provide, or such payment is authorized by the affirmative vote
or the written consent of the holders of at least a majority of the outstanding
shares of the class in which the payment is to be made.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
------------------------------------------------------------
Section 1. Insurance. The Board of Directors of the Corporation, in
---------
its discretion, shall have authority on behalf of the Corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article. The provisions of the following sections of this
Article VIII shall apply only in the event that no such insurance is in effect
or, if such insurance is in effect,
27
<PAGE>
only to the extent that matters for which indemnification by the Corporation is
permitted by such sections are not within the coverage of such insurance.
Section 2. Action Against a Party Because of Corporation Position.
------------------------------------------------------
The Corporation shall indemnify each officer or director, and may indemnify, in
its sole discretion, any employee or agent who was or is a party, or is
threatened to be made a party, to any threatened, pending, or completed claim,
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by, or in the right of, the Corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, partner, officer, employee, or agent of another corporation, a
partnership, joint venture, trust, or other enterprise against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any claim, action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that such person did not act in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the Corporation or, with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
Section 3. Action by or in the Right of Corporation. The Corporation
----------------------------------------
shall indemnify any officer or director, and may indemnify, at its sole
discretion, any employee or agent who
28
<PAGE>
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed claim, action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, partner,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection with the defense or
settlement of such claim, action, or suit, including any appeal thereof, if he
or she acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the Corporation unless, and only to the extent
that, the court in which such claim, action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 4. Reimbursement if Successful. To the extent that the
---------------------------
director, officer, employee, or agent of the Corporation has been successful on
the merits or otherwise in defense of any claim, action, suit, or proceeding
referred to in Section 2 or Section 3 of this Article VIII, or in defense of any
claim, issue, or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, notwithstanding that he had not been successful (on the
merits or otherwise) on any other claim, issue, or matter in any such claim,
action, suit or proceeding.
29
<PAGE>
Section 5. Authorization. Any indemnification under Section 2 or
-------------
Section 3 of this Article VIII (unless ordered by a court of competent
jurisdiction) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she met
the applicable standard of conduct set forth in Section 2 or Section 3 of this
Article VIII. Such determination shall be made:
(a) By a majority vote of a quorum of the Board of Directors;
however, for the purposes of this Subsection, a quorum shall consist of
directors who are or were not parties to such action, suit or proceeding; or
(b) If such quorum is not obtainable, or even if obtainable, by a
majority vote of a committee duly designated by the Board of Directors (in which
directors who are parties may participate) consisting solely of two or more
directors who were not at the time parties to the proceeding;
(c) By independent legal counsel who are (i) selected by the Board
of Directors prescribed in paragraph (a) or the committee prescribed in
paragraph (b); or (ii) if a quorum of the directors cannot be obtained for
paragraph (a) and the committee cannot be designated under paragraph (b),
selected by majority vote of the full Board of Directors (in which directors who
are parties may participate);
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who are or were not parties to such action, suit or proceeding,
or, if no such quorum is obtainable, by a majority vote of shareholders who were
not parties to such action, suit or proceeding.
30
<PAGE>
Section 6. Advance Reimbursement. Expenses, including attorneys'
---------------------
fees, incurred in defending a civil or criminal action, suit, or proceeding
shall be paid to officers and directors, and, in its sole discretion, may be
paid to agents and employees by the Corporation in advance of the final
disposition of such action, suit or proceeding, upon a preliminary
determination, following one of the procedures set forth in Section 5 of this
Article VIII, that the director, officer, employee or agent met the applicable
standard of conduct set forth in Section 2 or Section 3 of this Article VIII, or
as authorized by the Board of Directors in the specific case and, in either
event, upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as authorized in this
Article.
Section 7. Further Indemnification. Indemnification as provided in
-----------------------
this Article shall not be deemed exclusive. The Corporation shall make any
other further indemnification of any of its directors, officers, employees or
agents that may be authorized under any statute, rule or law, provision of
Articles of Incorporation, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, except an indemnification
against gross negligence or willful misconduct. Where such other provision
provides broader rights of indemnification than these Bylaws, such other
provision shall control.
Section 8. Continuing Right of Indemnification. Indemnification as
-----------------------------------
provided in this Article shall continue as to a person who has ceased to be a
director, officer, employee, or agent, and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
31
<PAGE>
Section 9. Limitation on Indemnity and Reimbursement.
-----------------------------------------
Notwithstanding any other provisions of this Article, in the event that the
Board of Directors determines that the action giving rise to a claim for
indemnity or expense reimbursement is the result of gross negligence or willful
misconduct upon the part of the claimant, no such indemnity or expense
reimbursement shall be provided by the Corporation.
ARTICLE IX
BOOKS AND RECORDS
-----------------
Section 1. Books and Records. This Corporation shall maintain
-----------------
accurate accounting records and shall keep records of minutes of all meetings of
its shareholders and Board of Directors, a record of all actions taken by the
Board of Directors without a meeting and a record of all actions taken by a
committee of the Board of Directors in place of the Board of Directors on behalf
of the Corporation.
This Corporation or its agent shall also maintain a record of its
shareholders in a form that permits preparation of a list of names and addresses
of all shareholders in alphabetical order by classes of shares showing the
number and series of shares held by each.
This Corporation shall keep a copy of the following records: (a) its
Articles or Restated Articles of Incorporation and all amendments thereto
currently in effect; (b) its Bylaws or Restated Bylaws and all amendments
thereto currently in effect; (c) written communications to all shareholders
generally or all shareholders of a class or series within the past three years,
including the financial statements furnished for the past three years; (d) a
list of the names and business street addresses of its current directors and
officers; and (e) its most recent annual report delivered to the Department of
State.
32
<PAGE>
Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
Section 2. Annual Financial Information. Unless modified by a
----------------------------
resolution of the shareholders within one hundred twenty (120) days of the close
of each fiscal year, this Corporation shall furnish each shareholder annual
financial statements which may be consolidated or combined statements of the
Corporation and one or more of its subsidiaries, as appropriate, that include a
balance sheet as of the end of such fiscal year, an income statement for that
year, and a statement of cash flows for that year. If financial statements are
prepared for the Corporation on the basis of generally accepted accounting
principles, the annual financial statements must also be prepared on that basis.
If the annual financial statements are reported upon by a certified
public accountant, his, her, or its report must accompany the statements. If
not, the statements must be accompanied by a statement of the President or the
person responsible for this Corporation's accounting records: (a) stating his,
her or its reasonable belief whether the statements were prepared on the basis
of generally accepted accounting principles and, if not, describing the basis of
preparation; and (b) describing any respects in which the statements were not
prepared in accordance with any basis of accounting consistent with the
statements prepared for the preceding year.
The annual financial statements shall be mailed to each shareholder
within one hundred twenty (120) days after the close of each fiscal year or
within such additional time thereafter as is reasonably necessary to enable the
Corporation to prepare its financial statements if, for reasons beyond its
control, the Corporation is unable to prepare its financial statements within
the
33
<PAGE>
prescribed period. Thereafter, on written request from a shareholder who has
not been mailed the statements, the Corporation shall mail him or her the latest
financial statements.
ARTICLE X
CORPORATE SEAL
--------------
The Board of Directors shall provide for a corporate seal which may be
facsimile, engraved, printed or an impression seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation, the words
"seal" and "Florida" and the year of incorporation.
ARTICLE XI
AMENDMENTS
----------
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted, by either a majority of members of the Board of Directors or a majority
vote of the shareholders; provided that (i) the Board of Directors may not
alter, amend or repeal any Bylaw adopted by shareholders if the shareholders
specifically provide that such Bylaw is not subject to amendment or repeal by
the directors; and (ii) in the case of any amendment of these Bylaws by
shareholder action, two-thirds (66 2/3%) of the shareholders, acting only by
voting at a special meeting, will be required to amend any provision in Articles
I, II, Article VIII, or this Article XI.
34
<PAGE>
Exhibit 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT")
IN RELIANCE UPON THE EXEMPTIONS CONTAINED IN SECTIONS 3(b), 4(2) AND 4(6) OF THE
SECURITIES ACT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY
STATE. THIS WARRANT AND ANY SHARES ISSUED UPON EXERCISE OF THIS WARRANT MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT, AND ANY APPLICABLE STATE SECURITIES
LAWS OR UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
[THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT AND, THEREFORE, CANNOT BE RESOLD UNLESS THEY
ARE REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS THEN
AVAILABLE.]
[THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.]
[THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE PENNSYLVANIA SECURITIES ACT. SUCH INTERESTS MAY NOT BE SOLD OR OFFERED FOR
SALE FOR A PERIOD OF 12 MONTHS AFTER THE DATE OF PURCHASE UNLESS SUBSEQUENTLY
REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OR UNDER THE SECURITIES ACT OF
1933.]
ENSEC INTERNATIONAL, INC.
Warrant Certificate
Warrant to Subscribe May ___, 1996
for --- shares of
Common Stock
THIS CERTIFIES that, for value received, -- or its registered assigns,
is entitled to subscribe for and purchase from Ensec International, Inc., a
Florida corporation (the "Corporation"), on the terms and conditions set forth
herein -- shares of fully paid and nonassessable Common Stock, par value
$.01 per share ("Common Stock") of the Corporation. This Warrant and any
Warrant or Warrants subsequently issued upon exchange or transfer hereof are
hereinafter collectively referred to as the "Warrant."
Section 1. Exercise of Warrant. The price of the shares of Common Stock
-------------------
purchasable pursuant to this Warrant shall be $.10 per share, subject to
adjustment pursuant to Section 3 below
<PAGE>
(such price, as adjusted from time to time, being hereinafter referred to as the
"Exercise Price"). This Warrant shall become exercisable upon its issuance.
This Warrant shall, to the extent unexercised prior thereto, expire at 5:00
p.m., Eastern time, on the fifth anniversary of the date hereof. The rights
represented by this Warrant may be exercised by the holder hereof, in whole or
in part, by the surrender of this Warrant at the office of the Corporation or
its transfer agent together with a completed Notice of Exercise, the form of
which is attached hereto as Exhibit "A", and by payment to the Corporation of
the Exercise Price in cash or by check, for each share being purchased. Upon
the exercise of this Warrant, a certificate or certificates for the shares of
Common Stock so purchased, registered in the name of the holder, shall be
delivered to the holder hereof within a reasonable time, not exceeding ten days,
after exercise and, unless this Warrant has expired, a new Warrant representing
the number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares as of the date on which the Warrant was
surrendered and payment of the Exercise Price and any applicable taxes was made,
except that, if the date of such surrender and payment is a date on which the
stock transfer books of the Corporation are closed, such person shall be deemed
to have become the holder of such shares at the close of business on the next
succeeding date on which the stock transfer books are open. If any fractional
interest in a share of Common Stock would be deliverable upon the exercise of
this Warrant, the Company shall, in lieu of delivering the fractional share, pay
to the Holder of the Warrant an amount in cash equal to the Market Price (as
defined below), determined on the date of such exercise, of the Common Stock
represented by such fractional interest.
"Market Price" shall mean on any date specified in this Warrant, with
respect to the Common Stock, the amount per share equal to: (1) the last sale
price of shares of Common Stock, regular way, on such date or, if no such sale
takes place on such date, the average of the closing bid and asked prices of
such shares on such date, in each case as officially reported on the principal
national securities exchange on which the same are then listed or admitted to
trading; or (2) if no shares of Common Stock are then listed or admitted to
trading on any national securities exchange, the average of the reported closing
bid and asked prices thereof on such date in the over-the-counter market as
shown by the National Association of Securities Dealers automated quotation
system ("NASDAQ") or, if no shares of Common Stock are then quoted in such
system, then as published by the National Quotation Bureau, Incorporated or any
similar successor organization; or (3) if no shares of Common Stock are then
listed or admitted to trading on any national securities exchange and if no
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market, the fair value thereof determined in good faith by the
Board of Directors of the Corporation as of a date which is within 15 days of
the date as of which the determination is to be made.
No Warrant may be exercised for Common Stock unless such exercise is
registered under the Securities Act of 1933, as amended (the "Securities Act")
or unless such exercise is exempt from registration under such Act.
-2-
<PAGE>
Section 2. Adjustment of Number of Shares Subject to Warrant. Upon any
-------------------------------------------------
adjustment of the Exercise Price pursuant to Section 3 hereof, the holder of
this Warrant shall thereafter be entitled to purchase, at the adjusted Exercise
Price, the number of shares obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
Section 3. Adjustment of Exercise Price. (a) If the Corporation shall
----------------------------
split, subdivide or combine its Common Stock, the Exercise Price shall be
proportionately decreased in the case of a split or subdivision or increased in
the case of a combination. The Company covenants that for so long as this
Warrant shall be outstanding, it will not issue any shares of its Common Stock
for consideration less than $.10 per share.
(b) If the Corporation shall pay a dividend with respect to the Common
Stock or make any other distribution with respect to the Common Stock, except
any distribution specifically provided for in Section 4 below, payable in shares
of Common Stock, then the Exercise Price shall be adjusted, from and after the
date of determination of the shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction: (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution; and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(c) Upon any such adjustment of the Exercise Price pursuant to this
Section, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each Warrant holder
at the address of such holder as shown on the books of the Corporation, which
notice shall state the Exercise Price resulting from such adjustment and the
number of shares of Common Stock thereafter purchasable under this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(d) In case at any time the Corporation shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all of the Corporation's assets, liquidation or recapitalization)
in which previously outstanding Common Stock shall be changed into or exchanged
for different securities of the Corporation (other than by subdivision of its
outstanding shares of Common Stock by reason of which an adjustment is made
under Section 2) or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or any
combination of any of the foregoing (each such transaction being hereinafter
referred to as the "Transaction"; the Corporation (in the case of a
-----------
recapitalization) or such other corporation or entity (in each other case) being
hereinafter referred to as the "Acquiring Company", and the voting common stock
-----------------
(or equivalent equity interests) of the Acquiring Company being hereinafter
referred to as the "Acquiror's Common Stock"), then, as a condition to the
-----------------------
consummation of the Transaction, lawful and adequate provisions shall be made so
that each holder of this Warrant, upon the exercise hereof, for the aggregate
price then in effect or the proportional part thereof, at any time on or after
the
-3-
<PAGE>
consummation of the Transaction, shall be entitled to receive, and this Warrant
shall thereafter represent the right to receive, in lieu of the Common Stock
issuable upon exercise prior to such consummation, the highest amount of
securities, cash or other property to which such holder would actually have been
entitled as a shareholder upon the consummation of the Transaction if such
holder had exercised this Warrant immediately prior thereto (subject to
adjustments from and after the consummation date as nearly equivalent as
possible to the adjustments provided for in sections 2, 3 and 4); provided,
--------
however, that if a purchase, tender or exchange offer shall have been made to
- -------
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock, and if the holder of this Warrant so designates in a notice given to the
Corporation, the holder of this Warrant shall be entitled to receive in lieu
thereof the highest amount of securities, cash or other property to which such
holder would actually have been entitled as a shareholder if the holder of such
Warrant had exercised such Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer (subject to adjustments from
and after the consummation of such purchase, tender or exchange offer as nearly
equivalent as possible to the adjustments provided for in section 2, 3 and 4).
Section 4. Reclassification, Merger, etc. In the case of any
-----------------------------
reclassification of the Common Stock or in the case of any consolidation or
merger of the Corporation with or into another corporation (other than a merger
with another corporation in which the Corporation is the surviving corporation
and which does not result in any reclassification of the Common Stock) or in the
case of any sale of all or substantially all of the assets of the Corporation,
then the Corporation, or such successor or purchasing corporation, as the case
may be, shall execute a new warrant certificate providing that the holder of
this Warrant shall have the right to exercise such new Warrant and upon such
exercise to receive, in lieu of each share of Common Stock theretofore issuable
upon exercise of this Warrant, the number and kind of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation or merger by a holder of shares of the Common Stock with respect
to one share of Common Stock. Such new Warrant certificate shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for herein. The provisions of this Section shall similarly
apply to successive reclassifications, changes, consolidations or mergers.
Section 5. Stock to Be Reserved. The Corporation will at all times
--------------------
reserve and keep available out of its authorized Common Stock or its treasury
shares, solely for the purpose of issue upon the exercise of this Warrant as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the exercise of this Warrant. The Corporation covenants that all shares of
Common Stock which shall be so issued shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirements of
any national securities exchange or NASDAQ upon or through which the Common
Stock of the Corporation may be listed; provided however, that the Corporation
shall have the right to rely upon Holder's reconfirmation of Holder's
"accredited investor" status at such time. The Corporation will not take any
action which results in any adjustment of the Exercise Price if the total number
of shares of Common Stock issued and issuable after such
-4-
<PAGE>
action upon exercise of this Warrant would exceed the total number of shares of
Common Stock then authorized by the Corporation's Articles of Incorporation.
The Corporation has not granted and will not grant any right of first refusal
with respect to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
Section 6. No Stockholder Rights or Liabilities. This Warrant shall not
------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Corporation. No provision hereof, in the absence of affirmative action
by the holder hereof to purchase shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Corporation, whether such liability is asserted by the Corporation or by
creditors of the Corporation.
Section 7. Transferability. No transfer of this Warrant shall be
---------------
effective unless and until registered on the books of the Corporation maintained
for such purpose, and the Corporation may treat the registered holder as the
absolute owner of this Warrant for all purposes and the person entitled to
exercise the rights represented hereby. No such transfer of this Warrant shall
be effective unless registered under the Securities Act or unless the Holder
requesting such transfer provides the Corporation with an opinion of counsel in
form reasonably satisfactory to the Corporation that no such registration in
respect of such transfer is required under the Securities Act or any rule or
regulation promulgated thereunder or any applicable state securities laws. Any
transferee of this Warrant, by acceptance thereof, agrees to be bound by all of
the terms and conditions of this Warrant.
Section 8. Investment Representation and Legends. Each holder, by
-------------------------------------
acceptance of this Warrant, represents and warrants to the Corporation that the
holder is acquiring the Warrant, and unless at the time of exercise a
registration statement under the Securities Act is effective with respect to
such shares, upon the exercise hereof will acquire the shares of Common Stock
issuable upon such exercise, for investment purposes only and not with a view
towards the resale or other distribution thereof.
The holder, by acceptance of this Warrant, agrees that the Corporation may
affix, unless the shares subject to this Warrant are registered at the time of
exercise, the following legends to certificates for shares of Common Stock
issued upon exercise of this Warrant.
"The securities represented by this certificate have been issued in
reliance upon the representation of the holder that they have been acquired
for investment and not with a view toward the resale or other distribution
thereof, and have not been registered under the Securities Act of 1933 (the
"Securities Act") in reliance upon the exemptions from registration
contained in Sections 3(b), 4(2) and 4(6) of the Securities Act, and have
not been registered under any state securities law, and may not be offered,
sold, transferred, encumbered or otherwise disposed of unless there is an
effective registration statement under the Securities Act and any
applicable state securities law relating thereto or unless in the opinion
of counsel acceptable to the Corporation, such registration is not
required.
-5-
<PAGE>
These securities have not been registered under Section 36b-16 of the
Connecticut Uniform Securities Act and, therefore, cannot be resold unless
they are registered under the act or unless an exemption from registration
is then available.
These securities have been issued or sold in reliance on Paragraph (13) of
Code Section 10-5-9 of the "Georgia Securities Act of 1973," and may not be sold
or transferred except in a transaction which is exempt under such act or
pursuant to an effective registration under such act.
The securities represented by this warrant have not been registered under
the Pennsylvania Securities Act. Such interests may not be sold or offered for
sale for a period of 12 months after the date of purchase unless subsequently
registered under the Pennsylvania Securities Act or under the Securities Act of
1933.
Section 9. Registration Rights.
-------------------
(a) This Warrant shall be automatically deemed exercised upon the closing
date of any public offering of Common Stock pursuant to an effective
registration statement ("Registration Statement") filed with the Securities and
Exchange Commission ("SEC") for the sale of any of the Corporation's Common
Stock. The exercise price of this Warrant shall be offset against the sums due
to the holder hereof under the Promissory Note issued in connection with this
Warrant. The Corporation shall include in the Registration Statement the sale
of any shares of Common Stock issued pursuant to the exercise of this Warrant
prior to or contemporaneous with the effective date of the Registration
Statement ("Registrable Securities").
(b) The Warrant holder agrees not to sell or offer to sell any Registrable
Securities and covered by the Registration Statement for a period of twelve (12)
consecutive months after the effective date of the Registration Statement. The
Corporation shall cause the Registration Statement covering any Registrable
Securities to become effective as promptly as possible after filing with the SEC
and shall maintain such effectiveness, including by the removal of any stop
order that may be issued by the SEC in connection therewith and the filing of
such amendments and supplements to such Registration Statement, until that date
which is eighteen (18) months after the effective date of the Registration
Statement.
(c) Following that date which is twelve (12) months from the effective date
of the Registration Statement, the Corporation shall, upon the request of the
Holder, forthwith supply such reasonable number of copies of the Registration
Statement and prospectus meeting the requirements of the Act, and other
documents necessary or incidental to the offering, as shall be reasonably
requested by the holder to permit the holder to make a public distribution of
the holder's Registrable Securities after the 12-month period referred to above.
(d) The Corporation shall use its best efforts to qualify the Registrable
Securities for sale in such states as Rickel (defined in subparagraph 9(h)
below) shall reasonably request and shall maintain such qualification until the
date specified in subparagraph 9(b) above, provided that
-6-
<PAGE>
no such qualification shall be required in any jurisdiction where, solely as a
result thereof, the Corporation would be subject to service of general process
or to taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(e) The holder shall furnish to the Corporation such appropriate
information concerning the holder, the holder's Registrable Securities and the
terms of the holder's offering of such Registrable Securities as the Corporation
may reasonably request.
(f) In the event the Corporation is unable for any reason (including as a
result of restrictions imposed by the Securities and Exchange Commission or any
state blue sky authority) to include this Warrant and/or the underlying shares
in the Registration Statement relating to the Corporation's initial public
offering, then (i) no later than February 15, 1997 the Company shall notify the
holder(s) of this warrant or such shares of the Corporation's intent to file a
registration statement with respect to this Warrant and/or such shares (the
"Special Registration Statement"), (ii) the Corporation shall include in the
Special Registration Statement this Warrant and/or such shares to the extent the
holder(s) thereof indicate by written notice to Corporation (by no later than
March 15, 1997) their desire to have such securities included in the Special
Registration Statement, and (iii) the Corporation shall use its best efforts to
cause the Special Registration Statement to become effective no later than May
1, 1997.
(g) In the event any shares of Common Stock issuable pursuant to exercise
of this Warrant are included in a registration statement under this Agreement:
(i) To the extent permitted by law, the Corporation will indemnify
and hold harmless the holder of this Warrant joining in the registration, any
underwriter (as defined in the Securities Act) for it, and each person, if any,
who controls such holder or underwriter within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which they may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of any
material fact contained in such registration statement, including, without
limitation, any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading or
arise out of any violation by the Corporation of any rule or regulation
promulgated under the Securities Act applicable to the Corporation and relating
to action or inaction required of the Corporation in connection with any such
registration; and will reimburse each holder, such underwriter, or controlling
person for any legal or other expenses reasonably incurred by them in connection
with the investigating or defending any such loss, claim, damage, liability, or
action, provided, however, that the indemnity agreement contained in this
Section 9(d)(i) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Corporation (which consent shall not be unreasonably withheld or
delayed) nor shall the Corporation be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged
-7-
<PAGE>
omission made in connection with such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in reliance
upon and in conformity with written information furnished expressly for use in
connection with such registration by or on behalf of the holder, underwriter or
controlling person.
(ii) To the extent permitted by law, each holder joining in a
registration will indemnify and hold harmless the Corporation, each of its
directors, each of its officers who signs the registration statement, each
underwriter for the Corporation (within the meaning of the Securities Act), and
each person, if any, who controls the Corporation or any such underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities to which the Corporation or any such director, officer, controlling
person or underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary prospectus or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by or on behalf of the holder expressly for use in
connection with such registration; and will reimburse the Corporation or any
such director, officer, controlling person or underwriter for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 9(d)(ii) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the holder (which
consent shall not be unreasonably withheld) and provided further that the holder
shall not have any liability under this Section 9(d)(ii) in excess of the net
proceeds actually received by such holder in the relevant public offering.
(iii) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 9, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, shall, to
the extent (but only to the extent) be actually prejudicial to its ability to
defend such action, relieve such indemnifying party of any liability to the
indemnified party under this Section 9, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
-8-
<PAGE>
(h) Until May 1, 1999, the Company shall, upon issuance of shares pursuant to
any exercise of this Warrant, deliver such shares to Rickel & Associates, Inc.
("Rickel") to be held by Rickel in an account in the name of and for the benefit
of the holder. Until May 1, 1999, the holder shall permit Rickel to arrange for
any public or private sale (including but not limited to any sale pursuant to
Rule 144 under the Act) of the shares (at Rickel's normal rates) and Rickel
shall have 30 days within which to arrange for the sale of such shares,
following which such holder may sell such shares free of the restrictions
imposed by this Section 9(e).
Section 10. Notices. All notices and other communications hereunder (under
-------
otherwise expressly provided for herein) shall be in writing and shall be deemed
given when delivered in person, on the business day (before 5:00 P.M. Eastern
time) sent by facsimile transmission, or on the date indicated on the return
receipt if sent registered or certified mail (return receipt requested) to the
party to receive the same at the address set forth below, in the case of the
Corporation, and the address set forth on the signature page hereof, in the case
of the holder of this Warrant (or at such other address for a party as shall be
specified by like notice):
Ensec International, Inc.
751 Park of Commerce Drive, Suite 104
Boca Raton, Florida 33431
Attention: Charles N. Finkel, President
Section 11. Binding Effect; Governing Law. All of the terms and
-----------------------------
provisions of this warrant, whether so expressed or not, shall be binding upon,
inure to the benefit of, and be enforceable by the Corporation, the holder of
this warrant, and their respective administrators, executors, legal
representatives, heirs, successors and permitted assigns. This warrant shall be
governed by, and construed and enforced in accordance with, the internal laws of
the State of Florida without regard to principles of conflicts of laws.
Section 12. Lost, Stolen, Mutilated or Destroyed Warrant. If this
--------------------------------------------
Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such
terms as to indemnity or otherwise as it may in its discretion reasonably impose
(which shall, in the case of a mutilated Warrant, include the surrender
thereof), issue a new Warrant of like denomination and tenor as the Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Corporation, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
-9-
<PAGE>
IN WITNESS WHEREOF, Ensec International, Inc. has executed this
Warrant on and as of the day and year first above written.
ENSEC INTERNATIONAL, INC.
ATTEST:___________________________ By:________________________________
Charles N. Finkel, President
Name:___________________________
Title:___________________________
(CORPORATE SEAL)
-10-
<PAGE>
Exhibit "A"
[FORM OF ELECTION TO EXERCISE]
The undersigned hereby irrevocably surrenders and elects to exercise
____ Warrant(s) to purchase _______ Shares of Ensec International, Inc., Common
Stock issuable upon the exercise of such Warrant(s), and requests that
certificates for such Shares shall be issued in the name of the undersigned, as
stated below, and, if the number of Shares so purchased are not all of the
Shares issuable upon exercise of the Warrants evidenced by this certificate,
that a new certificate evidencing a Warrant to purchase the balance of such
Shares be registered in the name of, and delivered to, the undersigned at the
address stated below. The undersigned reconfirms the representations and
warranties made by the undersigned to Ensec International, Inc. upon issuance of
this Warrant, including that the undersigned continues to qualify as an
"accredited investor" as defined in the regulations under the Securities Act of
1933, as amended. The undersigned agrees and acknowledges that the undersigned
shall be bound by the provisions of Section 9 of the Warrant Certificate
pursuant to which this Election to Exercise is being delivered.
Dated: ____________, 19__
Name of Registered Owner:___________
____________________________________
____________________________________
Address:____________________________
____________________________________
Signature:__________________________
____________________________________
Signature Guaranteed:_______________
____________________________________
<PAGE>
Exhibit "B"
[FORM OF TRANSFER]
(To be signed only upon transfer of Warrant in accordance with the
provisions thereof).
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto ___________________________, whose address is
_____________________________________, this Warrant, together with all rights,
title and interest therein, and does hereby irrevocably constitute and appoint
____________________________ Attorney to transfer the within Warrant on the
books of Ensec, Inc., with full power of substitution.
DATED: _______________, 19___
Signature:_____________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
_______________________________________
_______________________________________
(Address)
Signature Guaranteed:
_________________________________
_________________________________
(Insert Social Security or
Other Identifying Number of
Assignee)
<PAGE>
Exhibit 4.3
_________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("FEDERAL ACT") IN RELIANCE UPON THE EXEMPTIONS CONTAINED IN SECTIONS 3(b), 4(2)
AND 4(6) OF THE FEDERAL ACT AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES
LAWS OF ANY STATE. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE IS EFFECTIVE UNDER THE
FEDERAL ACT, AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE PAYOR HAS
RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO PAYOR THAT SUCH REGISTRATION IS NOT
REQUIRED.
_________________________
THIS NOTE HAS NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE CONNECTICUT
UNIFORM SECURITIES ACT AND, THEREFORE, CANNOT BE RESOLD UNLESS REGISTERED UNDER
THE ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE.
THIS NOTE HAS BEEN ISSUED IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9
OF THE "GEORGIA SECURITIES ACT OF 1973," AND MAY NOT BE SOLD OR TRANSFERRED
EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN
EFFECTIVE REGISTRATION UNDER SUCH ACT.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT. THIS
NOTE MAY NOT BE SOLD OR OFFERED FOR SALE FOR A PERIOD OF 12 MONTHS AFTER THE
DATE OF PURCHASE UNLESS SUBSEQUENTLY REGISTERED UNDER THE PENNSYLVANIA
SECURITIES ACT OR UNDER THE SECURITIES ACT OF 1933.
_________________________
SENIOR SUBORDINATED PROMISSORY NOTE
-----------------------------------
May __, 1996
$ ______ (Amount)
Place of Execution and Delivery: New York, New York
FOR VALUE RECEIVED, the undersigned, ENSEC INTERNATIONAL, INC., a Florida
corporation ("Payor"), hereby promises to pay to (Name) __________ (hereinafter,
together with any subsequent holder hereof, referred to as "Holder") on the
Maturity Date in lawful money of the United States, the principal sum of $
_________ (Amount) Dollars. The Payor hereby further agrees to pay interest on
the principal balance of this Note at the rate of ten percent (10%) per annum
accruing from the date hereof, and to pay on demand interest on any overdue
installment of interest or overdue principal (including any amounts that are
overdue because of the subordination provisions
<PAGE>
of this Note), at the rate of twelve percent (12%) per annum. As used herein,
"Maturity Date" shall mean the first to occur of: (i) twelve months following
the date of this Note; (ii) the closing date of an initial public offering of
Payor's Common Stock pursuant to a registration statement filed under the
Securities Act of 1933, as amended; or (iii) the closing of any transaction in
which any class or classes of the Payor's securities are exchanged for
securities of a public company (whether by merger, acquisition or otherwise).
Payments under this note are subject to the subordination provisions of
paragraph 5 below.
1. Interest. Holder shall pay accrued interest semi-annually, commencing
--------
on the ____ day of June, 1996, and on the _____ day of each sixth calendar month
thereafter and on the Maturity Date. Interest shall be computed on the basis of
a 360-day year. It is the express intent of the parties hereto that the Payor
not pay and Holder not receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be legally paid by the Payor to Holder
under applicable laws. If, under any circumstances whatsoever, Holder shall
ever receive anything of value that may be deemed excessive interest under
applicable laws, such excessive interest shall be applied to reduce the
principal balance owing hereunder and not to the payment of interest or, if such
excessive interest exceeds such unpaid principal balance or such other
indebtedness, such excess shall be refunded to the Payor. The outstanding
principal balance of this Note shall be due and payable on the Maturity Date.
2. Place of Payments. Principal and interest payments due hereunder shall
-----------------
be made at the address of Holder set forth below or the last United States
address of Holder subsequently provided to Payor by Holder for such purpose.
3. Prepayment. Payor may, at its option, make prepayments at any time.
----------
4. Events of Default; Acceleration. Each of the following shall constitute
-------------------------------
an Event of Default hereunder:
(a) a receiver, liquidator or trustee of the Payor or of any property
of the Payor shall be appointed by court order; or any of the property of the
Payor shall be sequestered by court order; or a petition shall be filed against
the Payor under any bankruptcy, reorganization or insolvency law and shall not
be dismissed within 60 days after such filing; or
(b) the Payor shall file a petition in bankruptcy or request
reorganization under any provision of any bankruptcy, reorganization or
insolvency law or shall consent to the filing of any petition against it under
any such law; or
(c) the Payor shall make a formal or informal assignment for the
benefit of its creditors or admit in writing its inability to pay its debts
generally when they become due or shall consent to the appointment of a
receiver, trustee or liquidator of the Payor or of all or any part of the
property of the Payor; or
-2-
<PAGE>
(d) any material property of the Payor shall be levied upon,
garnished, attached, or otherwise seized for the benefit of any creditor of the
Payor or shall be foreclosed upon by any party having a security interest
therein; or
(e) final judgment(s) against the Payor for payment of money
aggregating in excess of $50,000 shall be outstanding and shall have been
outstanding for more than 30 days from the date of entry and shall not have been
discharged in full or stayed; or
(f) the Payor shall liquidate or be dissolved or adopt or approve a
plan of liquidation, or cease doing business; or
(g) the sale by the Payor of all or substantially all of its assets,
or the merger or consolidation by the Payor with or into another corporation
where the Payor is not the surviving corporation; or
(h) upon the acceleration of the payment of principal and interest on
any other senior subordinated note issued in connection with the offering of
this Note by any other holder for any reason whatsoever; or
(i) the Payor shall fail to make any interest payment due hereunder
within 5 business days following the date on which such payment has become due
but has not been paid; or
(j) the default in the due observance or performance of any covenant,
condition or agreement on the part of the Payor to be observed or performed
pursuant to the terms hereof and such default shall continue uncured for 30 days
after written notice thereof, specifying such default, shall have been given to
the Payor by the holder of the Note.
Upon the occurrence of any such Event of Default, all principal and accrued
interest under this Note shall, at the election of Holder, become immediately
due and payable without further notice or demand; (provided that upon the
occurrence of an Event of Default as described in subsections 4(a) and 4(b),
such event shall be deemed to be an Event of Default hereunder whether or not
the Payor makes such a declaration (an "Automatic Default")), and the
indebtedness evidenced by this Note shall immediately upon such declaration of
an Event of Default or immediately upon such Automatic Default, as applicable,
become due and payable, both as to principal and interest, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, notwithstanding anything contained herein to the contrary.
If any one or more Events of Default shall occur and be continuing, Holder may
proceed to protect and enforce Holder's rights either by suit in equity or by
action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Note or in any agreement or document
referred to herein or in aid of the exercise of any power granted in this Note
or in any agreement or document referred to herein, or proceed to enforce the
-3-
<PAGE>
payment of this Note or to enforce any other legal or equitable rights to the
Holder of this Note. No right or remedy herein or in any other agreement or
instrument conferred upon the Holder of this Note is intended to be exclusive of
any other right or remedy, and each and every such right or remedy shall be
cumulative and shall be in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
5. Subordination.
-------------
(a) The indebtedness evidenced by this Note and the payment of the
principal of, and interest hereon, shall be at all times and in all respects
wholly subordinate, junior and subject in right of payment to all Senior
Indebtedness (as hereinafter defined) now outstanding or hereinafter incurred.
Without limiting the effect of the foregoing, "subordinate," as used herein,
shall be deemed to mean that, in the event of any default in the payment of
Senior Indebtedness (after giving effect to "cure" provisions, if any) or of any
liquidation, insolvency, bankruptcy, reorganization, or similar proceedings
relating to the Payor, all sums payable on Senior Indebtedness shall first be
paid in full, with interest, if any, before the payment is made upon the
indebtedness evidenced by this Note, and, in such event, any subsequent payment
or distribution of any character which shall be made in respect of this Note
shall be paid over to the holders of Senior Indebtedness for application pro
rata to the payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. "Senior Indebtedness" shall mean the
principal of, and premium, if any, and interest on, all indebtedness of the
Payor (and its wholly owned subsidiaries) to banks, trust companies, insurance
companies and similar institutional lenders and any deferrals, renewals,
extensions, or guarantees thereof.
(b) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Payor or by any non-compliance by the Payor with the terms, provisions and
covenants of this Note, regardless of any knowledge thereof which any such owner
or holder may have or be otherwise charged with.
6. This Note Senior to All Indebtedness Other than Senior Indebtedness.
-------------------------------------------------------------------
This Note and each of the other Senior Subordinated Promissory Notes shall be
senior to each note, bond and other item of indebtedness that is subordinated in
any manner (whether in right of payment on liquidation of the Payor, or
otherwise) to the Senior Debt (each of such items of indebtedness, the "Junior
Subordinated Indebtedness"). It is the intent of the Payor and the Holder that
this note shall be (i) subordinated only to the Senior Indebtedness and no other
indebtedness of any kind and (ii) pari passu only with the other Senior
Subordinated Promissory Notes. The Payor shall cause all of the Junior
Subordinated Indebtedness to be subordinated to this note and the other Senior
Subordinated Promissory Notes on terms no less favorable to the holder of this
Note than the terms on which this note is subordinated to the Senior
Indebtedness.
7. Application of Payments. Any payments made under this Note shall be
-----------------------
applied first to the discharge of accrued interest, and the balance, if any,
shall be applied to the reduction of
-4-
<PAGE>
principal, except as otherwise required by the provisions of Section 1 hereof
regarding excessive interest under applicable laws.
8. Covenants of the Payor. The Payor covenants and agrees that, so long
----------------------
as this note remains outstanding and unpaid, in whole or in part, the Payor:
a. Shall not sell, transfer or in any other manner alienate or
dispose of a material part of its assets; provided however, that the Payor may
effect such a transaction if the assets so sold do not constitute more than 30%
of the Payor's assets as set forth in its balance sheet, the transaction is a
bona-fide transaction in which fair market value is received and if no Event of
Default or any condition or event that, with notice or lapse of time or both,
would become an Event of Default has occurred or would occur after giving effect
to such transaction;
b. Shall not permit (i) any person or group to acquire, directly or
indirectly, beneficially or of record, shares representing more than 25% of any
class of the voting securities of the Payor, or (b) any change to occur in the
membership of its Board of Directors such that more than 25% of the members of
the Board of Directors who were not members of the Board of Directors at the
beginning of the 12-month period immediately preceding such change, unless such
new members were approved by a majority of the directors who were sitting at the
beginning of such period;
c. Shall not loan or borrow any money to or from any person who is or
becomes a shareholder of the Payor from time to time, other than for reasonable
advances for expenses in the ordinary course of business that in each case is on
terms no more favorable to the lender than could be obtained by the Payor in an
arms'-length transaction with an unaffiliated third party;
d. Shall promptly pay and discharge all lawful taxes, assessments,
and governmental or other charges or levies imposed upon the Payor or upon its
income and profits, or upon any of its income and profits, or upon any of its
property, before the same shall become in default, as well as all lawful claims
for labor, materials and supplies which, if unpaid, might become a lien or
charge upon such properties or any part thereof, provided however, that the
Payor shall not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and the Payor shall set aside on its books
adequate reserves with respect to any such tax, assessment, charge, levy or
claim so contested;
e. Shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
comply in all material respects with all material law applicable to the Payor;
f. Shall at all times maintain, preserve, protect and keep its assets
and property used or useful in the conduct of its business in good repair,
working order and condition, and
-5-
<PAGE>
from time to time make all needed and proper repairs, renewals, replacements,
betterments and improvements thereto;
g. Shall keep adequately insured by financially sound reputable
insurers, all assets and property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by similar
corporations;
h. Shall promptly upon the occurrence of a condition or event that is
an Event of Default or of any condition or event that, with notice or lapse of
time or both, would constitute an Event of Default, furnish to the Holder a
statement of the Payor, signed by the Payor's President, setting forth the
details of such Event of Default or condition or event and the action that the
Payor intends to take with respect thereto;
i. Shall at all times keep true and correct books, records and
accounts;
j. Shall at all times keep Charles N. Finkel employed as the Chairman
of the Board and President of the Payor; and
k. Shall not redeem any shares of Common Stock or other equity
securities of the Payor or any security that is convertible or exchangeable for
any shares of Common Stock or other equity securities of the Payor.
9. Restriction on Transfer. This Note has not been registered under the
-----------------------
securities laws of the United States of America or any state thereof. This Note
has been acquired for investment and may not be offered for sale, sold,
delivered after sale, transferred, pledged, or hypothecated in the absence of
registration and qualification of this Note under applicable federal and state
securities laws or an opinion of counsel of the Holder reasonably satisfactory
to the Payor that such registration and qualification is not required.
10. Unconditional Obligation; Fees, Waiver, Other.
---------------------------------------------
a. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
b. If the Holder shall institute any action to enforce the collection
of any amount of principal and/or interest of this Note, there shall be
immediately due and payable from the Payor, in addition to the then unpaid sum
of this note, all reasonable costs and expenses incurred by the Holder in
connection therewith, including, without limitation, reasonable attorneys' fees
and disbursements.
c. No forbearance, indulgence, delay or failure to exercise any right
or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall
-6-
<PAGE>
any single or partial exercise of any right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy.
d. The Payor hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right, lien, interest or property at any
and all times which the Holder had or is existing as security for any amount
called for hereunder.
11. Miscellaneous.
-------------
a. Time is of the essence of this Note.
b. Demand, presentment, dishonor, protest, and notice of dishonor
or protest are hereby waived by the Payor.
c. Holder shall not be deemed to waive any rights under this Note
unless such waiver is in writing and signed by Holder, and no delay or omission
by Holder in exercising any rights shall operate as a waiver of such rights. A
waiver of any right on one occasion shall not be construed as a waiver of or an
agreement to waive such right on subsequent occasions nor as a waiver of any
other right or remedy then or thereafter existing.
d. This Note has been made and delivered in the State of New York and
shall be governed by and enforced in accordance with the laws of the State of
Florida, without giving effect to principles of conflict of laws thereof.
e. No recourse shall be had for the payment of the principal or
interest of this Note against any incorporator or any past, present or future
stockholder, officer, director or agent of the Payor or of any successor or
parent corporation, either directly or through the Payor or any successor or
parent corporation, under any statute or by the enforcement of any assessment or
otherwise, all such liability of the incorporators, stockholders, officers,
directors and agents being waived, released and surrendered by the Holder by the
acceptance of this Note.
-7-
<PAGE>
The Payor has caused this Note to be executed and delivered and its seal to
be hereunder affixed, all by its duly authorized representative on the date
shown above.
ENSEC INTERNATIONAL, INC.
ATTEST:__________________________ By:__________________________
Name:_____________________ Name: Charles N. Finkel
Title:____________________ Title: President
(CORPORATE SEAL)
Payment Address of Holder:
Address
-8-
<PAGE>
Exhibit 10.1
ENSEC INTERNATIONAL, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purpose of the 1996 Stock Option Plan ("Plan") of
-------
Ensec International, Inc. ("Company") is to provide a means through which the
Company and its Subsidiaries may attract able persons to enter and remain in the
employ or other service of the Company and its Subsidiaries, and to provide a
means whereby those key persons upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their commitment to
the welfare of the Company and promoting an identity of interest between
shareholders and these key persons.
A further purpose of the Plan is to provide such key persons with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. The Plan provides for granting Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Phantom Stock Unit Awards and Performance Share Units, or any combination of the
foregoing.
2. Definitions. The following definitions shall be applicable
-----------
throughout the Plan.
(a) "Appreciation Date" shall mean the date designated by a Holder
of Stock Appreciation Rights for measurement of the appreciation in the value of
rights awarded to him, which date shall be the date notice of such designation
is received by the Committee, or its designee.
(b) "Award" shall mean, individually or collectively, any
Incentive Stock Option, Non-Qualified Stock Option (including a Director Award),
Stock Appreciation Right, Restricted Stock Award, Phantom Stock Unit Award or
Performance Share Unit Award.
(c) "Award Period" shall mean a period of time within which
performance is measured for the purpose of determining whether an award of
Performance Share Units has been earned.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Cause" shall mean the Company or a Subsidiary having cause to
terminate a Participant's employment under any existing employment agreement
between the Participant and the Company or a Subsidiary or, in the absence of
such an employment agreement, upon (i) the determination by the Committee that
the Participant has failed to perform his duties to the Company or a Subsidiary
(other than as a result of his incapacity due to physical or mental illness or
injury), which failure amounts to an intentional and extended neglect of his
duties to such party, (ii) the Committee's determination that the Participant
has engaged or is about to engage in conduct materially injurious to the Company
or a Subsidiary, or (iii) the Participant having been convicted of a felony.
<PAGE>
(f) "Change in Control" shall, unless the Board otherwise directs
by resolution adopted prior thereto, be deemed to occur if (i) any "person" (as
that term is used in Sections 13 and 14(d)(2) of the Exchange Act) is or becomes
the beneficial owner (as that term is used in Section 13(d) of the Exchange
Act), directly or indirectly, of twenty-five percent (25%) or more of the voting
stock; or (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination
for election by the Company's shareholders of each new director was approved by
a vote of at least three-quarters of the directors then still in office who were
directors at the beginning of the period. Any merger, consolidation or corporate
reorganization in which the owners of the Company's capital stock entitled to
vote in the election of directors ("Voting Stock") prior to said combination,
own fifty percent (50%) or more of the resulting entity's Voting Stock shall
not, by itself, be considered a Change in Control.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to such section and any
regulations under such section.
(h) "Committee" shall mean the Compensation Committee of the
Board, or such other committee as may be appointed by the Board, each member of
which shall be a Disinterested Person, which shall be the administrative
committee for the Plan.
(i) "Common Stock" shall mean the Common Stock of the Company,
$0.01 par value per share.
(j) "Company" shall mean Ensec International, Inc., a Florida
corporation.
(k) "Date of Grant" shall mean the date on which the granting of
an Award is authorized or such other date as may be specified in such
authorization.
(l) "Director Award" shall mean an automatic and nondiscretionary
Award of Non-Qualified Stock Options granted to a Non-Employee Director pursuant
to Section 11 hereof.
(m) "Disability" shall mean the complete and permanent inability
by reason of illness or accident to perform the duties of the occupation at
which a Participant was employed when such disability commenced or, if the
Participant was retired when such disability commenced, the inability to engage
in any substantial gainful activity, as determined by the Committee based upon
medical evidence acceptable to it.
(n) "Disinterested Person" shall mean a person who is a
"disinterested person" within the meaning of Rule l6b-3 of the Exchange Act, or
any successor rule or regulation.
2
<PAGE>
(o) "Eligible Employee" shall mean any person regularly employed
by the Company or a Subsidiary on a full-time salaried basis who satisfies all
of the requirements of Section 6 hereof.
(p) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(q) "Fair Market Value" shall mean (i) the average of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded for the ten (10) trading days immediately
preceding the date of determination, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price of the Common
Stock on the NASDAQ National Market List for the ten (10) trading days
immediately preceding the date of determination, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted by an established quotation service for over-
the-counter securities for the ten (10) trading days immediately preceding the
date of determination, if the Common Stock is not reported on the NASDAQ
National Market List. However, if the Common Stock is not publicly-traded at the
time an option is granted under the Plan, "Fair Market Value" shall be deemed to
be the fair value of the Common Stock as determined by the Compensation
Committee of the Board of the Company (the "Committee") after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
(r) "Holder" shall mean a Participant who has been granted an
Option, a Stock Appreciation Right, a Restricted Stock Award, Phantom Stock Unit
Award or a Performance Share Unit Award.
(s) "Incentive Stock Option" shall mean an Option granted by the
Committee to a Participant under the Plan which is designated by the Committee
as an Incentive Stock Option pursuant to Section 422 of the Code.
(t) "Non-Employee Director" shall mean a member of the Board of
Directors of the Company or any of its Subsidiaries who is not also an employee
of the Company or any of its Subsidiaries.
(u) "Non-Qualified Stock Option" shall mean an Option granted by
the Committee to a Participant under the Plan which is not designated by the
Committee as an Incentive Stock Option.
(v) "Normal Termination" shall mean termination:
(i) With respect to the Company or a Subsidiary, at
retirement (excluding early retirement) pursuant to the
Company retirement plan then in effect;
(ii) On account of Disability;
3
<PAGE>
(iii) With the written approval of the Committee; or
(iv) By the Company or a Subsidiary without cause.
(w) "Option" shall mean an Award granted under Section 7 of the
Plan.
(x) "Option Period" shall mean the period described in Section
7(c).
(y) "Participant" shall mean a person who has been selected to
participate in the Plan and to receive an Award pursuant to Section 6.
Participants are limited to Eligible Employees and Non-Employee Directors.
(z) "Performance Goals" shall mean the performance objectives of
the Company during an Award Period or Restricted Period established for the
purpose of determining whether, and to what extent, Awards will be earned for an
Award Period or Restricted Period.
(aa) "Performance Share Unit" shall mean a hypothetical investment
equivalent equal to one share of Stock granted in connection with an Award made
under Section 9 of the Plan.
(bb) "Phantom Stock Unit" shall mean a hypothetical investment
equivalent equal to one Share of Stock granted in connection with an Award made
under Section 10 of the Plan, or credited with respect to Awards of Performance
Share Units which have been deferred under Section 9.
(cc) "Plan" shall mean the 1996 Stock Option Plan of Ensec
International, Inc.
(dd) "Restricted Period" shall mean, with respect to any share of
Restricted Stock, the period of time determined by the Committee during which
such share of Restricted Stock is subject to the restrictions set forth in
Section 10.
(ee) "Restricted Stock" shall mean shares of Common Stock issued or
transferred to a Participant subject to the restrictions set forth in Section 10
and any new, additional or different securities a Participant may become
entitled to receive as a result of adjustments made pursuant to Section 13.
(ff) "Restricted Stock Award" shall mean an Award granted under
Section 10 of the Plan.
(gg) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(hh) "Stock" shall mean the Common Stock or such other authorized
shares of stock of the Company as the Committee may from time to time authorize
for use under the Plan.
4
<PAGE>
(ii) "Stock Appreciation Right" or "SAR" shall mean an Award
granted under Section 8 of the Plan.
(jj) "Subsidiary" shall mean any corporation which is a "subsidiary
corporation" of the Company within the meaning of Section 424(f) of the Code.
(kk) "Valuation Date" shall mean the last day of an Award Period or
the date of death of a Participant, as applicable.
3. Effective Date, Duration and Shareholder Approval. Subject to the
-------------------------------------------------
approval of this Plan by the shareholders of the Company at a duly convened
meeting of shareholders, the Plan shall become effective on the date of approval
by the Board, and no further Awards may be made after December 31, 2005.
The Plan shall continue in effect until all matters relating to the
payment of Awards and administration of the Plan have been settled.
4. Administration. Except for Awards granted pursuant to Section 11
--------------
hereof, the Committee shall administer the Plan and no member of the Committee,
while serving as such, shall be eligible to receive an Award (except with
respect to Director Awards) under the Plan. Each member of the Committee shall,
at the time he takes any action with respect to an Award under the Plan, be a
Disinterested Person. A majority of the members of the Committee shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present or acts approved in writing by a majority
of the Committee shall be deemed the acts of the Committee.
Except for Awards granted pursuant to Section 11 hereof, and
subject to the provisions of the Plan, the Committee shall have exclusive power
to:
(a) Select the persons to be Participants in the Plan;
(b) Determine the nature and extent of the Awards to be made to
each Participant;
(c) Determine the time or times when Awards will be made;
(d) Determine the duration of each Award Period;
(e) Determine the conditions to which the payment of Awards may be
subject;
(f) Establish the Performance Goals for each Award Period;
(g) Prescribe the form or forms evidencing Awards; and
5
<PAGE>
(h) Cause records to be established in which there shall be
entered, from time to time as Awards are made to Participants, the date of each
Award, the number of Incentive Stock Options, Non-Qualified Stock Options, SARs,
Phantom Stock Units, Performance Share Units and Shares of Restricted Stock
awarded by the Committee to each Participant, the expiration date, the Award
Period and the duration of any applicable Restricted Period.
The Committee shall have the authority, subject to the provisions
of the Plan, to establish, adopt, or revise such rules and regulations and to
make all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any Awards granted pursuant thereto and all decisions and
determinations by the Committee with respect to the Plan shall be final,
binding, and conclusive on all parties unless otherwise determined by the Board.
5. Grant of Options, Stock Appreciation Rights, Restricted Stock
-------------------------------------------------------------
Awards, Phantom Stock Awards and Performance Share Units; Shares Subject to the
- -------------------------------------------------------------------------------
Plan. The Committee may, from time to time, grant Awards of Options, Stock
- -----
Appreciation Rights, Restricted Stock, Phantom Stock Units and/or Performance
Share Units to one or more Participants; provided, however, that:
(a) Subject to Section 13, the aggregate number of shares of Stock
made subject to Awards may not exceed four hundred fifty thousand (450,000);
(b) Such shares shall be deemed to have been used in payment of
Awards whether they are actually delivered or the Fair Market Value equivalent
of such shares is paid in cash. In the event any Option, SAR not attached to an
Option, Restricted Stock, Phantom Stock Unit or Performance Share Unit shall be
surrendered, terminate, expire, or be forfeited, the number of shares of Stock
no longer subject thereto shall thereupon be released and shall thereafter be
available for new Awards under the Plan to the fullest extent permitted by Rule
16b-3 under the Exchange Act (if applicable at the time);
(c) Stock delivered by the Company in settlement of Awards under
the Plan may be authorized and unissued Stock or Stock held in the treasury of
the Company or may be purchased on the open market or by private purchase at
prices no higher than the Fair Market Value at the time of purchase; and
(d) Except for automatic and nondiscretionary Director Awards
granted pursuant to Section 11 hereof, a Non-Employee Director may not receive
any Awards pursuant to this Section 5.
6. Eligibility. Participants shall be limited to officers and
-----------
employees of the Company and its Subsidiaries and to Non-Employee Directors, in
each case who have received written notification from the Committee or from a
person designated by the Committee that they have been selected to participate
in the Plan.
6
<PAGE>
7. Stock Options. One or more Incentive Stock Options or Non-
-------------
Qualified Stock Options can be granted to any Participant; provided, however,
that Incentive Stock Options may be granted only to Eligible Employees, and
provided further, that, notwithstanding anything herein to the contrary, Non-
Employee Directors may only receive Director Awards pursuant to Section 11
hereof and may not receive Awards of any other kind. Each Option so granted
shall be subject to the following conditions.
(a) Option Price. The option price ("Option Price") per share of
Stock shall be set by the Committee at the time of grant but shall not be less
than (i) in the case of an Incentive Stock Option, the Fair Market Value of a
share of Stock at the Date of Grant, and (ii) in the case of a Non-Qualified
Stock Option, the par value per share of Stock.
(b) Manner of Exercise and Form of Payment. Options which have
become exercisable may be exercised by delivery of written notice of exercise to
the Committee accompanied by payment of the Option Price. The Option Price shall
be payable in cash and/or shares of Stock valued at the Fair Market Value at the
time the Option is exercised, or, in the discretion of the Committee, either (i)
in other property having a Fair Market Value on the date of exercise equal to
the Option Price, or (ii) by delivering to the Company a copy of irrevocable
instructions to a stockbroker to deliver promptly to the Company an amount of
sale or loan proceeds sufficient to pay the Option Price.
(c) Other Terms and Conditions. If the Holder has not died or his
relationship as an officer, employee or director with the Company or a
Subsidiary has not terminated, the Option shall become exercisable in such
manner and within such period or periods ("Option Period"), not to exceed ten
(10) years from its Date of Grant, as set forth in the Stock Option Agreement to
be entered into in connection therewith.
(i) Each Option shall lapse in the following situations:
-- Ten (10) years after it is granted;
-- Three (3) months after Normal Termination, except as
otherwise provided by the Committee, or
-- Any earlier time set forth in the Stock Option
Agreement.
(ii) If the Holder terminates his relationship as an officer,
employee or director with the Company or a Subsidiary
otherwise than by Normal Termination or death, the Option
shall lapse at the time of termination.
7
<PAGE>
(iii) If the Holder dies within the Option Period or within three
(3) months after Normal Termination (or such other period
as may have been established by the Committee), the Option
shall lapse unless it is exercised within the Option Period
and in no event later than twelve (12) months after the
date of Holder's death by the Holder's legal representative
or representatives or by the person or persons entitled to
do so under the Holder's last will and testament or, if the
Holder shall fail to make testamentary disposition of such
Option or shall die intestate, by the person entitled to
receive said Option under the applicable laws of descent
and distribution.
(d) Stock Option Agreement. Each Option granted under the Plan
shall be evidenced by a "Stock Option Agreement" between the Company and the
Holder of the Option containing such provisions as may be determined by the
Committee, but shall be subject to the following terms and conditions.
(i) Each Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof,
except as otherwise determined by the terms of the Stock
Option Agreement.
(ii) Each share of Stock purchased through the exercise of an
Option shall be paid for in full at the time of the
exercise. Each Option shall cease to be exercisable, as to
any share of Stock, when the Holder purchases the share or
exercises a related SAR or when the Option lapses.
(iii) Options shall not be transferable by the Holder except by
will or the laws of descent and distribution and shall be
exercisable during the Holder's lifetime only by him or
her.
(iv) Each Option shall become exercisable by the Holder in
accordance with the vesting schedule (if any) established
by the Committee for the Award.
(v) Each Stock Option Agreement may contain an agreement that,
upon demand by the Committee for such a representation, the
Holder shall deliver to the Committee at the time of any
exercise of an Option a written representation that the
shares to be acquired upon such exercise are to be acquired
for investment and not for resale or with a view to the
distribution thereof. Upon such demand, delivery of such
representation prior to the delivery of any shares issued
upon exercise of an Option shall be a condition precedent
to the right of the Holder or such other person to purchase
any shares. In the event certificates for Stock are
delivered under the Plan with respect to
8
<PAGE>
which such investment representation has been obtained, the
Committee may cause a legend or legends to be placed on
such certificates to make appropriate reference to such
representation and to restrict transfer in the absence of
compliance with applicable federal or state securities
laws.
(e) Grants to 10% Holders of Company Voting Stock. Notwithstanding
Section 7(a), if an Incentive Stock Option is granted to a Holder who owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or of the Company and its Subsidiaries, the period
specified in the Stock Option Agreement for which the Option thereunder is
granted and at the end of which such Option shall expire shall not exceed five
(5) years from the Date of Grant of such Option and the Option Price shall be at
least one hundred ten percent (110%) of the Fair Market Value (on the Date of
Grant) of the Stock subject to the Option.
(f) Limitation. To the extent the aggregate Fair Market Value (as
determined as of the Date of Grant) of Stock for which Incentive Stock Options
are exercisable for the first time by any Participant during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds One Hundred
Thousand Dollars ($100,000), such excess Incentive Stock Options shall be
treated as Non-Qualified Stock Options.
(g) Voluntary Surrender. The Committee may permit the voluntary
surrender of all or any portion of any Non-Qualified Stock Option and its
corresponding SAR, if any, granted under the Plan to be conditioned upon the
granting to the Holder of a new Option for the same or a different number of
shares as the Option surrendered or require such voluntary surrender as a
condition precedent to a grant of a new Option to such Participant. Such new
Option shall be exercisable at the Option Price, during the exercise period, and
in accordance with any other terms or conditions specified by the Committee at
the time the new Option is granted, all determined in accordance with the
provisions of the Plan without regard to the Option Price, exercise period, or
any other terms and conditions of the Non-Qualified Stock Option surrendered.
(h) Order of Exercise. Options granted under the Plan may be
exercised in any order, regardless of the Date of Grant or the existence of any
other outstanding Option.
(i) Notice of Disposition. Participants shall give prompt notice to
the Company of any disposition of Stock acquired upon exercise of an Incentive
Stock Option if such disposition occurs within either two (2) years after the
Date of Grant of such Option and/or one (1) year after the receipt of such Stock
by the Holder.
8. Stock Appreciation Rights. Any Option granted under the Plan may
-------------------------
include an SAR, either at the time of grant or by amendment except that in the
case of an Incentive Stock Option, such SAR shall be granted only at the time of
grant of the related Option. The Committee may also award to Participants SARs
independent of any Option. An SAR shall be subject to such terms and
9
<PAGE>
conditions not inconsistent with the Plan as the Committee shall impose,
including, but not limited to, the following:
(a) Vesting. An SAR granted in connection with an Option shall
become exercisable, be transferable and shall lapse according to the same
vesting schedule, transferability and lapse rules that are established by the
Committee for the Option. An SAR granted independent of an Option shall become
exercisable, be transferable and shall lapse in accordance with a vesting
schedule, transferability and lapse rules established by the Committee.
Notwithstanding the above, an SAR shall not be exercisable by a person subject
to Section 16(b) of the Exchange Act for at least six (6) months following the
Date of Grant.
(b) Failure to Exercise. If on the last day of the Option Period
(or in the case of an SAR independent of an Option, the SAR period established
by the Committee), the Fair Market Value of the Stock exceeds the Option Price,
the Holder has not exercised the Option or SAR, and neither the Option nor the
SAR has lapsed, such SAR shall be deemed to have been exercised by the Holder on
such last day and the Company shall make the appropriate payment therefor.
(c) Payment. The amount of additional compensation which may be
received pursuant to the award of one SAR is the excess, if any, of the Fair
Market Value of one share of Stock on the Appreciation Date over the Option
Price, in the case of an SAR granted in connection with an Option, or the Fair
Market Value of one (1) share of Stock on the Date of Grant, in the case of an
SAR granted independent of an Option. The Company shall pay such excess in
cash, in shares of Stock valued at Fair Market Value, or any combination
thereof, as determined by the Committee. Fractional shares shall be settled in
cash.
(d) Designation of Appreciation Date. A Participant may designate
an Appreciation Date at such time or times as may be determined by the Committee
at the time of grant by filing an irrevocable written notice with the Committee
or its designee, specifying the number of SARs to which the Appreciation Date
relates, and the date on which such SARs were awarded. Such time or times
determined by the Committee may take into account any applicable "window
periods" required by Rule 16b-3 under the Exchange Act.
(e) Expiration. Except as otherwise provided in the case of SARs
granted in connection with Options, the SARs shall expire on a date designated
by the Committee which is not later than ten (10) years after the date on which
the SAR was awarded.
9. Performance Shares,
------------------
(a) Award Grants. The Committee is authorized to establish
Performance Share programs to be effective over designated Award Periods of not
less than one (1) year nor more than five (5) years. At the beginning of each
Award Period, the Committee will establish in writing Performance Goals based
upon financial or other objectives for the Company for such Award Period and a
schedule relating the accomplishment of the Performance Goals to the Awards to
be earned
10
<PAGE>
by Participants. Performance Goals may include absolute or relative growth in
earnings per share or rate of return on shareholders' equity or other
measurement of corporate performance and may be determined on an individual
basis or by categories of Participants. The Committee may adjust Performance
Goals or performance measurement standards as it deems equitable in recognition
of extraordinary or non-recurring events experienced during an Award Period by
the Company, a Subsidiary or by any other corporation whose performance is
relevant to the determination of whether Performance Goals have been attained.
The Committee shall determine the number of Performance Share Units to be
awarded, if any, to each Participant who is selected to receive an Award. The
Committee may add new Participants to a Performance Share program after its
commencement by making pro rata grants.
(b) Determination of Award. At the completion of a Performance
Share program, or at other times as specified by the Committee, the Committee
shall calculate the amount earned with respect to each Participant's award by
multiplying the Fair Market Value on the Valuation Date by the number of
Performance Share Units granted to the Participant and multiplying the amount so
determined by a performance factor representing the degree of attainment of the
Performance Goals .
(c) Partial Awards. A Participant for less than a full Award
Period, whether by reason of commencement or termination of employment or
otherwise, shall receive such portion of an Award, if any, for that Award Period
as the Committee shall determine.
(d) Payment of Non-deferred Awards. The amount earned with respect
to an Award shall be fully payable in shares of Stock based on the Fair Market
Value on the Valuation Date; provided, however, that, at its discretion, the
Committee may vary such form of payment as to any Participant upon the specific
request of such Participant. Except as provided in subparagraph 9(e), payments
of Awards shall be made as soon as practicable after the completion of an Award
Period.
(e) Deferral of Payment. A Participant may file a written election
with the Committee to defer the payment of any amount otherwise payable pursuant
to subparagraph 9(d) on account of an Award to a period commencing at such
future date as specified in the election. Such election must be filed with the
Committee no later than the last day of the month which is two-thirds of the way
through the Award Period during which the Award is earned, unless the Committee
specifies an earlier filing date.
(f) Separate Accounts. At the conclusion of each Award Period, the
Committee shall cause a separate account to be maintained in the name of each
Participant with respect to whom all or a portion of an Award of Performance
Share Units earned under the Plan has been deferred. All amounts credited to
such account shall be fully vested at all times.
(g) Election of Form of Investment. Within sixty (60) days from the
end of each Award Period, and at such time or times, if any, as the Committee
may permit, a Participant may file
11
<PAGE>
a written election with the Committee of the percentage of the deferred portion
of any Award of Performance Share Units which is to be expressed in the form of
dollars and credited with interest, the percentage of such Award which is to be
expressed in the form of Phantom Stock Units and the percentage of such Award
which is to be deemed invested in any other hypothetical investment equivalent
from time to time made available under the Plan by the Committee. In the event
a Participant fails to file an election within the time prescribed, one hundred
percent (100%) of the deferred portion of such Participant's Award shall be
expressed in the form of Phantom Stock Units.
(h) Interest Portion. The amount of interest credited with respect
to the portion of an Award credited to the Participant's account which is
deferred and credited with interest (the "Interest Portion") shall be equal to
the amount such portion would have earned had it been credited with interest
from the last day of the Award Period with respect to which the Award was made
until the seventh (7th) business day preceding the date as of which payment is
made, compounded annually, at the Company's rate of return on shareholders'
equity for each fiscal year that payment is deferred, or at such other rate as
the Committee may from time to time determine. The Committee may, in its sole
discretion, credit interest on amounts payable prior to the date on which the
Company's rate of return on shareholders' equity becomes ascertainable at the
rate applicable to deferred amounts during the year immediately preceding the
year of payment.
(i) Phantom Stock Unit Portion. With respect to the portion of an
Award credited to the Participant's account which is deferred and expressed in
the form of Phantom Stock Units (the "Phantom Stock Unit Portion"), the number
of Phantom Stock Units so credited shall be equal to the result of dividing (i)
the Phantom Stock Unit Portion by (ii) the Fair Market Value on the date the
Award Period ended.
(j) Dividend Equivalents. Within thirty (30) days from the payment
of a dividend by the Company on its Stock, the Phantom Stock Unit Portion of
each Participant's account shall be credited with additional Phantom Stock Units
the number of which shall be determined by (i) multiplying the dividend per
share paid on the Company's Stock by the number of Phantom Stock Units credited
to his account at the time such dividend was declared, then (ii) dividing such
amount by the Fair Market Value on the payment date for such dividend.
(k) Payment of Deferred Awards. Payment with respect to amounts
credited to the account of a Participant shall be made in a series of annual
installments over a period of ten (10) years, or such other period as the
Committee may direct, or as the Committee may allow the Participant to elect, in
either case at the time of the original deferral election. Except as otherwise
provided by the Committee, each installment shall be withdrawn proportionately
from the Interest Portion and from the Phantom Stock Unit Portion of a
Participant's account based on the percentage of the Participant's account which
he originally elected to be credited with interest and with Phantom Stock Units,
or, if a later election has been permitted by the Committee and is then in
effect, based on the percentage specified in such later election. Payments
shall commence on the date specified by the Participant in his deferral
election, unless the Committee in its sole discretion determines that payment
shall be made over a shorter period or in more frequent installments, or
commence on an
12
<PAGE>
earlier date, or any or all of the above. If a Participant dies prior to the
date on which payment with respect to all amounts credited to his account shall
have been completed, payment with respect to such amounts shall be made to the
Participant's beneficiary in a series of annual installments over a period of
five (5) years, unless the Committee in its sole discretion determines that
payment shall be made over a shorter period or in more frequent installments, or
both. To the extent practicable, each installment payable hereunder shall
approximate that part of the amount then credited to the Participant's or
beneficiary's account which, if multiplied by the number of installments
remaining to be paid would be equal to the entire amount then credited to the
Participant's account.
(l) Composition of Payment. The Committee shall cause all payments
with respect to deferred Awards to be made in a manner such that not more than
one-half of the value of each installment shall consist of Stock. To that end,
payment with respect to the Interest Portion and the Phantom Stock Unit Portion
of a Participant's account shall be paid in cash and Stock as the Committee
shall determine in its sole discretion. The determination of any amount to be
paid in cash for Phantom Stock Units shall be made by multiplying (i) the Fair
Market Value of one share of Stock on the date as of which payment is made, by
(ii) the number of Phantom Stock Units for which payment is being made. The
determination of the number of shares of Stock, if any, to be distributed with
respect to the Interest Portion of a Participant's account shall be made by
dividing (i) one-half of the value of such portion on the date as of which
payment is made, by (ii) the Fair Market Value of one (1) share of Stock on such
date. Fractional shares shall be paid in cash.
(m) Alternative Investment Equivalents. If the Committee shall have
permitted Participants to elect to have deferred Awards of Performance Share
Units invested in one or more hypothetical investment equivalents other than
interest or Phantom Stock Units, such deferred Awards shall be credited with
hypothetical investment earnings at such rate, manner and time as the Committee
shall determine. At the end of the deferral period, payment shall be made in
respect of such hypothetical investment equivalents in such manner and at such
time as the Committee shall determine.
(n) Adjustment of Performance Goals. The Committee may, during the
Award Period, make such adjustments to Performance Goals as it may deem
appropriate, to compensate for, or reflect, any significant changes that may
have occurred during such Award Period in (i) applicable accounting rules or
principles or changes in the Company's method of accounting or in that of any
other corporation whose performance is relevant to the determination of whether
an Award has been earned or (ii) tax laws or other laws or regulations that
alter or affect the computation of the measures of Performance Goals used for
the calculation of Awards.
10. Restricted Stock Awards and Phantom Stock Units.
-----------------------------------------------
(a) Award of Restricted Stock and Phantom Stock Units.
(i) The Committee shall have the authority (1) to grant Restricted
Stock and Phantom Stock Unit Awards, (2) to issue or transfer Restricted
13
<PAGE>
Stock to Participants, and (3) to establish terms, conditions and restrictions
applicable to such Restricted Stock and Phantom Stock Units, including the
Restricted Period, which may differ with respect to each grantee, the time or
times at which Restricted Stock or Phantom Stock Units shall be granted or
become vested and the number of shares or units to be covered by each grant.
(ii) The Holder of a Restricted Stock Award shall execute and
deliver to the Secretary of the Company an agreement with respect to Restricted
Stock and escrow agreement satisfactory to the Committee and the appropriate
blank stock powers with respect to the Restricted Stock covered by such
agreements and shall pay to the Company, as the purchase price of the shares of
Stock subject to such Award, the aggregate par value of such shares of Stock
within sixty (60) days following the making of such Award. If a Participant
shall fail to execute the agreement, escrow agreement and stock powers or shall
fail to pay such purchase price within such period, the Award shall be null and
void. Subject to the restrictions set forth in Section 10(b), the Holder shall
generally have the rights and privileges of a shareholder as to such Restricted
Stock, including the right to vote such Restricted Stock. At the discretion of
the Committee, cash and stock dividends with respect to the Restricted Stock may
be either currently paid or withheld by the Company for the Holder's account,
and interest may be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee. Cash or stock dividends so
withheld by the Committee shall not be subject to forfeiture.
(iii) In the case of a Restricted Stock Award, the Committee shall
then cause stock certificates registered in the name of the Holder to be issued
and deposited together with the stock powers with an escrow agent to be
designated by the Committee. The Committee shall cause the escrow agent to
issue to the Holder a receipt evidencing any stock certificate held by it
registered in the name of the Holder.
(iv) In the case of a Phantom Stock Units Award, no shares of Stock
shall be issued at the time the Award is made, and the Company will not be
required to set aside a fund for the payment of any such Award. The Committee
shall, in its sole discretion, determine whether to credit to the account of, or
to currently pay to, each Holder of an Award of Phantom Stock Units an amount
equal to the cash dividends paid by the Company upon one share of Stock for each
Phantom Stock Unit then credited to such Holder's account
14
<PAGE>
("Dividend Equivalents"). Dividend Equivalents credited to Holder's account
shall be subject to forfeiture and may bear interest at a rate and subject to
such terms as determined by the Committee.
(b) Restrictions.
(i) Restricted Stock awarded to a Participant shall be subject to
the following restrictions until the expiration of the Restricted Period: (1)
the Holder shall not be entitled to delivery of the stock certificate; (2) the
shares shall be subject to the restrictions on transferability set forth in the
grant; (3) the shares shall be subject to forfeiture to the extent provided in
subparagraph (d) and, to the extent such shares are forfeited, the stock
certificates shall be returned to the Company, and all rights of the Holder to
such shares and as a shareholder shall terminate without further obligation on
the part of the Company.
(ii) Phantom Stock Units awarded to any Participant shall be subject
to the following restrictions until the expiration of the Restricted Period: (1)
the units shall be subject to forfeiture to the extent provided in subparagraph
(d), and to the extent such units are forfeited, all rights of the Holder to
such units shall terminate without further obligation on the part of the Company
and (2) any other restrictions which the Committee may determine in advance are
necessary or appropriate.
(iii) The Committee shall have the authority to remove any or all of
the restrictions on the Restricted Stock and Phantom Stock Units whenever it may
determine that, by reason of changes in applicable laws or other changes in
circumstances arising after the date of the Restricted Stock Award or Phantom
Stock Award, such action is appropriate.
(c) Restricted Period. The Restricted Period of Restricted Stock and
Phantom Stock Units shall commence on the Date of Grant and shall expire from
time to time as to that part of the Restricted Stock and Phantom Stock Units
indicated in a schedule established by the Committee with respect to the Award.
(d) Forfeiture Provisions. In the event a Holder terminates
employment or service as a director during a Restricted Period, that portion of
the Award with respect to which restrictions have not expired ("Non-Vested
Portion") shall be treated as follows.
(i) Resignation or discharge:
15
<PAGE>
-- The Non-Vested Portion of the Award shall
be completely forfeited.
(ii) Normal Termination:
-- The Non-Vested Portion of the Award shall be prorated for service
during the Restricted Period and shall be received as soon as practicable
following termination.
(iii) Death:
-- The Non-Vested Portion of the Award shall be prorated for service
during the Restricted Period and paid to the Participant's beneficiary as soon
as practicable following death.
(e) Delivery of Restricted Stock and Settlement of Phantom Stock
Units. Upon the expiration of the Restricted Period with respect to any shares
of Stock covered by a Restricted Stock Award, a stock certificate evidencing the
shares of Restricted Stock which have not then been forfeited and with respect
to which the Restricted Period has expired (to the nearest full share) shall be
delivered without charge to the Holder, or his beneficiary, free of all
restrictions under the Plan.
Upon the expiration of the Restricted Period with respect to any
Phantom Stock Units covered by a Phantom Stock Unit Award, the Company shall
deliver to the Holder or his beneficiary without any charge one share of Stock
for each Phantom Stock Unit which has not then been forfeited and with respect
to which the Restricted Period has expired ("vested unit") and cash equal to any
Dividend Equivalents credited with respect to each such vested unit and the
interest thereon, if any; provided, however, that the Committee may, in its sole
discretion, elect to pay cash or part cash and part Stock in lieu of delivering
only Stock for vested units. If cash payment is made in lieu of delivering
Stock, the amount of such payment shall be equal to the Fair Market Value for
the date on which the Restricted Period lapsed with respect to such vested unit.
(f) Payment for Restricted Stock. Except as provided in subparagraph
10(a)(ii), a Holder shall not be required to make any payment for Stock received
pursuant to a Restricted Stock Award.
11. Director Awards.
---------------
(a) Rights to be Granted. Director Awards entitle Non-Employee
Directors to receive Non-Qualified Stock Options pursuant to the terms and
conditions of this Section 11.
(b) Grant of Director Awards. Each Non-Employee Director of the
Company shall automatically receive, upon the date that such Non-Employee
Director becomes a director
16
<PAGE>
of the Company or any of its subsidiaries (such date being the Date of Grant), a
Director Award of Non-Qualified Stock Options to purchase 15,000 shares of
Common Stock
(c) Exercise Price. The Exercise Price per share of Stock underlying
a Director Award shall be the greater of (i) the Fair Market Value of a share of
Stock at the Date of Grant, or (ii) $3.00.
(d) Vesting of Director Awards. Subject to Section 13 herein, options
granted pursuant to a Director Award ("Director Award Options") shall vest and
become exercisable over a three (3) year period at the rate of one-third (1/3)
of each Director Award commencing on the date of the Company's annual meeting of
shareholders for the election of directors next following the date such Non-
Employee Director became a director and continuing with each such successive
annual meeting provided such Non-Employee Director remains a director of the
Company as of such date. Director Award Options may be exercised up to and
including the date which is ten (10) years after the Date of Grant. Director
Award Options shall be exercisable at the Exercise Price.
(e) Option Agreement. Each Director Award shall be evidenced by an
Option Agreement, in such form as may be approved by the Board, which Agreement
shall be duly executed and delivered on behalf of the Company and by the
individual to whom such option is granted. The Agreement shall contain such
terms, provisions, and conditions not inconsistent with the Plan as may be
determined by the Board.
12. General.
-------
(a) Additional Provisions of an Award. The award of any benefit under
the Plan may also be subject to such other provisions (whether or not applicable
to the benefit awarded to any other Participant) as the Committee determines
appropriate including, without limitation, provisions to assist the Participant
in financing the purchase of Common Stock through the exercise of Options,
provisions for the forfeiture of or restrictions on resale or other disposition
of shares acquired under any form of benefit, provisions giving the Company the
right to repurchase shares acquired under any form of benefit in the event the
Participant elects to dispose of such shares, and provisions to comply with
Federal and state securities laws and Federal and state income tax withholding
requirements.
(b) Privileges of Stock Ownership. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of stock which are subject to Options or
Restricted Stock Awards, Performance Share Unit Awards or Phantom Stock Unit
Awards hereunder until such shares have been issued to that person upon exercise
of an Option according to its terms or upon sale or grant of those shares in
accordance with a Restricted Stock Award, Performance Share Unit Award or
Phantom Stock Unit Award.
(c) Government and Other Regulations. The obligation of the Company
to make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and
17
<PAGE>
regulations, and to such approvals by governmental agencies as may be required.
The Company shall be under no obligation to register under the Securities Act
any of the shares of Stock issued under the Plan. If the shares issued under
the Plan may in certain circumstances be exempt from registration under the
Securities Act, the Company may restrict the transfer of such shares in such
manner as it deems advisable to ensure the availability of any such exemption.
(d) Tax Withholding. Notwithstanding any other provision of the Plan,
the Company or a Subsidiary, as appropriate, shall have the right to deduct from
all Awards, to the extent paid in cash, all federal, state or local taxes as
required by law to be withheld with respect to such Awards and, in the case of
Awards paid in Stock, the Holder or other person receiving such Stock may be
required to pay to the Company or a Subsidiary, as appropriate prior to delivery
of such Stock, the amount of any such taxes which the Company or Subsidiary is
required to withhold, if any, with respect to such Stock. Subject in particular
cases to the disapproval of the Committee, the Company may accept shares of
Stock of equivalent Fair Market Value in payment of such withholding tax
obligations if the Holder of the Award elects to make payment in such manner at
least six months prior to the date such tax obligation is determined.
(e) Claim to Awards and Employment Rights. No employee or other
person shall have any claim or right to be granted an Award under the Plan nor,
having been selected for the grant of an Award, to be selected for a grant of
any other Award. Neither this Plan nor any action taken hereunder shall be
construed as giving any Participant any right to be retained in the employ of
the Company or a Subsidiary.
(f) Conditions. Each Participant to whom Awards are granted under the
Plan shall be required to enter into an Incentive Plan Agreement in a form
authorized by the Committee, which may include provisions that the Participant
shall not disclose any confidential information of the Company or any of its
Subsidiaries acquired during the course of such Participant's employment.
(g) Designation and Change of Beneficiary. Each Participant shall
file with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amounts payable with respect to
an Award of Performance Share Units, Phantom Share Units or Restricted Stock, if
any, due under the Plan upon his death. A Participant may, from time to time,
revoke or change his beneficiary designation without the consent of any prior
beneficiary by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
-------- -------
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt.
(h) Payments to Persons Other than Participants. If the Committee
shall find that any person to whom any amount is payable under the Plan is
unable to care for his affairs because of illness or accident, or is a minor, or
has died, then any payment due to such person or his estate (unless a prior
claim therefor has been made by a duly appointed legal representative), may, if
the Committee so directs the Company, be paid to his spouse, child, relative, an
institution
18
<PAGE>
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Committee and the Company therefor.
(i) No Liability of Committee Members. No member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by such member or on his behalf in his capacity as a member of the
Committee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other
employee, officer or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or bad faith; provided, however, that approval of the Board shall be
-------- -------
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
(j) Governing Law. The Plan will be administered in accordance with
federal laws, or in the absence thereof, the laws of the State of Florida.
(k) Funding. Except as provided under Section 10, no provision of the
Plan shall require the Company, for the purpose of satisfying any obligations
under the Plan, to purchase assets or place any assets in a trust or other
entity to which contributions are made or otherwise to segregate any assets, nor
shall the Company maintain separate bank accounts, books, records, or other
evidence of the existence of a segregated or separately maintained or
administered fund for such purposes. Holders shall have no rights under the
Plan other than as unsecured general creditors of the Company, except that
insofar as they may have become entitled to payment of additional compensation
by performance of services, they shall have the same rights as other employees
under general law.
(l) Nontransferability. A person's rights and interest under the Plan,
including amounts payable, may not be sold, assigned, donated or transferred or
otherwise disposed of, mortgaged, pledged or encumbered except, in the event of
a Holder's death, to a designated beneficiary to the extent permitted by the
Plan, or in the absence of such designation, by will or the laws of descent and
distribution.
(m) Reliance on Reports. Each member of the Committee and each member
of the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and its
Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself.
19
<PAGE>
(n) Relationship to Other Benefits. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary except as otherwise specifically provided.
(o) Expenses. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries.
(p) Pronouns. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
(q) Titles and Headings. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.
13. Changes in Capital Structure.
----------------------------
Options, Director Awards, SARs, Restricted Stock Awards, Phantom Stock
Unit Awards, Performance Share Unit Awards, and any agreements evidencing such
Awards, and Performance Goals, shall be subject to adjustment or substitution,
as determined by the Committee in its sole discretion, as to the number, price
or kind of a share of Stock or other consideration subject to such Awards or as
otherwise determined by the Committee to be equitable (i) in the event of
changes in the outstanding Stock or in the capital structure of the Company, or
of any other corporation whose performance is relevant to the attainment of
Performance Goals hereunder, by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the Date
of Grant of any such Award or (ii) in the event of any change in applicable laws
or any change in circumstances which results in or would result in any
substantial dilution or enlargement of the rights granted to, or available for,
Participants in the Plan, or which otherwise warrants equitable adjustment
because it interferes with the intended operation of the Plan. In addition, in
the event of any such adjustments or substitution, the aggregate number of
shares of Stock available under the Plan shall be appropriately adjusted by the
Committee, whose determination shall be conclusive. Any adjustment in Incentive
Stock Options under this Section 13 shall be made only to the extent not
constituting a "modification" within the meaning of Section 424(h)(3) of the
Code, and any adjustments under this Section 13 shall be made in a manner which
does not adversely affect the exemption provided pursuant to Rule 16b-3 under
the Exchange Act. The Company shall give each Participant notice of an
adjustment hereunder and, upon notice, such adjustment shall be conclusive and
binding for all purposes.
14. Effect of Change in Control.
---------------------------
(a) In the event of a Change in Control, notwithstanding any vesting
schedule provided for hereunder or by the Committee with respect to an Award of
Options, Director Awards, SARs, Phantom Stock Units or Restricted Stock, such
Option or SAR shall become immediately
20
<PAGE>
exercisable with respect to one hundred percent (100%) of the shares subject to
such Option or SAR, and the Restricted Period shall expire immediately with
respect to one hundred percent (100%) of the Phantom Stock Units or shares of
Restricted Stock subject to Restrictions; provided, however, that to the extent
-------- -------
that so accelerating the time an Incentive Stock Option may first be exercised
would cause the limitation provided in Section 7(f) to be exceeded, such Options
shall instead first become exercisable in so many of the next following years as
is necessary to comply with such limitation.
(b) In the event of a Change in Control, all incomplete Award Periods
in effect on the date the Change in Control occurs shall end on the date of such
change, and the Committee shall, (i) determine the extent to which Performance
Goals with respect to each such Award Period have been met based upon such
audited or unaudited financial information then available as it deems relevant,
(ii) cause to be paid to each Participant partial or full Awards with respect to
Performance Goals for each such Award Period based upon the Committee's
determination of the degree of attainment of Performance Goals, and (iii) cause
all previously deferred Awards to be settled in full as soon as possible.
(c) The obligations of the Company under the Plan shall be binding
upon any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Company. The Company agrees that it will make appropriate
provisions for the preservation of Participant's rights under the Plan in any
agreement or plan which it may enter into or adopt to effect any such merger,
consolidation, reorganization or transfer of assets.
15. Nonexclusivity of the Plan.
--------------------------
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the shareholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
21
<PAGE>
16. Amendments and Termination.
--------------------------
The Board may at any time terminate the Plan. With the express
written consent of an individual Participant, the Board may cancel or reduce or
otherwise alter the outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Board may, at any time, or from
time to time, amend or suspend and, if suspended, reinstate, the Plan in whole
or in part; provided, however, that (i) the provisions of this Plan shall not be
-------- -------
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder; and (ii) without further shareholder approval the Board shall not:
(a) Increase the maximum number of shares of Stock which may be issued
on exercise of Options, SARs, or pursuant to Restricted Stock Awards, Phantom
Stock Unit Awards, or Performance Share Unit Awards, except as provided in
Section 13;
(b) Change the maximum Option Price;
(c) Extend the maximum Option Term;
(d) Extend the termination date of the Plan; or
(e) Change the class of persons eligible to receive Awards under the
Plan.
* * *
As adopted by the Board of Directors of
Ensec International, Inc. as of
the 15th day of May, 1996
22
<PAGE>
LOCKHEED MARTIN
EXHIBIT 10.2
STRATEGIC ALLIANCE AGREEMENT
between
LOCKHEED MARTIN IMS
ELECTRONIC SECURITY SYSTEMS
and
ENSEC, INC.
This Agreement is Entered into, and shall be effective on the later of the dates
of execution shown by and between Lockheed Martin IMS, Electronic Security
Systems, with company headquarters at Glenpointe Center East, Teaneck, New
Jersey 07666; and offices at 12506 Lake Underhill Road / MP-817 Orlando, Florida
32825-5002 (hereinafter "LMIMS-ESS") and Ensec, Inc., One World Trade Center -
33rd Floor, New York New York 10048 (hereinafter "Ensec").
WHEREAS, LMIMS-ESS owns and possesses certain assets, including know-how, system
integration, program management, and marketing skills relating to doing business
with the hereinafter "Proprietary Information" and possesses technical
information and expertise ("Technology") relating to low-voltage building
systems;
WHEREAS, Ensec owns and possesses certain Proprietary Information, including
Access Control product information, client contacts, training skills,
professional staff trained in engineering and manufacturing of low-voltage
building systems;
WHEREAS, the parties desire to cooperate and compliment each other efforts in
applying their respective Proprietary Information, Technologies and marketing
skills to the development and marketing of low voltage building systems;
WHEREAS, the parties wish to enter into a Strategic Alliance to identify,
market, and propose to federal, state, and local government, and commercial
clients for integrated solution encompassing: access control, electronic
photo-ID, intrusion detection, intercommunications, CCVE, visitor control,
parking control, inventory & asset control, facility management systems and
their associated network;
WHEREAS, the parties wish to enter into an Exclusive Sourcing Agreement on
specific programs, as detailed in item 16.0 of this agreement, whereby both
parties agree to jointly market and support the services of each other. Under
this agreement Ensec would provide Sole Source system integration services and
associated low-voltage building systems to LMIMS-ESS exclusively; and LMIMS-ESS
would only utilize the services of Ensec for said programs.
NOW THEREFORE, in consideration of the mutual promises and covenants in the
Agreement the parties agree as follows:
1.0 DEFINITIONS
LOW-VOLTAGE BUILDING SYSTEMS -- Total engineering, design, integration,
installation, operation and maintenance of electronic security,
intercommunications, data communications, networks, fiber optics, fire/life
safety, access control, intrusion detection, visitor control, parking control,
and facility management.
ACCESS CONTROL -- Pedestrian control utilizing card readers, biometrics,
portals, optical and mechanical turnstiles, electronic photo identification,
monitoring and control functions, and their databases and networking.
ELECTRONIC SECURITY -- Includes all available commercial-off-the shelf (COTS)
access control, monitoring and intrusion detection systems.
Lockheed Martin Proprietary Information page 1.
<PAGE>
LOCKHEED MARTIN
FACILITY MANAGEMENT SYSTEMS -- Electronic building automation to include
control of: HVAC, lighting, visitor, parking, inventory & assets, time &
attendance, audio/video, communications, annunciation with interface to building
life/safety functions.
PROJECTS/PROGRAMS -- Programs will be the culmination of the bid and/or
negotiations process and may require the efforts of all parties.
PROJECT MANAGEMENT -- Resources and efforts of both parties to successfully
manage various disciplines of the programs. The role of each party may vary
dependent on the project and will be determined by mutual agreement of each
party. These disciplines may include, but not be limited to: construction
management, subcontractor management, system design and submittal, system
integration, software development, cost accounting, scheduling, technical
support, operation and maintenance management training and customer and user
interface.
CUSTOMER OR CUSTOMERS -- Means potential purchaser and their authorized
representatives and all domestic and foreign purchasers of the services/products
marketed by the LMIMS-ESS, Ensec team.
TECHNICAL KNOW-HOW -- Means all recorded information and knowledge relating to
the design, development or production of low-voltage building systems by
Lockheed Martin and/or Ensec.
AGREEMENT -- This Strategic Alliance Agreement between Lockheed Martin IMS
Electronic Security Systems, and Ensec.
EXCLUSIVE SOURCING -- Means that both parties agree to a jointly market and
support the services of each other not solicit services or products from other
sources and/or offer services and products to other contractors. Ensec agrees
that it will not provide technical information and/or pricing information to
other contractors; and LMIMS-ESS agrees that it will not seek alternate sources
of supply for integration services and low-voltage building system Products.
SOLE SOURCE SELECTION -- Means that Ensec will provide services, products and
pricing information exclusively to LMIMS-ESS for specified programs; in return
LMIMS-ESS agrees to utilize the services and products of Ensec exclusively, for
the specified, programs when they are awarded a contract.
2.0 ROLES AND RESPONSIBILITIES
A. MARKETING
The opportunities the parties agree to pursue are the low voltage building
systems and required skills and support for industries, such as: federal, state
and local governments, both domestic and international, and corporate and
industrial entities. Additionally efforts will be required to influence the
specification process, working with architects, engineers, and security
consultants. Services will include consulting, system design, proposal
generation, and program management for the market and negotiated projects.
The parties agree to use their best efforts to promote sales of the low
voltage building systems in all the above areas.
LMIMS-ESS AND ENSEC EXPECT:
1. That, the parties will disclose in good faith to each other business
opportunities for low voltage building systems and the application of the
parties' technologies and skills that would be necessary to pursue such
opportunities.
2. To further delineate the parties marketing responsibility for each
opportunity, the parties agree to develop and update as necessary a
mutually joint marketing plan, it will include as a minimum the territories
and customers, marketing strategy, and responsibilities of each party and
be updated as required to reflect changes in the marketplace;
03/27/96 Lockheed Martin Proprietary Information page 2.
<PAGE>
LOCKHEED MARTIN
3. That, in teaming in joint pursuit of low voltage systems business
opportunities, the parties agree to define the roles and responsibilities
of the parties (e.g. as prime or subcontractor) prior to submission of a
proposal for the business;
4. That each party will provide proposal-preparation support after the
formation of an appropriate teaming agreement;
5. That the parties anticipate that services will be tailored for each
business opportunity, and that the party designated in the teaming
agreement as the prime team member/contractor (responsible party) will have
responsibility for providing product support services, with the
subcontractors member's participation being limited to support of it's
systems/proprietary technology;
6. That with regard to system performance, the party designated as prime
in the teaming agreement, will have responsibility for establishing systems
performance criteria and for providing a system that meets the applicable
specification, if any, of the customer and any mutually agreed to
Statement of Work. The secondary party (non-prime party) shall fully
cooperate with the responsible party in a reasonable manner to allow the
responsible party to perform the Statement of Work to meet the customer's
specification.
B. TEAMING AND WORK SHARE ALLOCATION ON LOW-VOLTAGE BUILDING SYSTEMS
In the pursuit of future business opportunities, it is expected that the parties
will execute teaming agreements that provide for, but are not limited to:
1. Open exchange of Proprietary Information and data as required
2. Consultation, coordination, and marketing efforts
3. Proposal preparation, submittal, and support
4. Development of pricing strategies
5. Licensing arrangements
6. Information that will be submitted to the customer and to the public
7. Work sharing arrangements
For each subsequent business opportunity, the parties will mutually agree upon
an appropriate work share based on such factors as requirements of the program
or project, technical capabilities of the participants, availability of
personnel, low voltage building systems requirements and training, necessary
financial and other contributions of the participants, and any special customer
requirements, such as location.
For each subsequent opportunity, the following will be considered in
the event the parties wish to discuss a change in the role of prime contractor
other than as provided in paragraph 2.A:
1. Customer
2. Nature of contract
3. Governing laws of the contract
4. Administration of the contract, including responsibility for
administrative costs
5. Special contract provision, including contract liability.
C. TECHNOLOGY OWNERSHIP AND TRANSFER
During the course of this Agreement and any teaming effort by the parties, any
and all Technologies and Proprietary Information developed jointly by employees
of both parties shall be agreed to prior to engaging in such initiatives by both
parties. Any and all Technologies and Proprietary Information developed solely
by the employees of one party shall be owned solely by that one party.
However, if any such solely owned Technology or Proprietary Information is
required to be used by the other party in performance of a task with respect to
which the parties are teamed, the parties shall provide for such use by entering
into a mutually acceptable royalty-bearing license agreement.
03/27/96 Lockheed Martin Propriety Information page 3.
<PAGE>
LOCKHEED MARTIN
Further, where the parties agree that strategic reasons favor disclosure, either
party may put its technology in the public domain, subject to the other party's
right of first refusal to purchase the technology upon mutually acceptable
terms.
3.0. PARTIES AS INDEPENDENT CONTRACTORS
LMIMS-ESS and Ensec shall act as independent contractors in the performance of
this Agreement, and neither party shall act as an agent for or partner of the
other party without prior written consent of the other. Nothing in this
Agreement shall be deemed to constructively create, give effect to or otherwise
recognize a joint venture, partnership or formal business entity of any kind,
and the rights and obligations of the parties shall be limited to those
expressly set forth herein. Nothing contained in this Agreement shall be
construed as providing for the sharing of profits or losses arising out of the
efforts of either or both parties.
4.0 AGREEMENT LIMITED IN SCOPE
This Agreement is not intended to abridge, limit, or restrict the rights of the
parties to pursue, either independently or in conjunction with
any other person or entity, other business opportunities outside the scope of
this Agreement.
5.0 WARRANTIES, REPRESENTATIONS AND INDEMNITY
Notwithstanding any provision of this Agreement, neither party at any time shall
enter into, incur, or hold itself out to third parties as having authority to
enter into or incur, on behalf of the other party, any commitment, expense or
liability whatsoever.
The parties to this Agreement declare that the obligations contained in this
Agreement shall not affect the performance of any obligations created by prior
contract or subcontracts which the parties may have individually or collectively
with the U.S. Government, State and Local Government or other commercial
clients.
Each party represents and warrants that it is free to enter into this Agreement,
that it has obtained any necessary approvals to do so, and is not in violation
of any existing agreements or obligations it may have with other companies.
Each party agrees to defend, indemnify and hold the other party harmless for any
costs, damages or expenses which are caused by its gross negligence or willful
misconduct.
6.0 TERM
The term of this Agreement shall commence upon the date last written below (the
"effective date"), and shall continue in effect for a period of five (5) years,
with an option of bilateral renewal for one (1) year increments thereafter.
7.0 TERMINATION
It is agreed that the non defaulting party may terminate this Agreement in
the event of a material breach by the other party, which breach is not cured
within sixty (60) days after written notice to the breaching party. Such
termination, however, shall not affect the breaching party's responsibility
undertaken hereunder prior to termination of this Agreement.
Either party may withdraw from this Agreement if it decides that loss of an
anticipated market to newer products, failure to meet anticipated cost targets,
loss of licenses, any material change in the other parties organization,
financial capability, or method of doing business which might affect the parties
ability to meet the objective of this alliance or other changes result in the
continued association of the parties pursuant to this Agreement becoming
unattractive. A party wishing to withdraw from this Agreement must give the
other party twelve (12) months notice in writing of its intent to withdraw.
During the twelve months period the withdrawing party must continue to perform
under any teaming agreement or contract then in effect.
03/27/96 Lockheed Martin Proprietary Information page 4.
<PAGE>
8.0 UNITED STATES GOVERNMENT REGULATIONS
This Agreement is subject to all the laws and regulations, and other
administrative acts, now or hereafter in effect, of the U.S. Government and its
departments and agencies, to include any necessary export license or security
requirements.
9.0 WAIVER
Any failure by either party at any time to enforce any of the provisions of this
Agreement shall not be construed a waiver of such provisions or other provisions
hereof.
10.0 SEVERABILITY
If any provision of this Agreement shall be declared void by any court or
administrative body competent jurisdiction, the validity of any other
provisions that can be given effect shall not be affected thereby.
11.0 DISPUTES CLAUSE
Any and all disputes, disagreements, or questions, be they of fact or law, which
might arise between the parties or their representatives in connection with the
interpretation of any provision of this Agreement, or the compliance or
noncompliance therewith, or the validity and enforceability thereof, or the
performance or nonperformance of each obligation thereunder or alleged breach
and which cannot be amicably settled by the parties shall be resolved as
follows:
a. The aggrieved party shall notify the other in writing in accordance
with the notice provisions hereof of the existence of such a dispute and
request a review by a two (2) person panel consisting of senior management
representing each company. Within thirty (30) days of the receipt of the
notification, such panel shall be convened at the location chosen by the
aggrieved party and the manner in dispute will be fully explained and
discussed. The panel will make every effort to resolve the dispute to the
satisfaction of the aggrieved party.
b. If the panel fails to convene or fails to resolve the dispute to the
satisfaction of the aggrieved party within thirty (30) days of convening or
within a mutually agreed upon extension thereto, the aggrieved party may
commence litigation in any court of competent jurisdiction in New Jersey.
12.0 NOTICES
All notices required or permitted to be given under this Agreement shall be in
writing and shall be delivered in person, or sent by registered air mail,
postage prepaid, to the party concerned at the address indicated below, or to
such other address as shall be given by either party to the other in writing:
if to LMIMS-ESS CHARLES L. THOMAS
Lockheed Martin IMS
Electronic Security Systems
12506 Lake Underhill Road/ MP-817
Orlando Florida 32825-5002
407.826.6703 / fax 407.826.6539
if to Ensec: CHARLES N. FINKEL
Ensec, Inc.
One World Trade Center - 33rd Floor
New York New York 10048
212.524.0600 / fax 212.524.0606
With respect to amendments and changes to this Agreement, the above individuals
or their authorized designees in writing are the only ones who may bind their
respective companies and direction from any other individuals shall be without
force and effect hereunder unless ratified in writing by said above individuals.
03/27/96 Lockheed Martin Proprietary Information page 5.
<PAGE>
LOCKHEED MARTIN
13.0 ASSIGNMENT
Neither party may assign this Agreement in its interest in any sale contemplated
hereunder without the express written approval of the other party which shall
not be unreasonably withheld. In the event of such assignment, each party shall
remain responsible to the other for the satisfactory performance of all its
obligations hereunder.
14.0 ORDER OF PRECEDENCE
In the event of an inconsistency between any provision of this Agreement and any
other agreement, the inconsistency shall be resolved by giving precedence in
the following order:
1. any subcontract between the parties
2. any Teaming Agreement between the parties
3. this Agreement
15.0 PROPERLY INFORMATION AGREEMENT
The parties agree that all written information exchanged between the parties
under this Agreement shall be treated as Proprietary Information under the terms
of the Proprietary Information Agreement entered into between the parties and
dated February 6, 1996.
16.0 EXCLUSIVE SOURCING
The parties agree that the following programs shall be included as a Sole Source
Selection for services and products:
Royal Brunei Air Base
Bureau of Engraving and Printing, Washington DC / Systems Integration
Program
Additional programs may be added to this Agreement by Addendum in the
future.
17.0 APPLICABLE LAW
This Agreement shall be constructed in accordance with the laws of the State of
New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
ENSEC, INC. LOCKHEED MARTIN IMS
ELECTRONIC SECURITY SYSTEMS
/s/ Charles N. Finkel /s/ Charles L. Thomas
- ------------------------------------- --------------------------------------
CHARLES N. FINKEL CHARLES L. THOMAS
President Director, ESS
Date March 27, 1996 Date March 27, 1996
---------------------------------- ----------------------------------
03/27/96 Lockheed Martin Proprietary Information Page 6.
<PAGE>
EXHIBIT 10.3
TEAMING AGREEMENT
Between
BELL & HOWELL POSTAL SYSTEMS INC.
and
ENSEC INC.
This Agreement is made and entered into the 13th day of March, 1996 by and
between Bell & Howell Postal Systems Inc., a corporation organized and existing
under the laws of the State of Delaware (hereinafter "The Company"), and Ensec
Inc., a U.S. corporation (hereinafter referred to as "ENSEC").
WHEREAS The Company is engaged in the business of research, design,
development, manufacture, sale and installation of mail automation products and
technologies; and
WHEREAS ENSEC is a technology company that is based in the United States with
expertise in various technology areas including mail automation, and ENSEC will
act in the country of Brazil as required under this Agreement, through its
wholly-owned subsidiary Engenharia E Sistemas De Seguranca S/A existing under
the laws of the Country of Brazil (hereinafter "ENSEC S/A") which has expertise
in servicing mail automation equipment and performing software development; and
WHEREAS ENSEC's founder and Chief Executive Officer, Mr. Charles Nelson Finkel,
has for many years engaged in business development, sales promotion and export
transaction of products in the Country of Brazil;
WHEREAS the Parties acknowledge that the Brazilian postal authority, Empresa
Brasileira De Correios E Telegrafos (hereinafter "ECT" or "Customer") is
planning on deploying a variety of postal automation equipment during the next
few years and ECT intends to competitively solicit proposals to acquire such
automation equipment; and
WHEREAS the Parties wish to enter into this Agreement to utilize the
complimentary strengths of each party to maximize our mutual chances of success
in providing products and services to the Customer.
NOW THEREFORE, the Parties hereto agree as follows:
1. Intent. The Company intends to submit a proposal, or multiple proposals, as
the case may be (individually, a "Proposal", collectively the "Proposals"), to
ECT for providing various Products (as defined below) and related services. It
is intended that the Proposals shall be submitted to ECT in response to Customer
solicitations. The Company appoints ENSEC, and specifically Mr. Charles Nelson
Finkel to perform marketing services in Brazil for the sale of The Company's
Products and/or services to ECT, and if any Proposal for service is accepted,
the Company intends to name ENSEC S/A as a program subcontractor for the
following areas: (i) Installation and maintenance of Mail Automation equipment,
(ii) custom software development, as may be mutually agreed upon by the Parties,
and (iii) other efforts which are mutually agreed upon between the parties.
1.1 The Company agrees to recognize ENSEC's (and specifically ENSEC S/A's)
contribution in any Proposal submitted during the term hereof, and, if awarded a
prime contract resulting from such Proposal, will award a subcontract to ENSEC
S/A for the aforementioned specific areas of responsibility to the extent they
are included in the Company's prime contract, provided, however,
Page 1 of 6
Agreement: TA-021995/01
<PAGE>
that the award of such subcontract by The Company is acceptable to the Customer,
and subject to the negotiation of mutually acceptable terms and conditions.
1.2 Both The Company and ENSEC will be expending effort at their own expense
with a view toward developing the best approach to a given business opportunity.
In recognition therefore, both parties agree that the joint work product
resulting from our combined efforts which is unique to the Proposal(s)
contemplated by this Agreement will not knowingly be disclosed to anyone
competing for this same program until such time as the award has been made or
this Agreement is no longer in affect.
2. In addition to the foregoing, ENSEC will, for the duration of this Agreement,
perform the following activities (hereinafter referred to as "Marketing
Assistance") as required to cause sales on behalf of the Company.
2.1 As requested by the Company or otherwise in furtherance of the sale of
Company's Products, make sales calls to the Customer.
2.2 Exercise best efforts to establish and maintain with the Customer, an
attitude of good will, esteem, high regarded for both the Company and ENSEC.
2.3 Maintain Liaison with Customer and their appropriate authorities
including identification of key personnel, appointments, advice relating to
proposal and technical assistance and strategy during Proposal negotiations.
2.4 Provide advice to the Company in formulating market planning and
strategy; inform Company with respect to applicable policies and regulations,
business practices and restrictions, commercial expectations and social
customs.
2.5 Identify business opportunities for Products and technologies and
coordinate them with the Company such that bid decisions may be reached for
each opportunity/solicitation.
2.6 Assist the Company in developing bid strategies and submitting formal
Proposals in accordance with the Company's instructions, but not to sign
Proposals on the Company's behalf.
2.7 Provide the Company with such reports, sales advice, sales assistance,
facilities, services and representations as the Company may request in
connection with the signing and performance of contracts for the sale of
Company's products and services.
2.8 Exercise best efforts, skills, and facilities to promote the sale of
Products and services to ECT. Further, ENSEC will not promote the sale of
distribution of products which compete or are likely to compete with the
Customer's Products.
2.9 As requested by Company, interface with ECT and be knowledgeable of their
automation plan and program requirements, and report on these requirements
and programs on a monthly basis to Company.
2.10 During the Proposal preparation phase, ENSEC, shall provide assistance
to identify all expenses relating to freight forwarding, carrier fees and
local insurance, custom levies and import clearance fees, local taxes, bid
and performance bond requirements, and other like requirements related to
importation/exportation. In addition, ENSEC agrees to provide in a timely
fashion
Page 2 of 6
Agreement: TA-021995/01
<PAGE>
necessary liaison effort (if required) to draft and write that Portion of
the proposal within ENSEC's specific area of responsibility in accordance
with Section 1.0 of this Agreement, and to furnish The Company with all
information necessary for the submittal of the most responsive Proposal
practicable, consistent with good business practice.
2.11 During on-going programs, ENSEC, if required, will provide
administrative support and assistance to Company in obtaining licenses,
authorizations, certificates, language translation/interpretation services,
and other matters to facilitate Company's entry, travel, and work
performance in Brazil.
2.12 ENSEC will act as a liaison to ensure that Company is responsive to
Customer's needs, as well as providing in-country assistance, if required,
for training of users and coordination with Company.
3. Except for those specific expenses referenced under Section 2.10 of this
Agreement, as full compensation for all services and expenses incurred in
connection with this Agreement, Company agrees to pay ENSEC a Success Fee
calculated at a rate of eight percent (8%) of the cumulative net sales of
Company's Products, for all contracts which are secured by Company from Customer
from the date of inception of this Agreement and for a period of eighteen (18)
months from the date of inception of this Agreement or, in the event that such
term of this Agreement is extended, within one year after the expiration of this
Agreement, whichever is later. This term period may be extended by mutual
agreement within thirty (30) days written notice prior to the date of
expiration.
3.1 For the purposes of this Agreement, cumulative net sales is defined
as the total combined net sales that have been awarded via contract(s) from
the Customer to Company during the Term of this Agreement. In the event
that Company and ENSEC mutually determine that the aforementioned Success
Fees render Company's cost proposal to the Customer noncompetitive for a
given opportunity, the Parties may agree on revising the Success Fees to
improve such competitiveness. Such revised Success Fees shall be
incorporated into this Agreement via a Supplement Agreement which is signed
by the Parties.
3.2 Success Fee payments from Company to the ENSEC shall become payable,
on a pro rata basis, upon Company's receipt of payments from the Customer
or Customer's designated representative, including instances where
provisions of the contract of sale provide for progress payments or other
types of advance payments. The Company shall arrange for the payment to
ENSEC in U.S. Dollars at an address which is mutually agreed to between
ENSEC and Company.
3.3 In the event Customer fails to take delivery of the Products or
fails to make payment in full as required, then ENSEC shall not be entitled
to receive any Success Fee payments from Company. ENSEC agrees to return
any payments made as a result of progress payments or other types of
advance payments should Company be required to return such payments to the
Customer.
3.4 If Mr. Charles Nelson Finkel is no longer personally participating
in services of ENSEC that are indicated in this Agreement, for any reason,
Company may terminate this Agreement in accordance with Section 7. and
Company shall only be obligated to pay ENSEC Success Fees earned prior to
such date of termination.
Page 3 of 6
Agreement: TA-021995/01
<PAGE>
3.5 If the Success Fees are not approved by the relevant governmental
authorities in the applicable Customer country or if such expense is not an
allowable expense recoverable under Company's contract with the Customer,
Company shall not be obligated to make any such compensation.
3.6 It is understood that if any Customer order or sales contract should
be rescinded, revoked, voided, terminated, or repudiated by the Customer
for any reason, ENSEC shall not be entitled to a success Fee with respect
to such order or contract, except pro rata to the extent of any amount that
Company may have received and retained as payment from the Customer.
3.7 Any taxes, United States or foreign, attributable to payments made
pursuant to this Agreement shall be paid by ENSEC. ENSEC shall also be
responsible for registration of, or tax arising from this Agreement.
The foregoing provides the entire compensation and is in full discharge of any
and all liability in contract or otherwise with respect to all services rendered
by ENSEC pursuant to this Agreement. ENSEC S/A shall not be entitled to fees
pursuant to this Agreement except as may be specifically outlined in a Proposal
and mutually agreed to between the parties.
4. As used in this Agreement, "net sales" means the total invoice or contract
price actually received by Company from the purchaser for Company Products which
are sold, less separately stated interest or financing charges; taxes; customs
duties; freight; insurance, and any payment paid to ENSEC pursuant to section
2.10 of this Agreement. As used in this Agreement, Products refer explicitly to
mail automation equipment that is manufactured by The Company and does not
include services, equipment manufactured by third parties, research and
development efforts, system integration activities, or the like.
5. It is acknowledged that ENSEC is not an employee or agent of Company, and in
all matters hereunder, ENSEC is acting in the capacity of an independent
contractor. ENSEC is in no way a legal representative of Company, and may not
assume obligations of any kind, expressed or implied, on behalf of Company.
Company shall not incur any liabilities to any third parties by virtue of acts
of ENSEC.
6. It is understood that during the course of this agreement, it may be
necessary for either party to disclose confidential and/or proprietary
information to the other. Any such disclosures shall be made in accordance
with the confidentiality agreement that is indicated under Attachment 1.
7. ENSEC shall not disclose to any person during the term of this Agreement or
thereafter, without Company's prior written approval, any information relating
to Company business, designs, plans, methods, processes or affairs or third
party confidential information in Company's possession, which ENSEC may have
acquired or developed in connection with the performance of duties hereunder or
otherwise, or until that information shall have become public knowledge without
breach of this Agreement.
8. Representation and Warranties.
ENSEC represents, warrants, and agrees with Company that:
8.1 Concerning work under this Agreement, ENSEC shall not engage in any effort
on behalf of Company to lobby (i.e.,to influence or attempt to influence)
Congress, any Federal agency, any
Page 4 of 6
Agreement: TA-021995/01
<PAGE>
member of Congress, any Federal officer, or any Federal agency employee or
employee of a member of Congress, unless such activity is expressly approved in
advance by Company in writing. If such efforts are approved in writing, ENSEC
shall report the details to Company as required by the Truth in Lobbying Law
(i.e., Section 319 of the Interior Appropriations Act for Fiscal Year 1990;
Pub.L. 101-121).
8.2 ENSEC agrees to otherwise comply and do all things necessary for Company to
comply, with all applicable Federal, state and local laws, regulations
ordinances, including but not limited to the Foreign Corrupt Practices Act, the
regulations of the United States Department of Commerce relating to the Export
of Technical data and Federal Government security requirements for safeguarding
classified information, insofar as they relate to the services to be performed
under this Agreement.
8.3 In performing under this Agreement and in addition to the aforementioned
obligations, ENSEC agrees to comply with applicable laws, regulations, and to
not make or permit to be made any improper payments, or to engage in any
unlawful conduct. Furthermore, ENSEC agrees to report immediately to The Company
any attempt by others to solicit improper payments (bribes), gifts or other
unlawful conduct from ENSEC on behalf of Company.
8.4 ENSEC agrees not to assume any obligation which would interfere or be
inconsistent with performance of the Agreement, and that the services to be
performed under this Agreement shall not result in a conflict of interest,
including, but not limited to, any conflict prohibited by the laws or
regulations or the United States or other applicable jurisdictions. This
Agreement shall terminate immediately and all payments due shall be forfeited
if, in rendering services hereunder, improper payments are made, unlawful
conduct is engaged in, or any part of the remuneration payable under this
Agreement is used for an illegal purpose. Additionally, no remuneration shall be
payable if such payment is prohibited by any law, regulation or decision of the
Government of the United States, to include any agency thereof, or any foreign
government involved with the subject thereof.
8.5 ENSEC's identity, the amount of the remuneration to be paid, and the
details of this Agreement may be disclosed to the Government of the United
States and the government of any foreign country involved.
8.6 ENSEC represents and warrants that any information disclosed by it to
Company is not confidential or proprietary to it or to a third party including
but not limited to the Government (excluding any such information properly
transmitted and received under the explicit terms of a binding non-disclosure
agreement) and that its possession and/or use does not violate Government
regulations or public law or otherwise the integrity of the Company or Company
Customer's procurement process.
9. Term. The planned term of this Agreement is specified under Section 3. If
during this relationship, however, there is a significant change in the
requirements being addressed by the parties such that one or both no longer have
the capability to satisfactorily address such requirements, either party may
withdraw from this Agreement by advising the other party in writing not less
than ten (10) days prior to the date of withdrawal.
In the event of termination, Company shall be obligated to pay ENSEC, as
indicated under Section 3.0 of this Agreement, for contracts that are awarded or
are contemplated to be awarded by Customer prior to such date of termination.
However, if no sales have resulted have resulted from ENSEC's actions under this
Agreement or are contemplated to result from ENSEC actions under this Agreement,
Company shall not be obligated to pay ENSEC any compensation.
Page 5 of 6
Agreement: TA-021995/01
<PAGE>
10. The pertinent books and records of ENSEC, shall at all reasonable times be
available for inspection, audit, and/or reproduction by any authorized
representative of Company. Such records shall be available for inspection,
audit, and/or reproduction for a period of two (2) years following receipt by
the ENSEC of final payment under this Agreement. ENSEC shall have the right to
inspect, or have its duly authorized accountant inspect, all relevant financial
documents, books, and records relating to the sales of any Products subject to
Success Fees, as indicated under Section 3. of this Agreement.
11. The Parties will attempt to resolve any disputes through informal
concillation. In the event such concillation is not successful, the dispute
shall be submitted to binding arbitration. The arbitration hearings will be
conduced in Washington D.C. in accordance with the American Arbitration
Association's (AAA) Rules of Conciliation and Arbitration. Both Parties will
attempt to agree on an individual to arbitrate, but if no agreement is possible,
the AAA will suggest five possible choices and each side will be asked to
eliminate one, alternating, until a single individual is left. The party
eliminating first will be selected by a coin toss.
12. ENSEC shall not subcontract its services under this Agreement without prior
written consent from company.
This Agreement constitutes the entire and complete agreement between the parties
concerning the services described herein and pertains only to the parties which
are expressly described herein, and does not pertain to other corporate entities
of either party, including subsidiaries, parent corporations, affiliates or the
like. This Agreement supersedes all prior and collateral communications and
understandings between the Parties with respect to the subject matter hereof
IN WITNESS HEREOF, the Parties hereto have caused this Agreement to be duly
executed in duplicate, each duplicate to serve as an original as of the date and
year first written above.
/s/ Michael R. Swift /s/ Charles N. Finkel
- ------------------------------ --------------------------------------------
Michael R. Swift Mr. Charles N. Finkel, President and CEO
Bell and Howell Ensec Inc.
Postal Systems Inc.
Page 6 of 6
Agreement: TA-021995/01
<PAGE>
CARD ACCESS SYSTEMS AGREEMENT
BETWEEN
ELECTRONIC DATA SYSTEMS CORPORATION
AND
ENSEC, INC.
<PAGE>
TABLE OF CONTENTS
FOR
CARD ACCESS SYSTEMS AGREEMENT
<TABLE>
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
<S> <C> <C>
1.1 Agreement and Term...................................................1
1.2 Certain Definitions..................................................1
ARTICLE II. PURCHASE ORDERS
2.1 Preparation of Purchase Orders.......................................2
2.2 Issuance and Acceptance of Purchase Orders...........................2
2.3 Purchase Order Alterations...........................................3
2.4 Evaluation Purchase Orders...........................................3
2.5 Cancellation of Purchase Orders......................................3
ARTICLE III. PROVISION OF PRODUCTS AND SERVICES
3.1 Transportation of Products...........................................3
3.2 Title and Risk of Loss...............................................3
3.3 Installation of Systems..............................................3
3.4 Right to Cancel for Delays...........................................3
3.5 Services in General..................................................4
3.6 Further Acts.........................................................5
3.7 Time of Performance..................................................5
3.8 EDS Business Practices...............................................5
3.9 EDS Travel Guidelines................................................5
3.10 Hardware Support and Maintenance Services...........................5
3.11 Support, Maintenance, and Spare Parts Availability..................5
3.12 Hardware Diagnostic Support.........................................5
3.13 Duplication of Documentation........................................5
ARTICLE IV. ACCEPTANCE CRITERIA
4.1 Acceptance of Hardware...............................................5
4.2 Acceptance of Licensed Software......................................6
4.3 Acceptance of Systems................................................6
ARTICLE V. PROVISION OF LICENSED SOFTWARE
5.1 Grant of License.....................................................6
5.2 Ownership of Licensed Software and Modifications.....................6
5.3 Proprietary Markings.................................................7
5.4 Non-Disclosure.......................................................7
5.5 Licensed Software Support Services...................................7
ARTICLE VI. WARRANTIES, INDEMNITIES, AND LIABILITIES
6.1 Warranty.............................................................8
6.2 Proprietary Rights and Indemnification...............................8
6.3 Cross Indemnification................................................9
6.4 Limitation of Liability..............................................9
6.5 Insurance............................................................9
6.6 Survival of Article VI...............................................10
ARTICLE VII. PAYMENTS TO SUPPLIER
7.1 Charges, Prices, and Fees for Products and Services..................10
7.2 Modifications to Charges.............................................10
7.3 Auto Payment.........................................................10
7.4 Taxes................................................................11
ARTICLE VIII. TERMINATION
8.1 Termination for Cause................................................11
8.2 Termination for Insolvency or Bankruptcy.............................12
8.3 Termination for Non-Payment..........................................12
8.4 Termination of Software License......................................12
8.5 Rights Upon Termination..............................................12
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IX. MISCELLANEOUS
<S> <C> <C>
9.1 Binding Nature, Assignment, and Subcontracting...............12
9.2 Counterparts.................................................12
9.3 Headings.....................................................12
9.4 Relationship of Parties......................................12
9.5 Confidentiality..............................................13
9.6 Media Releases...............................................13
9.7 Dispute Resolution...........................................13
9.8 Compliance with Laws.........................................13
9.9 Notices......................................................14
9.10 Force Majeure...............................................14
9.11 Severability................................................15
9.12 Waiver......................................................15
9.13 Remedies....................................................15
9.14 Survival of Terms...........................................15
9.15 Nonexclusive Market and Purchase Rights.....................15
9.16 GOVERNING LAW...............................................15
9.17 Entire Agreement............................................16
</TABLE>
ii
<PAGE>
LIST OF EXHIBITS
EXHIBIT A
EDS BUSINESS PRACTICES
----------------------
EXHIBIT B
CHARGES, PRICES, AND FEES
-------------------------
EXHIBIT C
HARDWARE SUPPORT SERVICES TERMS AND CONDITIONS
----------------------------------------------
EXHIBIT D
EDS TRAVEL AND EXPENSE GUIDELINES
---------------------------------
EXHIBIT E
CARD ACCESS SYSTEMS SPECIFICATIONS
----------------------------------
iii
<PAGE>
Exhibit 10.4
CARD ACCESS SYSTEMS AGREEMENT
-----------------------------
THIS CARD ACCESS SYSTEMS AGREEMENT (the "Agreement"), dated September 1,
1995 (the "Effective Date"), is between ENSEC, INC., a Florida corporation
("ENSEC"), and ELECTRONIC DATA SYSTEMS CORPORATION, a Texas corporation
("EDS").
W I T N E S S E T H :
WHEREAS, EDS desires to have the right to obtain products and services from
ENSEC based up on the "request for proposal" dated December 7, 1994; and
WHEREAS, ENSEC is willing to provide products and services to EDS in
accordance with the "response to the request for proposal" dated February 10,
1995 and in accordance with the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration received and to be received, ENSEC and EDS agree as
follows:
ARTICLE I. AGREEMENT, TERM, AND DEFINITIONS
-------------------------------------------
1.1 Agreement and Term. The parties agree that the terms and conditions of
------------------
this Agreement apply to the provision of products and services to EDS by
ENSEC. The term of this Agreement commences on the Effective Date and the
Agreement shall continue to be in effect until terminated by either party
as set forth in this Agreement.
1.2 Certain Definitions. The following definitions apply to this Agreement:
-------------------
(a) "Applicable Specifications" means the functional, performance,
operational, compatibility, and other specifications or
characteristics of a Product described in applicable Documentation
and such other specifications or characteristics of a Product or
System as set forth in Exhibit E.
(b) "Customization" means required changes to the Licensed Software
requested by EDS and agreed to in writing by both parties.
(c) "Documentation" means user guides, operating manuals, education
materials, product descriptions and specifications, technical manuals,
supporting materials, and other information relating to the Products
or used in conjunction with the Services, whether distributed in
print, magnetic, electronic, or video format, in effect as of the date
(i) a Product is shipped to or is accepted by EDS, as applicable, or
(ii) the Service to provided to EDS.
(d) "Employee" means those employees, agents, subcontractors, consultants,
and representatives of ENSEC provided or to be provided by ENSEC to
perform Services pursuant to this Agreement.
(e) "Hardware" means equipment and spare parts intended for the input,
output, storage, manipulation, communication, reproduction,
transmission, and retrieval of information, images and data, whether
in print, magnetic, electronic, voice, or video format, provided or to
be provided by ENSEC pursuant to this Agreement.
(f) "Licensed Software" means computer programs in object code format
provided or to be provided by ENSEC pursuant to this Agreement. The
definition of Licensed Software also includes any enhancements,
translations, modifications, updates, releases, or other changes to
Licensed Software which are provided or to be provided as part of
1
<PAGE>
ENSEC's performance of warranty Service obligations or pre-paid
support Services pursuant to this Agreement.
(g) "Location" means any building or series of buildings owned or leased
by EDS.
(h) "Products" means, individually or collectively as appropriate,
Hardware, Licensed Software, Documentation, supplies, accessories,
and other commodities, provided or to be provided by ENSEC pursuant
to this Agreement.
(i) "Services" includes, but is not limited to, installations, education,
acceptance testing, support, maintenance, and warranty provided or to
be provided by ENSEC pursuant to this Agreement.
(j) "Systems" means collectively the Hardware and Licensed Software
provided to be provided by ENSEC pursuant to this Agreement and as set
forth in Exhibit E.
(k) "Warranty Period" means the period specified in Section 6.1(e) of this
Agreement during which the ENSEC is obligated to perform is warranty
obligations.
ARTICLE II. PURCHASE ORDERS
---------------------------
2.1 Preparation of Purchase Orders. ENSEC agrees that products and services
------------------------------
which ENSEC generally makes available to other customers shall be made
available to EDS under the terms and conditions of this Agreement. EDS may
request information about products and services in order to prepare
purchase orders and ENSEC shall promptly provide to EDS, at no charge,
sufficiently detailed information which is responsive to EDS' request. From
time to time and/or at EDS' request, ENSEC shall provide written
information to EDS about products and services, and options related
thereto, available or to be available from ENSEC.
2.2 Issuance and Acceptance of Purchase Orders. References in this Section to
------------------------------------------
purchase orders also apply to alterations to Purchase Orders (as later
defined in this Section). The following governs the issuance and acceptance
of purchase orders under this Agreement:
(a) EDS may issue to ENSEC written purchase orders identifying the
Products and Services EDS desires to obtain from ENSEC. Each purchase
order may include other terms and conditions applicable to the
Products and Services orders; such other terms shall be consistent
with the terms and conditions of this Agreement, or shall be necessary
to place a purchase order, such as billing and shipping information,
required delivery dates, installation locations, and Charges (as later
defined in this Agreement).
(b) ENSEC shall promptly accept purchase orders by providing to EDS a
written or an oral acceptance of such purchase order, or by commencing
performance pursuant to such order. ENSEC shall accept purchase orders
which do not establish new or conflicting terms and conditions from
those set forth in this Agreement. ENSEC shall also accept purchase
orders incorporation terms and conditions which have been separately
agreed upon in writing by the parties.
(c) ENSEC may reject a purchase order which does not meet the conditions
described in subsection (b) above by promptly providing to EDS a
written explanation of the reasons for such rejection. ENSEC shall
accept an alteration to the originally issued purchased order if such
alternation remedies the items set forth in ENSEC's written rejection.
2
<PAGE>
Purchase orders accepted in accordance with this Section are referred to as
"Purchase Orders." EDS shall have no responsibility or liability for
Products or Services provided without a Purchase Order.
2.3 Purchase Order Alterations. EDS may issue an alteration to a Purchase Order
--------------------------
in order to,, without limitation, (i) change a location for delivery, (ii)
modify the quantity or type of Products and Services to be delivered or
performed, (iii) implement any change or modification as required by or
permitted in this Agreement, (iv) correct typographical or clerical errors,
or (v) order Products or Services which are of superior quality, or are
enhancements to or are new releases or new options of the Products or
Services set forth in the Purchase Order.
2.4 Evaluation Purchase Orders. EDS may issue a purchase order to ENSEC for
--------------------------
Product evaluation by EDS at no charge for an evaluation period agreed upon
by the parties and for a certain number of evaluations as deemed reasonable
by ENSEC. ENSEC shall provide the Products listed in the evaluation
Purchase Order to EDS and shall pay all related transportation and
insurance costs. Licensed Software provided pursuant to an evaluation
Purchase Order shall be protected by EDS in accordance with the non-
disclosure requirements specified in this Agreement which are applicable to
Licensed Software. At the conclusion of the evaluation period, EDS shall
have the option to acquire such Products pursuant to this Agreement or to
return such Products to ENSEC at EDS' expense without obligation to ENSEC.
2.5 Cancellation of Purchase Orders. Except as otherwise agreed upon by the
-------------------------------
parties, EDS may cancel all or a portion of a Purchase Order relating to
Product(s), without charge or penalty up to thirty (30) calendar days prior
to the scheduled delivery date of the affected Product(s). In the event EDS
cancels a Purchase Order or any portion thereof within thirty (30) calendar
days of the scheduled delivery date, as ENSEC's sole and exclusive remedy
and EDs' sole liability, EDS shall reimburse ENSEC the direct, verifiable,
non-recoverable expenses incurred by ENSEC as a result of such
cancellation. Purchase Orders, or portions thereof, for Services may be
cancelled as specified in the applicable sections of this Agreement.
ARTICLE III. PROVISION OF PRODUCTS AND SERVICES
-----------------------------------------------
3.1 Transportation of Products. ENSEC shall deliver Products to EDS on the
--------------------------
delivery date set forth in the applicable Purchase Order or as otherwise
agreed upon by the parties. Charges for rigging, drayage, required packing,
and transportation of Products shall be paid by ENSEC and re-billed to EDS.
The method and mode of all required rigging, drayage, packing, and
transportation shall be those selected by ENSEC.
3.2 Title and Risk of Loss. Title to Hardware shall pass to EDS upon receipt of
----------------------
the Hardware by EDS. All risk of loss of, or damage to, Products shall be
borne by ENSEC until receipt of delivery of such Products by EDS. ENSEC
agrees to insure Products until receipt of delivery of such Products by
EDS. If loss to or damage of Products occurs prior to receipt of delivery
by EDS, ENSEC shall immediately provide a replacement item or, if Products
are not immediately replaceable, ENSEC shall give EDS highest priority for
the provision of a replacement Product.
3.3 Installation of Systems. ENSEC shall install the Systems in good working
-----------------------
order at the designated Locations on or before the installation date set
forth in the applicable Purchase Order or as otherwise agreed upon by the
parties. Installation Services shall include performance of ENSEC's usual
and customary diagnostic tests to determine the operational status of the
Systems.
3.4 Right to Cancel for Delays. In the event of a delay in delivery of all or
--------------------------
any portion of Products listed on a Purchase Order or Products listed on a
3
<PAGE>
series of Purchase Orders which relate to a specific project or request for
proposal (the Products listed on such series of Purchase Orders referred to
as "Related Products"), or in the event of a delay in the performance of
Services which is not excused in this Agreement, EDS may cancel without
charge all or any portion of the Products, Related Products or Services for
which delivery or performance has been so delayed. If, in EDS' opinion, the
delivered Products or Related Products are not operable without the
remaining undelivered Products or Related Products, EDS may, at ENSEC's
expense, return any delivered Products or Related Products to ENSEC. EDS
shall not be liable for any expenses incurred by ENSEC for canceled,
undelivered, or returned Products or Related Products. EDS shall receive a
refund of all amounts paid to ENSEC with respect to the canceled and/or
returned Products, Related Products and Services.
3.5 Services in General. In connection with the performance of any Services
-------------------
pursuant to this Agreement.
(a) Unless a specific number of Employees is set forth in the governing
Purchase Order, ENSEC warrants it will provide sufficient Employees to
complete the Services ordered within the applicable time frames
established pursuant to this Agreement or as set forth in such
Purchase Order.
(b) ENSEC warrants that specific Employees requested by EDS shall have
sufficient skill, knowledge, and training to perform Services and that
the Services shall be performed in a professional and workmanlike
manner.
(c) Employees performing Services in the United States must be United
States citizens or lawfully admitted in the United States for
permanent residence or lawfully admitted in the United States holding
a visa authorizing the performance of Services on behalf of ENSEC.
(d) ENSEC warrants that all Employees utilized by ENSEC in performing
Services are under a written obligation to ENSEC requiring Employee:
(i) to maintain the confidentiality of information of ENSEC's
customers, and (ii) if such Employee is not a full-time employee whose
work is considered a "work for hire" under Section 101 of the United
States Copyright Code, to assign all of Employee's right, title, and
interest to ENSEC in and to work product which is developed, prepared,
conceived, made, or suggested by such Employee while providing
Services on behalf of ENSEC.
(e) ENSEC shall require Employees providing Services at an EDS location to
comply with applicable EDS security and safety regulations and
policies.
(f) ENSEC shall provide for and pay the compensation of Employees and
shall pay all taxes, contributions, and benefits (such as, but not
limited to, workers' compensation benefits) which an employer is
required to pay relating to the employment of employees. EDS shall not
be liable to ENSEC or to any Employee for ENSEC's failure to perform
its compensation, benefit, or tax obligations. ENSEC shall indemnify,
defend and hold EDS harmless from and against all such taxes,
contributions and benefits and will comply with all associated
governmental regulations, including the filing of all necessary
reports and returns.
(g) ENSEC shall allow EDS or its designated third party to conduct a
background investigation and drug screening ("Investigation") of any
Employee performing Services in the United States, Canada and Mexico
if EDS intends to provide the Employee with unescorted access to an
EDS location. In connection with such Investigation EDS shall provide
to ENSEC a standard form authorizing the Investigation and ENSEC shall
4
<PAGE>
promptly secure the completion of such form by the Employee. Any and
all information obtained in connection with an Investigation of any
Employee or acquired or made known during such Investigation shall be
deemed confidential and shall not be revealed to persons without a
bona fide need to know. If, after reviewing the results of an
Investigation, EDS elects not to accept an Employee for performance of
Services under this Agreement, ENSEC agrees to not utilize such
Employee in the performance of Services. EDS shall waive the
Investigation for an Employee if ENSEC provides EDS with written
confirmation that: (i) ENSEC has conducted a background and drug
screening investigation of such Employee with satisfactory results, or
(ii) the Employee has been employed with ENSEC for at least five (5)
years in good standing.
3.6 Further Acts. During and subsequent to the term of this Agreement, ENSEC
------------
shall do, or cause to be done, all such further acts and shall execute,
acknowledge, and deliver, or cause to be executed, acknowledged, and
delivered, any and all further documentation or assignments as EDS may
reasonably require to evidence EDS' right to use the Products.
3.7 Time of Performance. Time is expressly made of the essence with respect to
-------------------
each and every term and provision of this Article.
3.8 EDS Business Practices. ENSEC shall comply with the EDS Business Practices
----------------------
set forth in Exhibit A.
3.9 EDS Travel Guidelines. EDS shall reimburse ENSEC for reasonable expenses
---------------------
incurred by Employees in the performance of Services which are related to
travel, lodging and meals; such expenses shall be reimbursed in accordance
with EDS's guidelines for its own employees as set forth in Exhibit D.
3.10 Hardware Support and Maintenance Services. Hardware support and maintenance
-----------------------------------------
Services provided or to be provided by ENSEC pursuant to this Agreement
shall also be subject to the terms and conditions set forth in Exhibit C.
3.11 Support, Maintenance, and Spare Parts Availability. ENSEC warrants and
--------------------------------------------------
represents that necessary and appropriate support and maintenance, spare
parts, and engineering changes shall be available for the Hardware for a
period of five (5) years from the date ENSEC discontinues manufacturing the
Hardware. EDS shall be entitled to purchase such support, maintenance, and
spare parts at the then current or other commercially reasonable charges
therefor.
3.12 Hardware Diagnostic Support. ENSEC shall provide to EDS, at no additional
---------------------------
charge, sufficient training, Documentation, and available maintenance aids
and manuals, relating to the support and maintenance of Hardware, in order
for EDS to perform diagnostics and troubleshooting with respect to
malfunctioning Hardware.
3.13 Duplication of Documentation. EDS may duplicate Documentation, at no
----------------------------
additional charge, for EDS' use or for use by a customer of EDS in
connection with the provision of Products so long as all required
proprietary marking are retained on all duplicated copies. ENSEC shall
provide such Documentation in paper or electronic format as requested by
EDS.
ARTICLE IV. ACCEPTANCE CRITERIA
-------------------------------
4.1 Acceptance of Hardware. EDS shall accept Hardware on the date (the
----------------------
"Acceptance Date") when necessary Documentation has been received and such
Hardware performs in accordance with and/or conforms to its Applicable
Specifications. In the event the Hardware does not so perform and/or
conform, EDS may (i) continue to test the Hardware with the assistance of
5
<PAGE>
ENSEC, (ii) permit ENSEC to repair or replace the item of Hardware at no
additional expense to EDS, or (iii) return the Hardware and related
Documentation to ENSEC, at ENSEC's expense and without liability to ENSEC,
and any amounts paid by EDS for the Hardware and Documentation shall be
refunded by ENSEC to EDS. Acceptance of Hardware does not waive any
warranty rights provided in this Agreement for such Hardware.
4.2 Acceptance of Licensed Software. EDS shall accept delivered copy(ies) of
-------------------------------
Licensed Software on the date (the "Acceptance Date") when all necessary
Documentation has been received and the Licensed Software performs in
accordance with and/or conforms to its Applicable Specifications. In the
event Licensed Software does not so perform, EDS may (i) continue to test
the Licensed Software with the assistance of ENSEC, (ii) permit ENSEC to
repair or replace the Licensed Software at no additional expense to EDS, or
(iii) return the Licensed Software and Documentation to ENSEC, at ENSEC's
expense and without liability to ENSEC, and any amounts paid by EDS for the
Licensed Software and Documentation shall be refunded by ENSEC to EDS.
Acceptance of Licensed Software does not waive any warranty rights provided
in this Agreement for the Licensed Software.
4.3 Acceptance of Systems. EDS shall accept the Systems on the date (the
---------------------
"Acceptance Date") when all necessary Documentation has been received and
the Systems perform in accordance with and/or conform to the EDS
specifications set forth in the implementation schedule. In the event the
Systems do not so perform, EDS may (i) continue to test the Systems with
the assistance of ENSEC, (ii) permit ENSEC to repair or replace the Systems
at no additional expense to EDS, or (iii) return the Systems and
Documentation to ENSEC, at ENSEC's expense and without liability to ENSEC,
and any amounts paid by EDS for the Systems and Documentation shall be
refunded by ENSEC to EDS.
ARTICLE V. PROVISION OF LICENSED SOFTWARE
-----------------------------------------
5.1 Grant of License. For each item of Licensed Software received by EDS, ENSEC
----------------
grants EDS and EDS has a nonexclusive, irrevocable, perpetual license to
use, execute, store, and display the object code version of the Licensed
Software in accordance with the terms and conditions of this Agreement.
(a) A "CPU Software License" permits EDS to use the Licensed Software on
any single computer (which may include more than one central
processing unit) or item of equipment ("CPU") and to copy the Licensed
Software as necessary for archival, maintenance, disaster recovery
testing, or back-up purposes. If EDS desires to run parallel
operations in the process of conducting a disaster recovery test or
transferring operations from one CPU to another CPU, EDS may operate
the Licensed Software on two (2) CPUs for the period of time
reasonably necessary to complete the disaster recovery test or
transfer. EDS shall not be permitted to sublicense the Licensed
Software to any third party.
(b) Any License granted under this Agreement permits EDS to use the
Licensed Software for its own internal purposes including, but not
limited to, performing disaster recovery, disaster testing, and backup
as EDS deems necessary. EDS shall not be permitted to sublicense any
License granted hereunder.
5.2 Ownership of Licensed Software and Modifications. The Licensed Software
------------------------------------------------
and all Customization to the Licensed Software shall be and remain the
property of ENSEC or third parties which have granted ENSEC the right to
license the Licensed Software and EDS shall have no rights or interests
therein except as set forth in this Agreement. EDS shall be entitled to
modify the Licensed Software and to develop interfaces to the Licensed
Software. All modifications of and interfaces to the Licensed Software
developed by EDS
6
<PAGE>
shall be and remain the property of EDS, and ENSEC and its Employees shall
have no rights or interests therein.
5.3 Proprietary Marking. EDS shall not remove or destroy any proprietary
-------------------
markings or proprietary legends placed upon or contained within the
Licensed Software.
5.4 Non-Disclosure. During the term of a License, EDS will treat the Licensed
--------------
Software with the same degree of care and confidentiality which EDS
provides for similar information belonging to EDS which EDS does not wish
disclosed to the public, but not less than reasonable care. This provision
shall not apply to Licensed Software, or any portion thereof, which is (i)
already known by EDS without an obligation of confidentiality, (ii)
publicly known or becomes publicly known through no unauthorized act of
EDS, (iii) rightfully received from a third party without obligation of
confidentiality, (iv) disclosed without similar restrictions by ENSEC to a
third party, (v) approved by ENSEC for disclosure, or (vi) required to be
disclosed pursuant to a requirement of a governmental agency or law so long
as EDS provides ENSEC with timely prior written notice of such requirement.
It will not be a violation of this Section if (A) EDS provides access to
and the use of the Licensed Software to third parties providing services to
EDS so long as EDS secures execution by such third parties of a
confidentiality agreement as would normally be required by EDS, or (E) EDS
independently develops software which is similar to License Software, so
long as such independent development is substantiated by written
documentation.
5.5 Licensed Software Support Services. The support Services set forth below
----------------------------------
for the Licensed Software shall be provided by ENSEC to EDS during the
Warranty Period at no charge to EDS. Thereafter, such support Services
shall be provided by ENSEC, upon EDS' request at the applicable Charges set
forth in Exhibit B. EDS may discontinue such support Services at any time
by providing thirty (30) days' advance written notice ENSEC.
(a) ENSEC shall promptly notify EDS of any defects, errors or
malfunctions ("Defects") in the Licensed Software or Documentation
of which ENSEC becomes aware from any source and shall promptly
provide to EDS modified versions of Licensed Software or
Documentation which incorporate corrections of any Defects
("Corrections"). ENSEC shall also provide to EDS all operational and
support assistance necessary to cause License Software to perform in
accordance with its Applicable Specifications and remedial support
designed to provides a by-pass or temporary fix to a Defect until
the Defect can be permanently corrected. ENSEC shall use its best
efforts to respond to requests from EDS for Licensed Software
support in a manner and time frame which are reasonably responsive
considering the nature and severity of the Defect which gave rise to
such request.
(b) ENSEC shall provide to EDS all upgrades, modifications,
improvements, enhancements, extensions, and other changes to
Licensed Software developed by ENSEC ("Improvements") and all
updates to the Licensed Software necessary to cause the Licensed
Software to operate under versions or releases of the Licensed
Software's current operating system(s) ("Updates") which are
generally made available to other customers of ENSEC. EDS shall have
the option to implement any Improvement or Update and any failure by
EDS to so implement shall not affect EDS' right to continue to
receive support and maintenance Services.
(c) ENSEC shall provide toll-free telephone hot-line support between
8:00 a.m. and 5:00 p.m. Eastern Time. In addition, ENSEC shall
provides to EDS, at no additional charge, telephone hot-line support
for up to twenty-four (24) hours per day, seven (7) days per week.
Such additional "24 by 7" support shall provides via a special
"telephone beeper" number.
7
<PAGE>
(d) ENSEC shall provide to EDS any revisions to the existing Documentation
developed for the License Software or necessary to reflect all
Corrections, Improvements, or Updates.
(e) ENSEC shall make Licensed Software training available to persons
designated by EDS to the extent agreed upon by the parties.
ARTICLE VI. WARRANTIES, INDEMNITIES, AND LIABILITIES
----------------------------------------------------
6.1 Warranty. ENSEC represents and warrants that:
--------
(a) ENSEC has not and will not enter into agreements or commitments which
are inconsistent with or conflict with the right granted to EDS in
this Agreement;
(b) The Products are and shall be free and clear of all liens and
encumbrances, and EDS shall be entitled to use the Products without
disturbance;
(c) No portion of the Products contain, at the time of delivery, any "back
door," "time bomb," "Trojan horse," "worm," "drop dead device,"
"virus," or other computer software routines or hardware components
designed to (i) permit access or use of either the Products or EDS'
computer systems by ENSEC or a third party not authorized by this
Agreement, (ii) disable, damage or erase the Products or data, or
(iii) perform any other such actions;
(d) The Licensed Software and the design thereof shall not contain
preprogrammed preventative routines or similar devices which prevent
EDS from exercising the right set forth in Article V of this Agreement
or from utilizing the Licensed Software for the purpose for which they
were designed;
(e) Each Product (i) shall be new and shall be free from defects in
manufacture, materials, and design, (ii) shall be manufactured in a
good and workmanlike manner using a skilled staff fully qualified to
perform their respective duties, and (iii) shall function properly
under ordinary use and operate in conformance with their Applicable
Specifications and Documentation from the date receipt until the date
one (1) year from the applicable Acceptance Date of such Product.
(f) Each System (i) shall be free from defects in manufacture, materials,
and design, (ii) shall be manufactured in a good and workmanlike
manner using a skilled staff fully qualified to perform their
respective duties, and (iii) shall function properly under ordinary
use and operate in conformance with its Applicable Specifications and
Documentation from the date of receipt until the date one (1) year
from the applicable Acceptance Date of such System.
During the Warranty Period, ENSEC will provide warranty Service to EDS at
no additional cost and will include all Services, parts, or replacement
Products necessary to enable ENSEC to comply with the warranties set forth
in this Agreement. ENSEC shall pass through to EDS any manufacturers'
warranties which ENSEC receives on the Products and, EDS' request, ENSEC
shall enforce such warranties on EDS' behalf.
6.2 Proprietary Rights Indemnification. ENSEC represents and warrants that (i)
----------------------------------
at the time of delivery to EDS, no Product provided under this Agreement is
the subject of any litigation ("Litigation"), and (ii) ENSEC has all right,
title, ownership interest, and/or marketing rights necessary to provide the
Products to EDS and that each License, the Products and their sale,
license,
8
<PAGE>
and use hereunder do not and shall not directly or indirectly violate or
infringe upon any copyright, patent, trade secret, or other proprietary or
intellectual property right of any third party or contribute to such
violation or infringement ("Infringement"). ENSEC shall indemnify and hold
EDS and its respective successors, officers, directors, employees, and
agents harmless from and against any and all actions, claims, losses,
damages, liabilities, awards, costs, expenses (including legal fees)
resulting from or arising out of any Litigation, any breach or claimed
breach of the foregoing warranties, or which is based on a claim of an
Infringement and ENSEC shall defend and settle, at its expense, all suits
or proceedings arising therefrom. EDS shall inform ENSEC of any such suit
or proceeding against EDS and shall have the right to participate in the
defense of any such suit or proceeding at its expense and through counsel
of its choosing. ENSEC shall notify EDS of any actions, claims, or suits
against ENSEC based on an alleged Infringement of any party's intellectual
property rights in and to the Products. In the event an injunction is
sought or obtained against use of a Product or in EDS' opinion is likely to
be sought or obtained, ENSEC shall promptly, at its option and expense,
either (A) procure for EDS and Product end users the right to continue to
use the infringing Product as set forth in this Agreement, or (B) replace
or modify the infringing Product to make its use non-infringing while being
capable of performing the same function without degradation of performance.
6.3 Cross Indemnification. In the event any act or omission of a party or its
---------------------
employees, servants, agents, or representatives causes or results in (i)
damage to or destruction of property of the other party or third parties,
and/or (ii) death or injury to persons including, but not limited to,
employees or invitees of either party, then such party shall indemnify,
defend, and hold the other party harmless from and against any and all
claims, actions, damages, demands, liabilities, costs, and expenses,
including reasonable attorneys' fees and expenses, resulting therefrom. The
indemnifying party shall pay or reimburse the other party promptly for all
such damage, destruction, death, or injury.
6.4 Limitation of Liability. Neither party shall be liable to the other
-----------------------
pursuant to this Agreement for any amounts representing loss of profits,
loss of business or indirect, consequential, exemplary, or punitive damages
of the other party. The foregoing shall not limit the indemnification,
defense and hold harmless obligations set forth in this Agreement.
6.5 Insurance. During the term of this Agreement, ENSEC shall at all times
---------
maintain at its own cost the following minimum insurance coverage with a
financially solvent insurance company and, upon request of EDS, shall
furnish certificates evidencing the following insurance: (i) workers'
compensation as required by the laws of the state where Services are to be
performed; (ii) employer's liability insurance at a limit of not less than
One Hundred Thousand Dollars ($100,000) each accident, Five Hundred
Thousand Dollars ($500,000) disease policy limit, One Hundred Thousand
Dollars ($100,000) each employee disease limit; (iii) commercial general
liability insurance (occurrence basis form and automobile liability
coverage) with a minimum of One Million Dollars ($1,000,000) combined
single limit per occurrence, insuring ENSEC from claims for personal injury
(including bodily injury and death) and property damage which may arise
from or in connection with (A) the performance of Services or from the
provision of Products hereunder, or (B) from or out or any negligent act or
--
omission of ENSEC, its officers, directors, agents or employees; in
connection with such commercial general liability and automobile liability
policies. ENSEC's insurer shall be required by ENSEC to notify EDS of any
material change or cancellation of these coverages before expiration of
these policies.
In the event ENSEC fails to provide the required continuous insurance
coverage, EDS may charge ENSEC and ENSEC shall pay EDS, EDS' actual expense
incurred in purchasing similar protection or a reasonable estimate thereof
and the value of any claims, actions, damages, liabilities, costs, and
9
<PAGE>
expenses paid by EDS which would not have been paid by EDS if ENSEC had
complied with the requirements of this Section.
6.6 Survival of Article VI. The provisions of this Article VI shall survive
----------------------
the terms or termination of this Agreement for any reason.
ARTICLE VII. PAYMENTS TO SUPPLIER
----------------------------------
7.1 Charges, Prices and Fees for Products and Services. Charges, prices, and
--------------------------------------------------
fees ("Charges") and discounts, if any, for Products and Services shall be
determined as set forth in Exhibit B, in a Purchase Order, or as otherwise
agreed upon by the parties unless modified as set forth in this Agreement.
Upon EDS' request, ENSEC shall: (i) provide to EDS current copies of
ENSEC's standard published prices, and (ii) records which substantiate that
EDS has received the Charges and discounts to which EDS is entitled to
under this Agreement. In no event shall Charges exceed ENSEC's then current
established charges, prices, and fees. If promotional discounts or programs
are extended to other customers, dealers, or distributors of ENSEC, EDS
shall be entitled to participate in such promotional discounts or programs.
All purchases which utilize any such discounts shall be deemed for all
purposes including, without limitation, for purposes of calculating
accumulated purchases and any discounts hereunder, to have been purchased
or licensed under this Agreement.
7.2 Modifications to Charges. Where a change in an established Charge for
------------------------
Products or Services is provided for in this Agreement, ENSEC shall give to
EDS at least ninety (90) days' prior written notice of such change.
(a) Any increase in a Charge shall not occur during the first twelve (12)
months of this Agreement, during the term of the applicable Purchase
Order or during the specified period for performance of Services,
whichever period is longer. Thereafter, any increase in a Charge shall
(i) not occur unless a minimum of twelve (12) months has elapsed since
the effective date of the previously established Charge, and (ii) not
exceed five percent (5%) of such Charge.
(b) All purchase orders issued by EDS prior to the end of the required
notice period will be honored at the then current Charges so long as
the scheduled delivery date of the applicable Products or Services is
within ninety (90) days after the effective date of the increase.
(c) If ENSEC's established Charge, less any applicable discount or
promotion, on the scheduled delivery date is lower than the
established Charge for such Product or Service stated in the
applicable Purchase Order, then EDS shall be entitled to obtain such
Product or Service at such Lower Charge, less any applicable discount
or promotion.
7.3 Auto Payment. This Section shall apply to Purchase Orders identified as
------------
being subject to automatic payment by EDS.
(a) Single Payment for Recurring Charges. All Charges which are due and
------------------------------------
payable on a monthly, annual or other periodic basis for Products and
Services ("Recurring Charges") shall be paid by EDS on the same date
of the month for each month that such Charges are due (the "Remit
Date"). The initial payment for a Recurring Charge shall be made on
the first Remit Date after the Applicable Event provided that such
Applicable Event occurs at least five (5) days prior to the first
Remit Date. An "Applicable Event" is the event set forth in a Purchase
Order that initiates payment of Charges (such as the installation,
receipt, or acceptance of the Product; or the commencement or
completion of Services; or as set forth in Exhibit B). If the
Applicable Event occurs less than five (5) days prior to the
10
<PAGE>
first Remit Date, the initial payment for such Recurring Charge shall
be made on the following Remit Date, and EDS shall not be subject to
interest or penalties as a result of such late payment.
(b) Payment for Other Charges. Except for Recurring Charges, or unless
-------------------------
otherwise agreed to by the parties in writing, all payments due ENSEC
for Products and Services shall be paid within thirty (30) days after
the date of the Applicable Event.
(c) Invoices Required Under Auto Payment. ENSEC must send EDS an invoice
------------------------------------
to receive payment for any amounts due for any Charges which are
payable and have not been identified on the applicable Purchase Order
which is subject to automatic payment.
(d) Reconciliation. From time to time, at either party's request, the
--------------
other party shall assist with the reconciliation of the payments made
by EDS to ENSEC.
7.4 Taxes.
-----
(a) EDS shall pay or reimburse ENSEC, where EDS is liable per applicable
tax statute, amounts equal to taxes based upon EDS' purchases of
Products or Services pursuant to this Agreement, including federal
excise tax, state and local sales or use taxes, or amounts in lieu
thereof paid or payable by ENSEC in respect of the foregoing. EDS
shall not have any obligation to pay any franchise taxes, privilege,
gross receipts, or excise taxes imposed on or payable by ENSEC, or any
taxes based on the net income of ENSEC.
(b) ENSEC agrees to reasonably cooperate with EDS to minimize any
applicable tax, and shall make available to EDS, and any taxing
authority, all information, records, or documents relating to any
audits or assessments attributable to or resulting from the payment
process. ENSEC shall indemnify and hold EDS harmless from and against
any taxes, additions to taxes, penalties, interest, fees, or other
expenses, if any, incurred by EDS as a result of, or attributable to
(i) ENSEC's failure to verify taxability of a purchase, or (ii)
ENSEC's failure to correctly calculate or remit taxes in a timely
manner.
(c) Upon written notification by EDS and subsequent verification by ENSEC,
ENSEC shall reimburse or credit, as applicable, EDS in a timely
manner, for any and all taxes erroneously paid by EDS to ENSEC.
(d) ENSEC shall provide EDS with the list of states and their respective
registration numbers where ENSEC is qualified and registered to
collect sales/use taxes in all of the taxing jurisdictions within that
state. If such written notification is not received by EDS from ENSEC,
then EDS shall remit the appropriate tax directly to the taxing
authority. ENSEC shall promptly notify EDS of any additional
jurisdictions to which ENSEC may qualify and register to collect
sales/ use taxes.
ARTICLE VIII TERMINATION
-------------------------
8.1 Termination for Cause. Except as provided below by the section of this
---------------------
Agreement titled "Termination for Non-Payment," in the event that either
party materially or repeatedly defaults in the performance of any of its
duties or obligations set forth in this Agreement, and such default is not
substantially cured within thirty (30) days after written notice is given
to the defaulting party specifying the default, then the party not in
default may, by giving notice thereof to the defaulting party, terminate
the
11
<PAGE>
applicable License or Purchase Order relating to such default as of a date
specified in such notice of termination.
8.2 Termination for Insolvency or Bankruptcy. Either party may immediately
----------------------------------------
terminate this Agreement and any Purchase Order by giving written notice to
the other party in the event of (i) the liquidation or insolvency of the
other party, (ii) the appointment of a receiver or similar officer for the
other party, (iii) an assignment by the other party for the benefit of all
or substantially all of its creditors, (iv) entry by the other party into
an agreement for the composition, extension, or readjustment of all or
substantially all of its obligations, or (v) the filing of a meritorious
petition in bankruptcy by or against the other party under any bankruptcy
or debtors' law for its relief or reorganization.
8.3 Termination for Non-Payment. ENSEC may terminate a Purchase Order, or any
---------------------------
portion thereof, if EDS fails to pay when due any undisputed amounts due
pursuant to such Purchase Order and such failure continues for a period of
sixty (60) days after the last day payment is due, so long as ENSEC gives
EDS written notice of the expiration date of the aforementioned sixty (60)
day period at least thirty (30) days prior to the expiration date.
8.4 Termination of Software License. EDS may terminate any License for any
-------------------------------
reason by providing written notice to ENSEC. If EDS elects to so terminate
a License, EDS shall return to ENSEC or, at EDS' option, destroy, all
copies of the Licensed Software and Documentation in EDS' possession which
are the subject of the terminated License except as may be necessary for
archival purposes. In such event, ENSEC shall refund to EDS a prorated
amount of any prepaid charges for support Services for the Licensed
Software.
8.5 Rights Upon Termination. Unless specifically terminated as set forth in
-----------------------
this Article, all Licenses (and EDS' right to use the Licensed Software in
accordance with such Licenses) and Purchase Orders which require
performance or extend beyond the term of this Agreement shall, at EDS'
option, be so performed and extended and shall continue to be subject to
the terms and conditions of this Agreement.
ARTICLE IX. MISCELLANEOUS
-------------------------
9.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be
----------------------------------------------
binding on the parties and their respective successors in interest and
assigns, but ENSEC shall not have the power to assign this Agreement
without the prior written consent of EDS. If ENSEC subcontracts or
delegates any of its duties or obligations of performance in this Agreement
or in a Purchase Order to any third party, ENSEC shall remain fully
responsible for complete performance of all of ENSEC's obligations set
forth in this Agreement or in such Purchase Order and for any such third
party's compliance with the non-disclosure and confidentiality provisions
set forth in this Agreement.
9.2 Counterparts. This Agreement may be executed in several counterparts, all
------------
of which taken together shall constitute one single agreement between the
parties.
9.3 Headings. The article and Section headings used in this Agreement are for
--------
reference and convenience only and shall not enter into the interpretation
hereof.
9.4 Relationship of Parties. ENSEC is performing pursuant to this Agreement
------------------------
only as an independent contractor. ENSEC has the sole obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed its obligations set forth in this Agreement, except as otherwise
agreed upon by the parties. Nothing set forth in this Agreement shall be
construed to create the relationship of principal and agent between ENSEC
and EDS. ENSEC shall not act or attempt to act or represent itself,
12
<PAGE>
directly or by implication, as an agent of EDS or its affiliates or in any
manner assume or create, or attempt to assume or create, any obligation on
behalf of, or in the name of, EDS or its affiliates.
9.5 Confidentiality. Each party acknowledges that in the course of performance
---------------
of its obligations pursuant to this Agreement, it may obtain confidential
and/or proprietary Information of the other party or its affiliates or
customers. "Confidential Information" includes: information relating to
development plans, costs, finances, marketing plans, equipment
configurations, data, access or security codes or procedures utilized or
acquired, business opportunities, names of customers, research, and
development; the terms, conditions and existence of this Agreement; any
information designated as confidential in writing or identified as
confidential at the time of disclosure if such disclosure is verbal or
visual; and any copies of the prior categories or excerpts included in
other materials created by the recipient party. Each party agrees that, for
a period of two (2) years following its receipt of Confidential Information
from the other party or the other party's affiliates or customers, whether
before or after the Effective Date, such recipient party shall use the same
means it uses to protect its own confidential and proprietary information,
but in any event not less than reasonable means to prevent the disclosure
and to protect the confidentiality of the Confidential Information.
Further, the recipient party shall only use the Confidential Information
for purposes of this Agreement, and shall not disclose the Confidential
Information without the prior written consent of the other party. This
provision shall not apply to Confidential Information which is (i) already
known by the recipient party without an obligation of confidentiality, (ii)
publicly known or becomes publicly known through no unauthorized act of the
recipient party, (iii) rightfully received from a third party (other than
an affiliate or customer of the party owning the Confidential Information)
without an obligation of confidentiality, (iv) disclosed without similar
restrictions by the owner of the Confidential Information to a third party
(other than an affiliate or customer of the party owning the Confidential
Information), (v) approved by the party owning the Confidential
Information, in writing, for disclosure or (vi) required to be disclosed
pursuant to a requirement of a governmental agency or law so long as the
recipient party provides the other party with timely prior written notice
of such requirement. EDS' obligations of confidentiality with respect to
Licensed Software shall be governed by the Section of this Agreement titled
"Non-Disclosure" .
9.6 Media Releases. Except for any announcement intended solely for internal
--------------
distribution by either party or any disclosure required by legal,
accounting, or regulatory requirements beyond the reasonable control of
either party, all media releases, public announcements, or public
disclosures (including, but not limited to, promotional or marketing
material) by either party or its employees or agents relating to this
Agreement or its subject matter, or including the name, trade name, trade
mark, or symbol of either party or any affiliate of either party, shall be
coordinated with and approved in writing by the other party prior to the
release thereof. Neither party may include the name of the other party on a
list of its customers without the other party's express written consent.
9.7 Dispute Resolution. In the event of any disagreement regarding performance
------------------
under or interpretation of this Agreement and prior to the commencement of
any formal proceedings, the parties shall continue performance as set forth
in this Agreement and shall attempt in good faith to reach a negotiated
resolution by designating a representative of appropriate authority to
resolve the dispute.
9.8 Compliance with Laws. In the performance of Services or the provision of
--------------------
Products pursuant to this Agreement, ENSEC shall comply with the
requirements of all applicable laws, ordinances, and regulations of the
United States or any state, country, or other governmental entity. In
13
<PAGE>
particular, ENSEC agrees to comply with Executive order No. 11246, as
amended by Executive Order No. 11375, the Vietnam Era Veterans Readjustment
Assistance Act of 1974, the Rehabilitation Act of 1973, the Immigration
Reform and Control Act of 1986, and the Americans with Disabilities Act.
This Section incorporates by reference all provisions required by such
laws, orders, rules, regulations and ordinances. ENSEC shall indemnify,
defend, and hold EDS harmless from and against and all claims, actions, or
damages arising from or caused by ENSEC's failure to comply with the
foregoing.
9.9 Notices. Wherever one party is required or permitted to give notice to the
-------
other pursuant to this Agreement, such notice shall be deemed given when
delivered in hand, when mailed by registered or certified mail, return
receipt requested, postage prepaid, or when sent by a third party courier
service where receipt is certified by the receiving party's acknowledgment,
and addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
Plano, Texas 75024
Attn: Manager, Contracts Administration
In the case of ENSEC:
ENSEC, INC.
2600 N. Military Trail
Suite 290
Boca Raton, FL 33431
Attn: Contracts Administrator
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address and
the date upon which it will become effective; first class, postage prepaid,
mail shall be acceptable for provision of change of address notices.
9.10 Force Majeure. The term "Force Majeure" shall be defined to include fires
-------------
or other casualties or accidents, acts of God, severe weather conditions,
strikes or labor disputes, war or other violence, or any law, order,
proclamation, regulation, ordinance, demand, or requirement of any
governmental agency.
(a) A party whose performance as prevented, restricted, or interfered with
by reason of a Force Majeure condition shall be excused from such
performance to the extent of such Force Majeure condition so long as
such party provide the other party with prompt written notice
describing the Force Majeure condition and takes all reasonable steps
to avoid or remove such causes or nonperformance and immediately
continues performance whenever and to the extent such causes are
removed.
(b) If, due to a Force Majeure condition, the scheduled time of delivery
or performance is or will be delayed for more than thirty (30) days
after the scheduled date, the party not relaying upon the Force
Majeure condition may terminate, without liability to the other party,
the Purchase Order or any portion thereof covering the delayed
Products or Services. If delayed Products are intended to be a part of
a ENSEC-provided system for which some products have been delivered,
then EDS may terminate without liability the Purchase Order relating
to such entire systems. ENSEC shall remove delivered Products from
EDS' premise at no charge to EDS and shall refund any amounts paid by
EDS, less reasonable rental for past use.
14
<PAGE>
(c) If a Force Majeure condition or other delay by ENSEC causes EDS to
terminate its business relationship with a third party for whom
delayed Products were ordered and EDS has no alternative use for the
Products after using reasonable efforts to relocate or otherwise
utilize the Products then EDS may terminate the applicable Purchase
Order and ENSEC shall refund to EDS all amounts paid thereunder.
9.11 Severability. If, but only to the extent that, any provision of this
------------
Agreement is declared or found to be illegal, unenforceable, or void, then
both parties shall be relieved of all obligations arising under such
provision, it being the intent and agreement of the parties that this
Agreement shall be deemed amended by modifying such provision to the extent
necessary to make it legal and enforceable while preserving its intent. If
that is not possible, another provision that is legal and enforceable and
achieves the same objective shall be substituted. If the remainder of this
Agreement is not affected by such declaration or finding and is capable of
substantial performance, then the remainder shall be enforced to the extent
permitted by law.
9.12 Waiver. Any waiver of this Agreement or of any covenant, condition, or
------
agreement to be performed by a party under this Agreement shall (i) only be
valid if the waiver is in writing and signed by an authorized
representative of the party against which such waiver is sought to be
enforced, and (ii) apply only to the specific covenant, condition or
agreement to be performed, the specific instance or specific breach thereof
and to any other instance or breach thereof or subsequent instance or
breach.
9.13 Remedies. Except with respect to remedies that have been identified as
--------
sole and exclusive remedies, all remedies set forth in this Agreement, or
available by law or equity, shall be cumulative and not alternative, and
may be enforced concurrently or from time to time.
9.14 Survival of Terms. Termination or expiration of this Agreement for any
-----------------
reason shall not release either party from any liabilities or obligations
set forth in this agreement which (i) the parties have expressly agreed
shall survive any such termination or expiration, or (ii) remain to be
performed or by their nature would be intended to be applicable following
any such termination or expiration.
9.15 Nonexclusive Market and Purchase Rights. It is expressly understood and
----------------------------------------
agreed that this Agreement does not grant to ENSEC and exclusive right to
provide to EDS any or all of the Products and Services and shall not
prevent EDS from developing or acquiring from other suppliers products or
services similar to the Products and Services. ENSEC agrees that
acquisitions by EDS pursuant to this Agreement shall neither restrict the
right of EDS to cease acquiring nor require EDS to continue any level of
such acquisitions. Estimates or forecasts furnished by EDS to ENSEC prior
to or during the term of this Agreement shall not constitute commitments.
9.16 GOVERNING LAW. THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
-------------
AGREEMENT SHALL NOT BE GOVERNED BY THE PROVISION OF THE 1980 UNITED NATIONS
CONVENTION ON CONTRACTS NOR THE INTERNATIONAL SALE OF GOODS. RATHER THESE
RIGHTS AND OBLIGATIONS SHALL BE GOVERNED BY THE LAWS, OTHER THAN CHOICE OF
LAW RULES, OF THE STATE OF TEXAS.
15
<PAGE>
9.17 Entire Agreement. This Agreement constitutes the entire and exclusive
----------------
statement of the agreement between the parties with respect to its subject
matter and there are no oral or written representations, understandings or
agreements relating to this Agreement which are not fully expressed in the
Agreement. This Agreement shall not be amended except by a written
agreement signed by both parties. All exhibits, documents, and schedules
referenced in this Agreement or attached to this Agreement, and each
Purchase Order are an integral part of this Agreement. In the event of any
conflict between the term and conditions of this Agreement and any such
exhibits, documents, or schedules, the terms of this Agreement shall be
controlling unless otherwise stated or agreed. In the event of a conflict
between the terms and conditions of this Agreement and a Purchase Order
issued in accordance with Article II, the Purchase Order shall be
controlling with respect to those transactions covered by that Purchase
Order. Any other terms or conditions included in any shrink-wrap license
agreements, quotes, invoices, acknowledgments, bills of lading, or other
forms utilized or exchange by the parties shall not be incorporated in this
Agreement or be binding upon the parties unless the parties expressly agree
in writing or unless otherwise provided for in this Agreement.
IN WITNESS WHEREOF, ENSEC and EDS acknowledge that each of the provisions
of this Agreement were expressly agreed to and have each caused this Agreement
to be signed and delivered by its duly authorized officer or representative as
of the Effective Date.
ELECTRONIC DATA SYSTEMS CORPORATION ENSEC, INC.
By: /s/ D. Patty Locke By: Charles N. Finkel
--------------------------------- ----------------------------
Printed Name: D. PATTY LOCKE Printed Name: CHARLES N. FINKEL
----------------------- ------------------
CONTRACT MANAGER
Title:______________________________ Title: PRESIDENT & CEO
-------------------------
Date: 9/18/95 Date: 09/12/95
------------------------------- -------------------------
Fed Tax ID #: 65-0292225
------------------
16
<PAGE>
EXHIBIT A
EDS BUSINESS PRACTICES
-----------------------
EDS' suppliers have played a key role in our continuous growth and success.
We sincerely appreciate your support. In order to avoid any conflict of interest
between our suppliers and EDS employees and to keep business relationships on a
professional basis, EDS has established and briefed its employees on the
following business practices. Please review these business practices carefully
and give a copy of this Exhibit to any of your associates who have a need to
know.
1. EDS expects its suppliers to provide a quality product or service for which
they will be fairly paid.
2. In selecting suppliers, EDS will test the market to assure quality of
service and fairness of price.
3. No EDS employee is to ask for anything of value from supplier. Gifts from a
supplier such as tickets to athletic events, concerts or the theater,
personal travel, or any type of personal item are discouraged by our
business practices.
4. If any EDS employee is offered or accepts an item of value from a supplier,
the employee is to report it to the appropriate EDS management.
5. If any EDS employee engages in any type of unethical behavior such as
requesting anything of value from a supplier, the supplier is requested to
report the incident to the Director of Purchasing or the General Counsel of
EDS.
6. Occasional meals during visits to the supplier's facilities or a customer's
location during which a supplier incurs normal and reasonable marketing
expenses are acceptable. The EDS employee is required to report such meal
expenses to their management.
EDS appreciates your cooperation in complying with these business
practices.
A-1
<PAGE>
EXHIBIT B
CHARGES, PRICES, AND FEES
------------------------
I. HARDWARE:
--------
SEE ENSEC PRICE CATALOG FOR A LIST OF HARDWARE ITEMS TO BE USED IN ANY
LOCATION CONFIGURATION.
II. LICENSED SOFTWARE:
-----------------
SEE ENSEC PRICE CATALOG FOR A LIST OF LICENSED SOFTWARE AVAILABLE FOR ANY
LOCATION CONFIGURATION.
III. PAYMENT SCHEDULE FOR INITIAL SYSTEMS AT PLANO:
---------------------------------------------
The parties agree to the following payment schedule:
(1) EDS shall issue a Purchase Order in an amount equal to one-third
(1/3) of the total agreed to price for the Systems as set forth in
Exhibit E. This Purchase Order shall be issued within fifteen (15)
days after execution of this Agreement by the parties and such
Purchase Order shall be paid in accordance with this Agreement.
(2) EDS shall issue a Purchase Order in an amount equal to one-third
(1/3) of the total agreed to price for the Systems as set forth in
Exhibit E. This Purchase Order shall be issued upon installation of
the Systems by ENSEC. This Purchase Order shall be paid in
accordance with this Agreement.
(3) EDS shall issue a Purchase Order in an amount equal to one-third
(1/3) of the total agreed to price for the Systems as set forth in
Exhibit E. This Purchase Order shall be issued upon acceptance of
the Systems as set forth in Section 4.3 of this Agreement. This
Purchase Order shall be paid in accordance with this Agreement.
IV. PAYMENT SCHEDULE FOR SECOND AND SUBSEQUENT SYSTEMS:
--------------------------------------------------
The parties agree to the following payment schedule for the second and
subsequent system installations:
(1) EDS shall issue a Purchase Order in an amount equal to sixty percent
(60%) of the total price for the applicable System. This Purchase
Order shall be paid within thirty (30) days of receipt of the System
by EDS.
(2) EDS shall issue a Purchase Order in an amount equal forty percent
(40%) of the total price for the applicable System. This Purchase
Order shall be paid within thirty (30) days of acceptance of the
System by EDS.
V. PAYMENT SCHEDULE FOR ADDITIONAL ADD ON ITEM:
-------------------------------------------
For any additional add on items of Hardware or Licensed Software, EDS
shall pay for such items upon acceptance of Hardware or Acceptance of
Licensed Software as set forth in Article IV of this Agreement.
VI. DISCOUNTS:
---------
HARDWARE
--------
B-1
<PAGE>
O.E.M. Hardware
---------------
EDS shall be entitled to a thirty percent (30%) discount off the
list price for any item of Hardware identified as Category 3
Hardware (O.E.M. Hardware).
Non-O.E.M. Hardware
-------------------
With respect to Hardware identified as Category 1 Hardware (Non-
O.E.M. Hardware), ENSEC shall negotiate a base price for such
Hardware requested by EDS and shall be permitted to add a "mark-up"
of thirty-three percent (33%). The resultant "mark-up" shall become
the EDS net price for such items of Hardware.
Replacement Cards
-----------------
With respect to replacement "CARDS", which EDS has requested TO BE
PROGRAMMED BY ENSEC. ENSEC shall negotiate a base price for such
"Cards" and shall be permitted to add a "mark-up" of twenty percent
(20%). The resultant "mark-up" shall become the EDS net price for
such "PROGRAMMED REPLACEMENT CARDS".
With respect to replacement "Cards", which EDS has requested not to
be programmed by ENSEC, ENSEC shall negotiate a base price for such
"Cards" and shall be permitted to add a "mark-up" of ten percent
(10%). The resultant "mark-up" shall become the EDS net price for
such "BLANK REPLACEMENT CARDS".
LICENSED SOFTWARE
-----------------
Licensed Software owned by ENSEC
--------------------------------
EDS shall be entitled to a fifteen percent (15%) discount off the
list price for any Licensed Software identified as Category 2
Licensed Software (Licensed Software owned by ENSEC).
Third Party Software
--------------------
EDS shall be entitled to a ten percent (10%) discount off the list
price for any Licensed Software identified as Category 2 Licensed
Software (Licensed Software owned by a third party).
VII. CHARGES FOR CUSTOMIZATION TO LICENSED SOFTWARE:
----------------------------------------------
If requested by EDS in writing, ENSEC shall perform Customization to the
Licensed Software, based on a flat Charge of One Hundred Fifteen Dollars
($115)/per hour for such Customization.
VIII. CHARGES FOR SYSTEM INSTALLATION
-------------------------------
If requested by EDS, ENSEC shall perform system installation based on a
flat Charge of Seventy Five Dollars ($75)/per hour for such installation.
IX. LICENSED SOFTWARE SUPPORT SERVICES
----------------------------------
For the one (1) year period immediately after the one (1) year warranty
period, the annual Charge for maintenance and support Services shall be
fifteen percent (15%) of the EDS net price paid for the applicable
perpetual CPU License. Thereafter, all subsequent annual Charges for
Individual Site maintenance and support Services shall be subject to the
price cap provision set forth in Section 7.2 (a) of the Agreement.
X. HARDWARE MAINTENANCE SERVICES
-----------------------------
B-2
<PAGE>
Hardware Type:
Contractual Maintenance during the PPM
- ------------------------------------------------------------------------
ANNUAL CHARGE MONTHLY CHARGE
- ------------------------------------------------------------------------
Charge shall be mutually agreed Charge shall be mutually agreed
to based on a location by to based on a location by
location configuration location configuration
basis. basis
- ------------------------------------------------------------------------
Hourly Charges for On-Call Maintenance
- ------------------------------------------------------------------------
9:00 TO 5:00 After 5:00 Weekdays Weekends and
Weekdays Holidays
- ------------------------------------------------------------------------
$90/per hour $115/per hour $140/per hour
- ------------------------------------------------------------------------
Hardware Maintenance Certification price shall vary based on specific Hardware.
-------------------------------------------
B-3
<PAGE>
EXHIBIT C
HARDWARE SUPPORT SERVICES TERMS AND CONDITIONS
----------------------------------------------
1. Additional Definitions. The following additional definitions apply to this
----------------------
Exhibit C.
(a) "Contractual Maintenance" means the Services described in Section 6
below performed by Supplier during either the Warranty Period or on a
renewable periodic basis, and provided during the PPM.
(b) "Hardware" means equipment listed in a Purchase Order for which EDS
desires to obtain Services pursuant to this Exhibit, or for which
Supplier is obligated to provide Services during the applicable
Warranty Period.
(c) "On-Call Maintenance" means the Services described in Section 6 below
performed by Supplier in response to requests received from EDS
pursuant to this Exhibit C.
(d) "Principal Period of Maintenance" ("PPM") means the period of time
specified in a Purchase Order during which Contractual Maintenance
Services are to be performed. If no PPM is specified in a Purchase
Order, the PPM shall be the time (9) consecutive hours commencing at
8:00 a.m. and ending at 5:00 p.m. Monday through Friday at the
applicable Maintenance Site (as later defined in this Exhibit).
2. Requests for Services. Purchase Orders for maintenance and support Services
---------------------
may include (i) the EDS location at which the Services are to be provided
(the "Maintenance Location"), (ii) a description of the Hardware to be
maintained, (iii) the term of the Services, (iv) the PPM, (v) the response
time for remedial maintenance, and (vi) the Charges for such Services. EDS
may request On-Call Maintenance from time to time by providing written or
oral notice to Supplier of EDS' request for such Services. Services for
Hardware during the Warranty Period may be requested in the same manner as
On-Call Maintenance.
3. Alteration of Purchase Orders. EDS may increase the level of Services to be
-----------------------------
performed by Supplier by providing fifteen (15) days' advance written
notice to Supplier and may decrease the level of Services or discontinue
Services by providing thirty (30) days' advance written notice to Supplier.
EDS shall promptly receive a refund of pre-paid maintenance Charges which
reflects either the modified fee for a decreased level of Services pro
rated for the remainder of the term, or the amount for discontinued
Services after the effective date of the notice. EDS may reinstate any
discontinued Services hereunder by providing fifteen (15) days' advance
written notice to Supplier.
4. Acceptance of Hardware for Maintenance. Supplier agrees to provide Services
--------------------------------------
for Hardware (which shall include, for purposes of this Exhibit, hardware
of Supplier purchased pursuant to an agreement between Supplier and a third
party, or directly purchased from a third party, for which EDS has assumed
responsibility) pursuant to this Agreement which (i) is under warranty, or,
if the Warranty Period has expired, is or has been maintained by Supplier
or a third party since expiration of the applicable Warranty Period, (ii)
has been certified as maintainable within three (3) months before the date
of the applicable Purchase Order by the Hardware provider or a prior
maintenance provider, or (iii) has been certified by Supplier as
maintainable ("Hardware Maintenance Certification") in accordance with
Section 5 below. If Supplier declines to provide Services for an item of
Hardware as requested by EDS and EDS desires to obtain Services on such
Hardware, then upon request by EDS, Supplier shall restore the Hardware to
a maintainable condition prior to commencement of Services under this
C-1
<PAGE>
Agreement and EDS shall pay Supplier's then current established
charges for such restoration.
5. Hardware Maintenance Certification. Supplier agrees that Hardware which is
----------------------------------
operating in accordance with its Applicable Specifications shall be
certified by Supplier as maintainable hereunder. The Charge for Hardware
Maintenance Certification performed prior to the commencement of Services
hereunder shall be as set forth in Exhibit B. There shall be no Charge for
Hardware Maintenance Certification if EDS requests such certification at
the end of the applicable Warranty Period or any periodic Contractual
Maintenance term. Supplier shall coordinate with the applicable Hardware
manufacturers or providers to develop certification tests and procedures
necessary to ensure that the Hardware conforms to such manufacturers'
applicable specifications. Hardware Maintenance Certification Services
shall not include the provision of consumable supply items such as ribbons,
paper, removable storage media, and similar items. Supplier shall provide
to EDS a document for each item of Hardware which is certified by Supplier
as set forth in this Section (hereinafter referred to as the "Certificate
of Maintainability").
6. Preventive and Remedial Maintenance Services. Supplier shall provide to
--------------------------------------------
EDS, either on a Contractual Maintenance or an On-Call Maintenance basis as
set forth in this Exhibit, all preventive and remedial maintenance Services
for the Hardware as may be necessary or appropriate to keep such Hardware
in, or restore such Hardware to, good working order and operating condition
and capable of performing in accordance with its Applicable Specifications
including, but not limited to, the following:
(a) Scheduled visits to the Maintenance Location to perform complete
mechanical and electrical preventive maintenance including any
preventive maintenance required or recommended to be performed by the
applicable Hardware manufacturer and any cleaning, adjusting,
lubricating, inspecting and testing necessary to reduce Hardware
failure and extend useful Hardware life and ensure performance in
accordance with the Hardware's Applicable Specifications. The
scheduling of preventive maintenance will be mutually agreed upon from
time to time in order to minimize interruption of use of the Hardware
and may be schedule during other then EDS' normal business hours, if
requested by EDS.
(b) Remedial maintenance upon notification by EDS that the Hardware
requires maintenance. Remedial maintenance shall include unscheduled
work requested by EDS from time to time as required to repair or
replace defective Hardware and to return defective Hardware to good
working order and operating condition and capable of performing in
accordance with its Applicable Specifications. Supplier warrants and
agrees that all Hardware for which a remedial maintenance service call
is received pursuant to this Agreement shall be fully operational
within forty-eight (48) hours, or two (2) business days, as
applicable, after such call is received. In the event Hardware is not
so operational, Supplier shall pay, or reimburse EDS for, all damages,
costs, and expenses incurred by EDS as a result of such inoperability.
(c) The installation of engineering changes required or recommended by the
Hardware manufacturer or provider. Supplier shall notify EDS of the
engineering changes to be installed and EDS may, at its option,
consent to such installation. At its discretion, EDS may limit the
installation or timing of engineering changes other than safety
changes.
(d) Toll-free telephone consultation and diagnostic assistance in
determining problem origin including, but not limited to, reading log
outs and testing and running of diagnostics until the specific failing
unit (whether or not part of the Hardware) is isolated.
C-2
<PAGE>
(e) All costs of travel, labor and parts for maintaining the Hardware.
(f) Factory repairs on the Hardware if, in the opinion of Supplier,
repairs cannot be made at the Maintenance Location.
(g) The maintenance of complete and accurate written records, detailing
(i) an inventory of all Hardware covered by maintenance hereunder
listed by manufacturer, model number, serial number, and Maintenance
Location, and (ii) all Services provided hereunder including, but not
limited to, service logs, reports, and records of all of EDS' requests
for Services and Supplier's time of performance and response thereto.
Supplier shall provide such records to EDS within a reasonable period
of time following a request from EDS therefor and shall assist EDS in
reconciling any differences between its records and EDS' records.
7. On-Site Dedicated Services. Subject to the mutual agreement of the
--------------------------
parties, Supplier shall provide the Services set forth in Section 6 on an
on-site dedicated basis. In connection with such Services, Supplier will
assign a resident field engineer to the Maintenance Location to perform
such services during the normal business hours of such Maintenance
Location. Supplier shall ensure that substitute field engineers provide
continual coverage during resident field engineer absences. Charges for
on-site dedicated Services shall be as mutually agreed to by the parties
and set forth in a Purchase Order.
8. Relocation and Reinstallation Services. If EDS elects to relocate Hardware
--------------------------------------
within the United States, Supplier shall perform de-installation,
reinstallation, and related services as requested by EDS. EDS shall give
Supplier at least fifteen (15) days notice prior to the required date for
the performance of such Services and EDS shall pay Supplier's then current
established charges for the provision of such Services.
9. EDS Responsibilities. EDS shall provide to Supplier all reasonable access
--------------------
to and use of the Hardware and related equipment as necessary to enable
Supplier to provide the Services set forth in this Exhibit or otherwise
requested by EDS, subject to any applicable security regulations. In
addition, EDS shall provide to Supplier, at no charge and within a
reasonable distance from the Hardware, all reasonable working space and
heat, light, ventilation, electric current and outlets in order to perform
Services.
10. Supplier Responsibilities. When performing Services at a Maintenance
-------------------------
Location, Supplier shall (i) remove all tools and, unless otherwise
agreed, spare parts from the location at the conclusion of each day or
following the performance of Services (ii) not disrupt ongoing production
or other activities being performed at such location without EDS' consent,
(iii) cause Supplier's employees to smoke only in designated areas, (iv)
maintain all working spaces and supplies provided by EDS hereunder in a
safe, clean, and orderly manner, and (v) allow EDS representatives to be
present at all times during the performance of Services. Supplier shall
perform the Services to be provided hereunder without damaging the
facilities in which the Services are performed.
11. Remedial Maintenance Response Time. Upon either written or verbal notice
----------------------------------
by EDS to Supplier during the PPM that remedial maintenance is required,
Supplier's qualified maintenance personnel shall arrive at the Maintenance
Location and shall be fully prepared to accomplish the necessary repairs
within two (2) hours of EDS' notification, unless a different response time
is designated in the applicable Purchase Order; provided, however, that if
the required response time should extend beyond the PPM, Supplier and EDS
shall mutually agreed whether such Services shall be performed at such time
or during the next PPM. If Supplier's maintenance personnel fail to arrive
or be fully prepared to perform Services within the required response time
C-3
<PAGE>
period, EDS shall receive a credit from Supplier on maintenance Charges
payable by EDS to Supplier hereunder in an amount equal to the published
on-call hourly rate for each hour, or part thereof, beginning with the time
of notice to Supplier and ending with the time of arrival of Supplier's
maintenance personnel. EDS shall not be charged for the first hour
following the PPM if remedial maintenance began or was requested during the
PPM. If remedial maintenance which began during the PPM is not complete
during the first hour following the PPM, Supplier's maintenance personnel
will, upon proper EDS authorization, continue to work to complete the
remedial maintenance at the applicable On-Call Maintenance rate set forth
in Exhibit B or, if no EDS authorization is obtained, shall discontinue
maintenance and return and continue such maintenance at the beginning of
the next PPM.
12. Downtime. As used in this Section, "downtime" shall mean that number of
--------
EDS' regular business hours at a Maintenance Location during any calendar
month, rounded off to the nearest hour, during which an item of Hardware
covered by Contractual Maintenance is inoperable, except when such
inoperability is due to causes specified in Section 15 of this Exhibit. In
the event the Hardware consistently maintains a monthly downtime percentage
level of ten percent (10%) or greater, Supplier shall, upon EDS' request,
replace such Hardware at no additional charge with equivalent equipment and
shall continue to perform Services on such replacement Hardware.
13. Parts Replacement. Supplier warrants and represents that, in the
-----------------
performance of Services hereunder, only new parts or parts equivalent to
new in performance will be used and that all parts used will meet the
manufacturer's applicable specifications. For purposes of this Exhibit, a
part shall be considered "new" only if it has never been used or if it is
provided from a parts inventory which includes new parts and such inventory
does not distinguish between new and reconditioned parts. All non-
repairable parts replaced shall become the property of Supplier. Upon
request by EDS and upon EDS' provision of reasonable storage space,
Supplier shall maintain a reasonable spare parts inventory at the
Maintenance Location and shall provide to EDS a complete list of such spare
parts.
14. Cooperation Among Vendors. In the event that Hardware or EDS related
-------------------------
equipment is failing to perform properly or is suffering a degradation or
loss of functionality, Supplier agrees to cooperate with other applicable
manufacturers or vendors in testing and running diagnostics until the
specific failing unit (whether or not a part of the Hardware) is isolated.
15. Exclusions to Services. Services required to remedy malfunctions caused by
----------------------
or arising out of the following shall not be covered by Contractual
Maintenance but shall be performed upon payment of the applicable On-Call
Maintenance rate set forth in Exhibit B:
(a) Utilization of Hardware for other than its intended use or subjection
of Hardware to unusual physical or electrical stress;
(b) Accident, fire or water damage, corrosive atmosphere, pest damage,
failure of electrical power, air conditioning, humidity control, acts
of war, or acts of God;
(c) Maintenance, modification, or repair, or attempts to maintain, modify,
or repair the Hardware by other than Supplier-approved maintenance
personnel or persons properly utilizing Supplier-provided or
manufacturer-provided maintenance, modification or repair manuals or
instructions; and
(d) Maintenance required beyond the PPM.
In the performance of Services, Supplier shall not be required to (i)
furnish supplies or accessories including media such as tapes or diskettes,
C-4
<PAGE>
(ii) paint or refinish the Hardware, (iii) perform electrical work external
to the Hardware, or (iv) maintain accessories, attachments or products not
listed in the governing Purchase Order.
16. Escalation Procedures. Supplier shall provide, for EDS' review and
---------------------
approval at least once annually and within twenty (20) days of any change
thereto, a statement of Supplier's phased escalation procedures which shall
list the intermediate and highest levels of technical expertise, including
telephone numbers and support functions, available to assist and direct
local maintenance personnel. The statement shall be distributed only to
personnel of EDS with a business need to know.
17. Assignment of Services. In the event of a sale or lease by EDS of the
----------------------
Hardware, EDS may, at its option, (i) assign its right to receive Services
hereunder with respect to such Hardware to a purchaser or lessee of the
Hardware from EDS and Supplier agrees to accept such assignment, (ii)
request Supplier to enter into an agreement for the provision of such
Services directly with such purchaser or lessee including terms
substantially similar to those contained in this Section and Supplier
agrees to provide such services or to enter into such an agreement, and/or
(iii) request and shall be entitled to receive a refund of any prepaid fees
for Services related to such Hardware. In addition and upon request by EDS,
Supplier shall provide to EDS reconditioning Services for Hardware which
EDS desires to resell, in order to made such Hardware equivalent to new
equipment, and EDS shall pay Supplier's then current established charges
for the performance of such Services.
18. Charges. For the receipt of the Services to be provided by Supplier
-------
hereunder, EDS shall pay to Supplier the Charges set forth in Exhibit B or
on each applicable Purchase Order, as applicable, less any applicable
discount set forth in Exhibit B. Payment for such Charges shall be in
accordance with the payment procedures set forth in this Agreement.
19. Single Maintenance Location Discount. In the event the volume of Hardware
------------------------------------
being maintained at a single Maintenance Location results in efficiencies
in the performance of Services, Supplier and EDS shall negotiate in good
faith an additional discount on the Charges for Services to be performed at
the Maintenance Location which takes into consideration the cost savings
resulting from the increased efficiencies.
20. Rights Upon Termination. Upon request by EDS, Supplier shall provide to
-----------------------
EDS, at no charge to EDS, a Certificate of Maintainability for Hardware
which will no longer be maintained by Supplier under this Agreement. EDS
understands and agrees that the reinstatement of any terminated Service may
require certification by Supplier in accordance with the Hardware
Maintenance Certification procedure set forth in this Exhibit. If EDS
elects to terminate all or any portion of Services provided hereunder,
Supplier shall provide to EDS, upon EDS' request from time to time, all
available training, parts, diagrams, and other documentation and
maintenance aids necessary or appropriate to permit EDS to continue
maintaining the Hardware.
21. Terms of Exhibit. To the extent of any inconsistency with the terms and
----------------
conditions set forth in the Agreement, the terms and conditions of this
Exhibit C shall take precedence with respect to the Services to be
performed pursuant to this Exhibit C.
C-5
<PAGE>
EXHIBIT D
EDS TRAVEL AND EXPENSE GUIDELINES
---------------------------------
1. Receipts. Receipts are required for all air, hotel and car
--------
rental/transportation expenditures, plus any individual expenditures. The
hotel bill should be itemized by day, and the room and tax charges
separated from other charges.
2. Air Travel. Coach fare (not first class) is the only authorized class of
----------
air travel. If a coach fare seat is not available, an alternate flight
should be chosen.
3. Ground Transportation. Taxis should be used unless the daily charges
---------------------
exceed $40.00. Hotel shuttles or airport transportation should be utilized
whenever possible. If a rental car is used, EDS requires use of a compact
rental car with a daily rate of $30.50 per day for up to 75 miles per day
or a weekly rate of $152 for up to 525 miles per week. Parking fees and
highway tolls are reimbursable items. Traffic violations are not
reimbursable.
4. Hotel. Holiday Inn class hotel or an EDS preferred hotel. If a non-EDS
-----
employee books the hotel, notify reservationist it is reserved for EDS and
obtain the EDS corporate rate.
5. Mileage. Mileage to and from the airport will be paid at the rate of $.21
-------
per mile. Long-term parking areas should be used for stays of two (2) days
or longer.
6. Meals. Meal charges should be reasonable and reflect actual expenses
-----
incurred. Meal expense should be limited to a total sum of $25.00 per day
for breakfast, lunch and dinner. This limit may not apply in high cost-of-
living cities (e.g., New York, Los Angeles) where reasonable and customary
costs for those areas would prevail. EDS does not reimburse bar expenses.
Under IRS regulations, lunches are not reimbursable on trips made within
one (1) day's normal business hours.
7. Valet and Laundry Expenses. Valet and Laundry expense are authorized for
--------------------------
stays exceeding six (6) consecutive days.
8. Telephone Calls. No personal calls on hotel bills or credit cards will be
---------------
reimbursed.
9. Completion of Expense Reports. Expense reports should be completed and
-----------------------------
submitted in a timely manner. The maximum time allowed for filing expense
reports is sixty (60) days from the last day of travel.
10. Direct Billing. All hotel and car rental charges must be paid by the
--------------
person traveling and submitted for reimbursement on an expense report. EDS
WILL NOT ACCEPT OR PAY ANY DIRECT BILLING.
D-1
<PAGE>
EXHIBIT E
CARD ACCESS SYSTEMS SPECIFICATIONS
----------------------------------
This page left intentionally blank.
E-1
<PAGE>
AMENDMENT NUMBER ONE TO THE CARD ACCESS SYSTEMS AGREEMENT
BETWEEN ENSEC, INC.
AND ELECTRONIC DATA SYSTEMS CORPORATION
THIS AMENDMENT NUMBER ONE to the Card Access Systems Agreement (the
"Amendment"), dated as of February 22, 1996 (the "Amendment Effective Date"), is
between ENSEC, INC. ("ENSEC") and ELECTRONIC DATA SYSTEMS CORPORATION ("EDS").
W I T N E S S E T H:
WHEREAS, ENSEC and EDS entered into a Card Access Systems Agreement dated
December 7, 1994 (the "Agreement") and now desire to amend the Agreement in
certain respects, and
WHEREAS, pursuant to the Agreement, ENSEC granted to EDS a license to
obtain certain products and services, and
WHEREAS, EDS and ENSEC now desire to expand the Agreement to permit joint
marketing of ENSEC's products and services;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, ENSEC and EDS agree as follows:
1. Term. The term of this Amendment commences on the Amendment Effective
----
Date and shall continue in effect coterminous with the term of the
Agreement.
2. Defined Terms. Except as defined herein or otherwise required by the
-------------
context as set forth in this Amendment, all defined terms used in this
Amendment have the meaning set forth in the Agreement.
(a) "Customer" means any entity to which EDS provides of shall
provide products and/or services pursuant to a contract for the
provision of such products and/or services.
(b) "Joint Marketing Software" means computer programs provided or to
be provided by ENSEC pursuant to Exhibit F of this Amendment.
3. ADD SECTION 3.14 titled Provision for Joint Marketing.
-----------------------------
3.14 Provision for Joint Marketing. EDS and ENSEC desire to enter
-----------------------------
into joint marketing efforts in accordance with the provisions of
Exhibit F attached hereto.
4. SECTION 5.1 titled Grant of License is deleted in its entirety and
----------------
replaced with the following:
5.1 Grant of License. For each item of Licensed Software received by
----------------
EDS, ENSEC grants EDS and EDS has a worldwide, nonexclusive,
irrevocable, perpetual license to use, execute, store, and
display the object code version of the Licensed Software, and
behalf of EDS and Customers of EDS (a "License") in accordance
with the terms and conditions of this Agreement.
(a) Upon payment of the applicable Charges set forth in Exhibit
B, a "CPU software License" permits EDS to use the Licensed
Software on any single computer (which may
1
<PAGE>
include more than one central processing unit) or item of
equipment ("CPU") and to copy the Licensed Software as
necessary for archival, maintenance, disaster recovery
testing, or back-up purposes. If EDS desires to run parallel
operations in the process of conducting a disaster recovery
test or transferring operations from one CPU to another CPU,
EDS may operate the Licensed Software on two (2) CUPs for
the period of time reasonably necessary to complete the
disaster recovery test or transfer.
(b) Any License granted under this Agreement permits EDS to (i)
use Licensed Software for its corporate purposes including,
but not limited to, providing services to Customers of EDS
and performing disaster recovery, disaster testing, and
backup as EDS deems necessary, and (ii) use, copy and modify
Documentation for the purpose of creating and using training
materials relating to the Licensed Software, which training
materials may include flow diagrams, system operation
schematics, or screen prints from operation of the Licensed
Software. Access to and use of the Licensed Software by
Customers of EDS shall be considered authorized use under
this Section so long as such use is in conjunction with
EDS' provision of services to such Customers and so long as
any such Customers are bound by obligations of
confidentiality.
5. ADD SECTION 5.6 TITLED Transfer of Licensed Software.
-----------------------------
5.6 Transfer of Licensed Software. During the performance of or upon
-----------------------------
termination of a contract with an EDS Customer and upon request
by EDS, the Licensed Software will be licensed directly by ENSEC
to such customer in accordance with the following:
(a) EDS shall secure from such Customer a signed copy of ENSEC's
standard software license agreement.
(b) No transfer fee shall be charged to either EDS or the
Customer.
(c) EDS shall be entitled to provide one (1) copy of the
applicable Licensed Software to such Customer at (i) no fee
if the Licensed Software was purchased by EDS as a CPU
Software License, or (ii) the then current list price, based
on the applicable Licensed Software, less the applicable EDS
discount, if the Licensed Software was purchased by EDS as a
Corporate Software License.
(d) EDS shall pay any outstanding support Service fees, if
applicable, pro-rated to the date of the transfer.
Thereafter, the Customer shall pay ENSEC's then current
prevailing rate for support services pursuant to ENSEC's
standard software license agreement.
2
<PAGE>
(e) Except as stated herein, EDS shall have no liability or
responsibility with respect to such transferred Licensed Software
as of the date of the tranfer.
6. Add Section 5.7 titled Remarketing of Licensed Software by EDS.
---------------------------------------
5.7 Remarketing of Licensed Software by EDS. EDS may market, promote, and
---------------------------------------
remarket the Licensed Software listed in Exhibit B of the Agreement,
separately or in conjunction with other products and services in
accordance with the following terms and conditions:
(a) ENSEC shall extend the same warranties and indemnification to EDS
Customers, with respect to Licensed Software remarketed by EDS
hereunder, as ENSEC extends to other end user customers.
(b) The term of agreements, warranties and indemnities extended by
ENSEC to an end user Customer shall commence upon delivery of a
Product to such end user Customer.
(c) ENSEC shall make available to such end user Customer all
training, technical support and other services related to the
Licensed Software that are currently generally offered or that
may be generally offered by ENSEC's then current prevailing rate.
(d) Upon request by EDS, ENSEC shall provide to EDS, at no charge,
sales training, marketing and technical support, and marketing
materials as ENSEC deems reasonable in connection with the
remarketing of Licensed Software by EDS.
(e) EDS may refer to itself as ENSEC's authorized remarketer of the
Licensed Software and EDS shall be authorized and is hereby
authorized to use all trademarks and trade names of ENSEC or
trademarks and trade names of third parties used in connection
with advertising or promoting the Licensed Software; provided,
however, that EDS shall comply with written guidelines provided
by ENSEC to EDS from time to time relating to such use.
7. Add Section 5.8 titled Duplication of Documentation.
----------------------------
5.6 Duplication of Documentation. EDS may duplicate Licensed Software
----------------------------
Documentation, at no additional charge, for EDS' use or for use by a
Customer of EDS in connection with the provision of Licensed Software
so long as all required proprietary markings are retained on all
duplicated copies .
8. Add the following Section to EXHIBIT B, CHARGES, PRICES, AND FEES.
-------------------------
XI. TRAINING FOR JOINT MARKETING:
----------------------------
If requested by EDS, ENSEC shall conduct EnWorks systems Introduction
and Applications training called EnSYS based on the published rate
less EDS discount of thirty percent (30%). This training will be
conducted in Boca Raton, Florida and will encompass two days or more
as requested by EDS. The course will
3
<PAGE>
include an introduction to EnWorks Integrated Securities System
capabilities and applications and assumes attendees have basic PC
system integration and sales knowledge. This training requires a
four week advance notice.
<TABLE>
<CAPTION>
Description of training Published Charge
----------------------- ----------------
<S> <C>
EnSYS class $2,800
- two (2) days up to six (6) individuals
Each additional day of instruction $ 750
Customized or on-site training As negotiated.
</TABLE>
9. Entire Agreement. Except as amended herein, all terms and conditions
----------------
of the Agreement shall remain in full force and effect.
Notwithstanding anything to the contrary set forth in the Agreement,
in the event of a conflict between the terms of the Agreement and the
terms of this Amendment, this Amendment shall control.
IN WITNESS WHEREOF, ENSEC and EDS have caused this Amendment to be signed
and delivered by their duly authorized representatives, all as of the Amendment
Effective Date.
ELECTRONIC DATA SYSTEMS CORPORATION ENSEC, INC.
By: /s/ Joe B. Dorfmeister By: /s/ Charles N. Finkel
-------------------------------- --------------------------------
Printed Name: JOE B. DORFMEISTER Printed Name: CHARLES N. FINKEL
---------------------- ----------------------
Title: CONTRACT MANAGER Title: PRESIDENT & CEO
----------------------------- -----------------------------
Date: 2/28/96 Date: 02/26/96
------------------------------ ------------------------------
4
<PAGE>
EXHIBIT F
JOINT MARKETING
---------------
1.1 Development of Marketing Plan. The parties agree to establish a formal
-----------------------------
arrangement whereby EDS and ENSEC shall jointly promote and sell their
products and services in the marketplace. Further, the parties agree to
construct a joint marketing plan including, but not limited to, public
relations, advertising, news releases, sales training, education
requirements, targeted industries, targeted geography, marketing
influences, and marketing approaches (the "Marketing Plan"). The Marketing
Plan shall be approved in writing by the EDS and ENSEC Relationship
Directors (as later defined in this Exhibit) within six (6) months from the
Amendment Effective Date.
(a) The Marketing Plan shall include a specific list of Licensed Software
to be jointly marketed ("Joint Marketing Software"). Such list shall
be amended from time to time by mutual consent of the parties.
(b) The Marketing Plan shall be supplemented by a standard sales campaign
process that can be modified or tailored to any specific prospect
identified by either EDS or ENSEC (the "Sales Campaign"). Such
modification shall be agreed to in writing by the Relationship
Director of EDS and ENSEC, and shall include but not be limited to
such things as; tactics, rationale, approach, priorities and
timeframes.
(c) With respect to prospects identified by ENSEC, ENSEC shall:
(1) Lead the Sales Campaign. The ENSEC Relationship Director shall
designate the ENSEC sales leader (the "ENSEC Sales Manager"),
who will adjust the standard sales campaign process as necessary
in order to maximize the probability of achieving the objective
of the Sales Campaign.
(2) Include in the Sales Campaign, the scope and duration of the
potential use of EDS' services in deploying the Joint Marketing
Software to such prospect.
(3) Identify those actions in the Sales Campaign that are the
responsibility of EDS and those actions that are the
responsibility of ENSEC.
(4) Submit a Sales Campaign to the EDS Relationship Director for
approval or rejection within thirty (30) days of identification
of such prospect. EDS shall use reasonable efforts to respond to
such request within thirty (30) days of receipt of the Sales
Campaign. In the event that EDS does not respond in writing
within such thirty (30) day period the Sales Campaign shall be
deemed rejected by EDS. Acceptance and signature by the EDS
Relationship Director shall mean EDS' agreement to participate in
the Sales Campaign. If EDS elects not to participate in such
Sales Campaign, or has rejected such Sales Campaign in writing,
then either party shall be entitled to pursue such prospect as
permitted under the Sections titled Independent Sales Efforts by
----------------------------
ENSEC or Independent Sales Efforts by EDS of this Exhibit.
----- --------------------------------
F-1
<PAGE>
(d) With respect to prospects identified by EDS, EDS shall:
(1) Lead the Sales Campaign. The EDS Relationship Director shall
designate the EDS sales leader (the "EDS Sales Manager"). Adjust
the standard sales campaign process as necessary in order to
maximize the probability of achieving the objective of the Sales
Campaign.
(2) Include in the Sales Campaign, the scope and duration of the
potential use of the Joint Marketing Software and any
Customization which may be required in deploying the Joint
Marketing Software to such prospect.
(3) Identify those actions in the Sales Campaign that are the
responsibility of EDS and those actions that are the
responsibility of ENSEC.
(4) Submit a Sales Campaign to the ENSEC Relationship Director for
approval or rejection within thirty (30) days of identification
of such prospect. ENSEC shall use reasonable efforts to respond
to such request within thirty (30) days of receipt of the Sales
Campaign. In the event that ENSEC does not respond in writing
within such thirty (30) day period the Sales Campaign shall be
deemed rejected by ENSEC. Acceptance and signature by the ENSEC
Relationship Director shall mean ENSEC's agreement to participate
in the Sales Campaign. If ENSEC elects not to participate in such
Sales Campaign, or has rejected such Sales Campaign in writing,
then either party shall be entitled to pursue such prospect as
permitted under the Sections titled Independent Sales Efforts by
----------------------------
ENSEC or Independent Sales Efforts by EDS of this Exhibit.
----- --------------------------------
(e) The EDS and ENSEC Relationship Directors shall meet every six months
to review progress and direction of activities under this Exhibit.
1.2 Management of Marketing Activities. EDS and ENSEC shall each provide
----------------------------------
marketing management and organize sales teams to perform their respective
obligations under this Exhibit in accordance with the following provisions:
(a) EDS shall designate an individual who will be ENSEC's contact on
behalf of EDS during the term of this Exhibit (the "EDS Relationship
Director"). ENSEC shall be entitled to rely upon the decisions of the
EDS Relationship Director with respect to the administration of this
Exhibit.
(b) ENSEC shall designate an individual who will be EDS's contact on
behalf of ENSEC during the term of this Exhibit (the "ENSEC
Relationship Director"). EDS shall be entitled to rely upon the
decisions of the ENSEC Relationship Director with respect to the
administration of this Exhibit.
1.3 EDS Responsibilities. With respect to any Sales Campaign during the term of
--------------------
this Exhibit, EDS shall:
F-2
<PAGE>
(a) Offer a recommended business and/or information technology solution to
its prospects and Customers using the specified Joint Marketing
Software.
(b) Coordinate marketing efforts with those EDS organizations whose
responsibility it is to market to the general industries and specific
prospects.
(c) Lead any joint effort for a specific prospect when Services has been
identified in the specific Sales Campaign as the primary focus of such
prospect, or if otherwise agreed to by the parties in writing.
(d) Provide post installation support for Joint Marketing Software to
include:
(1) First line of support for the operation of the applicable Joint
Marketing Software. For purposes of this Exhibit, first line of
support shall include all related support not defined as
"Category One Defects".
(2) Customer training with respect to the use of the Joint Marketing
Software.
1.4 ENSEC Responsibilities. With respect to any Sales Campaign during the term
----------------------
of this Exhibit, ENSEC shall:
(a) Make available the Joint Marketing Software to its prospects and
customers.
(b) Coordinate marketing efforts with those ENSEC organizations whose
responsibility it is to market to the general industries and specific
prospects.
(c) Recommend EDS to its prospects and customers as the integration agent
of choice for the Joint Marketing Software.
(d) Lead any joint effort for a specific prospect when Joint Marketing
Software has been identified in the specific Sales Campaign as the
primary focus of such prospect, or as otherwise agreed to by the
parties in writing.
(e) Provide post installation support for Joint Marketing Software to
include:
(1) Support functions associated with the correction of any
identified defects in Joint Marketing Software.
(2) Updates and releases which shall be provided to EDS with respect
to identified problems for Joint Marketing Software which are
generally provided to ENSEC's other customers.
(3) Documentation and technical consultation assistance to EDS with
respect to such updates and releases.
1.5 Independent Sales Efforts by ENSEC. In the event that ENSEC encounters a
----------------------------------
prospect as part of its normal sales activity outside of the scope of
this Exhibit, then ENSEC shall have the option of:
F-3
<PAGE>
(a) Providing the Joint Marketing Software and services to such prospect
without EDS' participation.
(b) Providing the Joint Marketing Software to such prospect and requesting
that EDS provide the services for such Joint Marketing Software as a
subcontractor to ENSEC.
(c) Providing the Joint Marketing Software to such prospect and arranging
for a third party service provider.
(d) Submitting a Sales Campaign to the EDS Relationship Director for such
prospect as set forth in Subsection (c) of the Section titled
Development of Marketing Plan, of this Exhibit.
-----------------------------
1.6 Independent Sales Efforts by EDS. In no event EDS encounters a prospect as
--------------------------------
part of its normal sales activity outside of the scope of this Exhibit,
then EDS shall have the option of:
(a) Providing services to such prospect and requesting that ENSEC provide
the Joint Marketing Software as a subcontractor to EDS.
(b) Procuring the Joint Marketing Software as Licensed Software in support
of its Customers as permitted under the Article of the Agreement
titled PROVISION OF LICENSED SOFTWARE. Such procurement shall be
------------------------------
subject to any applicable discounts and shall apply towards any
aggregate totals as set forth in Exhibit B of the Agreement.
(c) Remarketing the Joint Marketing Software as Licensed Software to such
prospects as permitted under the Section of the Agreement, as amended,
titled Remarketing of Licensed Software by EDS. Such remarketing shall
---------------------------------------
be subject to any applicable discounts and shall apply towards any
aggregate totals as set forth in Exhibit B of the Agreement.
(d) Submitting a Sales Campaign to the ENSEC Relationship Director for
such prospect as set forth in Subsection (d) of the Section titled
Development of Marketing Plan, of this Exhibit.
-----------------------------
1.7 Exchange of Information. With respect to the Marketing Plan, the parties
-----------------------
agrees as follows:
(a) ENSEC shall provide, at no charge to EDS, a sufficient quantity of
Joint Marketing Software information, updates and corrections for
promotional activities which ENSEC deems reasonable.
(b) EDS shall provide functional update suggestions to ENSEC for Joint
Marketing Software improvement based on EDS' operational experience
and assessment of new market demands.
(c) At the discretion of the EDS Relationship Director, EDS shall
participate with ENSEC in general status and enhancement meetings.
(d) At the discretion of ENSEC Relationship Director, ENSEC shall
participate with EDS in general status and enhancement meetings.
F-4
<PAGE>
(e) The ENSEC Relationship Director may propose communication plans with
respect to the use of EDS' name. Such proposal must be submitted to
the EDS Relationship Director and must be approved in writing by EDS.
(f) The EDS Relationship Director may propose communication plans with
respect to the use of ENSEC's name. Such proposal must be submitted to
the ENSEC Relationship Director and must be approved in writing by
ENSEC.
(g) At the request of the ENSEC Relationship Director and upon the written
approval of the EDS Relationship Director, EDS shall participate in
ENSEC presentations, shows appearances, demonstrations, and other
market influencing and publicity efforts for the Joint Marketing
Software governed by this Exhibit.
(h) At the request of the EDS Relationship Director and upon the written
approval of the ENSEC Relationship Director, ENSEC shall participate
in EDS presentations, show appearances, demonstrations and other
market influencing efforts of the EDS services governed by this
Exhibit.
(i) Each party shall be responsible for the content of its information and
materials and shall ensure that such information and materials are
current, accurate and complete.
(j) Each party shall notify the other if any information or materials
provided under this Exhibit are found to be incorrect, inaccurate, or
incomplete in any material respect or if the passage of time or change
in circumstances renders such information or materials outdated,
misleading, or inaccurate in any material sense.
(k) At ENSEC's sole discretion, EDS shall be appointed as a member of
ENSEC's technical direction/product review board with respect to any
Joint Marketing Software of Licensed Software.
1.8 NEITHER COMPANY SHALL BE LIABLE FOR ANY AWARDS, COSTS , AND EXPENSES
RESULTING FROM OR ARISING OUT OF ANY MISREPRESENTATION COMMITTED SOLELY BY
THE OTHER COMPANY ON REMARKETING THE LICENSED SOFTWARE UNDER THIS
AGREEMENT.
1.9 Training and Education
----------------------
(a) ENSEC shall provide initial sales training and marketing and
orientation education to a mutually agreed to number of EDS employees
with respect to the Joint Marketing Software. Such training shall be
held at a mutually agreed upon location and shall be at no charge to
EDS. The purpose of such training is to prepare those EDS employees to
carry out their obligation as stated in the Marketing Plan or any
specific Sales Campaign.
(b) Following the initial training, EDS shall conduct "train the trainer"
sessions for additional EDS employees as needed in order to generally
support the Marketing Plan or specifically support the Sales Campaign
for each prospect.
(c) EDS may request additional training for EDS employees. The charge for
such additional training shall be as set forth in Exhibit B. Such
F-5
<PAGE>
training shall also be subject to the additional terms and conditions
as set forth in Exhibit G.
1.10 Term of Exhibit. Except as stated herein, the parties agree that the
---------------
initial term of this Exhibit shall be three (3) years commencing on the
Amendment Effective Date. This Exhibit shall automatically renew for
successive one (1) year renewal terms thereafter unless either party
provides the other party written notice of its intent not to renew not
less than ninety (90) days prior to the expiration of the initial or any
renewal term. Within twelve (12) months of the Amendment Effective Date,
either party may terminate this Exhibit at any time by providing the
other party with prior written notice. In such event, the termination
date for this Exhibit shall one hundred eighty (180) days from receipt of
written notification of such termination.
F-6
<PAGE>
EXHIBIT G
EDUCATION SERVICES
------------------
1. Certain Definitions. The following definitions apply to this Exhibit:
-------------------
(a) "EDS Students" means employees of EDS and employees EDS' Customers
who receive Education Services and participate as students.
(b) "Education Services" includes, but it not limited to, student
and instructor training, and time and material services provided
or to be provided by ENSEC pursuant to the Agreement and this
Exhibit.
(c) "Location" means the place where Education Services are performed or
are to be performed and/or where Documentation for Education
Services is to be delivered.
2. Supplemental ENSEC Obligations. ENSEC will provide to EDS the Education
------------------------------
Services specified in each Purchase Order in accordance with the terms
and conditions set forth in this Agreement and this Exhibit and will:
(a) Designate an individual who will be EDS' contact person at ENSEC and
who shall have the authority and power to make management decisions
relating to Education Services on behalf of ENSEC. Such individual
shall provide, at the request of EDS and within a reasonable period
of time, any requested management decisions. ENSEC may change the
contact person upon notice to EDS.
(b) Provide sufficient Documentation, as ENSEC deems necessary, for
each EDS Student at no charge to EDS. EDS Students may retain all
such Documentation after completion of the Education Services to
which such Documentation applies.
(c) Provide necessary education aids, as ENSEC deems necessary, such
references, films, overheads, or other similar instructional aids
for use with Education Services.
(d) If Education Services are to occur at an EDS Location, request in
writing in advance, any materials or equipment which should be present
at the EDS Location for use in teaching. Such materials or equipment
may include, but shall not be limited to, overhead projectors, film
projectors, flip charts, boards and markers personal computers for EDS
Students' use. ("Training Aids").
(e) For Education Services which occur at an EDS Location, allow for the
substitution or cancellation of EDS Students at no additional charge.
3. Supplemental EDS Obligations. EDS will, at its own cost and expense,
----------------------------
provide classroom facilities and reasonable and necessary Training Aids,
based on availability and discretion, for classes at an EDS Location.
4. Open and closed Education Services. A Purchase Order shall indicate if a
----------------------------------
course is "open," which means that EDS Students and other commercial
students may attend the course, or "closed," which means the course is
only available to EDS Students. Public classes at ENSEC's Location shall
always be considered open.
5. Charges. Where EDS is paying for Education Services on a flat fee per
-------
class basis, EDS shall not be required to pay any additional sums in the
event of student substitution or the student fails to attend the class
without
G-1
<PAGE>
notice. Where EDS is paying for the Education Services on a flat fee per
student basis, EDS shall be required to pay only for those EDS Students
actually in attendance.
G-2
<PAGE>
Exhibit 10.5
SOFTWARE VALUE ADDED RESELLER AGREEMENT
BETWEEN
ICL ENTERPRISES
AND
ENSEC, INCORPORATED
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
1. Agreement to License.........................................3
2. Term.........................................................3
3. VAR's Authority..............................................3
4. Orders, Minimum Order Quantity...............................4
5. Prices.......................................................4
6. Payment; Taxes...............................................4
7. Reporting Requirements; Audit................................5
8. Title; Risk of Loss..........................................5
9. Security Interest............................................5
10. Installation; Maintenance; Training..........................6
11. Warranty.....................................................6
12. Remedies.....................................................7
13. Indemnity....................................................7
14. Software and Documentation...................................8
15. Confidentiality.............................................10
16. Proprietary Rights Notices, Promotional Activities..........11
17. Changes in Specifications and Design........................11
18. Termination.................................................11
19. Excusable Delays............................................12
20. Other Provisions............................................12
</TABLE>
Exhibit A: Products and Prices
Exhibit B: VAR's Added Products; Authorized Territory and Customers;
Named Account List
Exhibit C: Purchased Equipment Schedule
Exhibit D: Quarterly Report
Exhibit E: Software Sublicense Agreement
Exhibit F: Provisions Relating to Canadian VAR's
-2-
<PAGE>
SOFTWARE VALUE ADDED RESELLER AGREEMENT
This Software Value Added Reseller Agreement ("Agreement") is made between ICL
Enterprises ("ICL") and ________________________________ ("VAR").
WHEREAS ICL markets and distributes software to customers in the United States
and Canada;
WHEREAS ICL desires to increase and expand its distribution of such products by
contracting with VARs who are able to focus their attentions and efforts on
specific customer bases; and
WHEREAS VAR has developed a marketing plan which focuses on specific customers
which the parties recognize to be a strong base for potential sales of ICL
products.
WHEREAS VAR represents that it has developed particular technical expertise,
marketing knowledge, and other resources which will enable it to significantly
enhance ICL's products for use by such customers; to effectively market to and
support such customers; and to promote ICL's image and competitive position with
such customers.
THEREFORE, the parties agree:
1. AGREEMENT TO LICENSE: ICL hereby agrees to license to VAR the software
listed in Exhibit A attached hereto ("Software"). VAR hereby agrees to a
license the Software pursuant to the terms and conditions contained in this
Agreement. ICL does not grant to VAR any right as to any goods or uses
except as to the Software,or any rights beyond the extent provided in this
agreement.
2. TERM: Unless otherwise terminated. Pursuant to this Agreement, this
Agreement shall be in effect for an initial term of two (2) years
commencing on the date this Agreement is fully executed by both parties
(the "Initial Term") Following the Initial Term, this Agreement shall be
automatically renewed for subsequent one (1) year periods unless terminated
by either party at any time with ninety (90) days prior written notice.
3. VAR's AUTHORITY:
a. VAR is granted the right to license the items of Software for its own
internal use in connection with this Agreement and for sublicensing to
the "Customers" defined in Exhibit B. "Customers" shall include end-
users only and shall not include resellers.
b. VAR is, and shall act as, an independent contractor, and not as an
agent or employee of ICL, and shall have no
-3-
<PAGE>
authority to commit or act on behalf of ICL in any manner other than
as expressly authorized herein.
c. Subject to specifically agreed upon exclusivity which, if agreed upon,
will be set forth on Exhibit B, this Agreement is nonexclusive and
shall not limit the right of ICL or any other VAR to market ICL's
products at any time of any party, including without limitation, any
Customer of VAR. This Agreement shall not limit VAR's right to market
products of any other vendor
4. ORDERS; MINIMUM ORDER QUANTITY: VAR shall order Software license by
completing, signing, and submitting to ICL Sales Order/Purchased Equipment
Schedules in the form of the attached subject to written
acceptance by ICL. Each order is subject to the following:
a. Each order shall be placed at least thirty (30) days prior to the
requested date of delivery. ICL reserves the right to charge VAR a
handling fee in the event ICL elects to deliver, at VAR's request,
ordered items in less than such required lead time.
b. If VAR uses a purchase order or other instrument covering the Software
license(s), any additional, inconsistent, or conflicting clauses in
such instrument shall be null and void and shall have no effect unless
expressly approved in writing by ICL.
c. Subject to the following, VAR may cancel all or part of an order prior
to shipment by ICL:
(1) If the cancellation is within twenty (20) days or less of the
scheduled date of delivery, VAR shall pay ICL a cancellation
charge equal to twenty-five percent (25%) of the price of the
portion of the order canceled.
(2) If VAR places an order at least ninety (90) days prior to the
requested date of delivery and the cancellation is within thirty-
one (31) or more days of the scheduled date of delivery, without
a cancellation charge.
(3) Each of the foregoing cancellation charges is a genuine estimate
of damages to be incurred by ICL in the event of a cancellation
and is a reasonable liquidation of such damages, not a penalty.
5. PRICES: Prices to VAR for Software ordered for delivery during the Initial
Term are set forth on in U.S. dollars. Prices for items ordered
during the Initial Term for delivery after the Initial Term, or for items
ordered
-4-
<PAGE>
after the Initial Term, may be changed with ninety (90) days' prior written
notice to VAR.
6. PAYMENT; TAXES
a. Unless and until ICL elects to extend credit to VAR, VAR shall pay in
advance (prior to shipment) for all items ordered from ICL. In the
event ICL elects to extend credit to VAR, payment thereafter shall be
due from VAR for each item within thirty (30) days of the date of
shipment. All payments shall be made in U.S. dollars.
b. The prices stated do not include taxes, fees or assessments applicable
in the United States (and in Canada if this Agreement permits
distribution in Canada) for license of the Software. In addition to
the prices stated, VAR will pay, or reimburse ICL for, all sales,
excise, use, property and other taxes that arise in connection with
this Agreement, exclusive of taxes based on ICL's net income, or
provide proof of tax exemption from such taxes. VAR shall be
responsible for, and pay, any and all personal property taxes imposed
upon the Software licensee(s) between the time of delivery thereof and
the passage of title thereto. VAR may reasonably contest the
imposition of any of the foregoing taxes, and ICL agrees to reasonably
assist any such contest, provided that VAR hereby agrees to promptly
reimburse ICL for any contested taxes actually paid by ICL and to
indemnify and hold ICL harmless against any and all liability, loss,
costs, damages, attorneys' fees and other expenses which ICL may
sustain or incur by reason of, or in consequence of, such contest.
c. If VAR fails to pay promptly all of the amounts due under this
Agreement, in addition to any other remedies at law, VAR agrees to pay
interest at the rate of one and one-half percent (1.5%) per month, or
the highest rate permitted by law, whichever is lower, on the
outstanding overdue balance for each month or part thereof such sum is
overdue.
d. In the event of a breach by VAR of any material obligation to ICL,
including, without limitation, failure to make payment(s) to ICL when
due, and in the event VAR fails to cure such breach within thirty (30)
days after receipt of written notice thereof from ICL, then ICL may
declare all sums immediately due and payable. In the event of such
breach, ICL may also require that VAR pay for Software licenses on or
prior to delivery by certified check, cashier's check, or wired funds.
7. REPORTING REQUIREMENTS; AUDIT
-5-
<PAGE>
a. Within fifteen (15) days after the end of each calendar quarter, VAR
shall submit to ICL a written report, containing the data described in
attached Exhibit D and any other information ICL reasonably requests
from time to time. Each report will be protected by ICL as
confidential information, in accordance with the provisions of Section
15 of this Agreement.
b. At ICL's request, at mutually agreeable times no more frequently than
twice annually, ICL or an agent or accounting firm chosen by ICL shall
be provided reasonable access during normal business hours to the
records of VAR purposes of audit of license fees due. Records
sufficient to verify copies of Software made, and authorized Customer
copies sold, leased, or otherwise distributed or transferred shall be
maintained by VAR and made available for audit.
8. TITLE; RISK OF LOSS:
a. ICL shall pay all shipping and insurance charges (if applicable). VAR
shall pay all customs duties and surcharges, and reasonable charges
for handling and preparation of export documentation, in the event
shipment is made to Canada.
b. If VAR desires that ICL ship to any Customer location in Canada (if
authorized by this Agreement), VAR shall provide ICL with the name,
location, and telephone number of VAR's customs broker and any other
information reasonably required by ICL.
c. Risk of loss and damage for each item of Software shall pass to VAR
upon initial receipt by VAR from the carrier.
9. SECURITY INTEREST: Until all of ICL's claims arising out of the furnishing
of an item of Software have been satisfied in full, VAR hereby grants to
ICL a purchase money security interest in such item and the proceeds
thereof. As used in this Section 9, "proceeds" includes whatever is
receivable or received when proceeds or collateral is sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary
or involuntary, and includes, without limitation, all rights to payment,
including return premiums, with respect to any insurance related thereto.
This Agreement, or a copy thereof, may be filed with appropriate
authorities at any time after signature by the VAR as a financing statement
and/or a chattel mortgage in order to perfect ICL's security interest. Such
filing does not constitute acceptance of this Agreement by ICL. Upon
request by ICL, VAR shall promptly execute sufficient financing statements
and such other instruments as ICL may reasonably request to perfect ICL's
security interest.
-6-
<PAGE>
10. INSTALLATION; MAINTENANCE; TRAINING
a. Installation of the Software shall be performed by VAR.
b. VAR shall provide training programs for its Customers; maintain a
sales and technical support staff sufficient in size and expertise to
provide competent assistance to its Customers in connection with the
use of the Software, and resolution of problems.
c. Upon VAR's request, ICL will provide training courses to VAR's
personnel at ICL's then-current prices for such courses.
11. WARRANTY:
a. ICL warrants that the Software will be free from material defects in
material or workmanship, and will be in good working order, for one
hundred (100) days from the date of shipment of the first copy of each
specific release of Software. ICL does not warrant any Software which
is modified in any way by VAR or by any third party.
b. VAR acknowledges that the foregoing warranties do not assure
uninterrupted operation of any such item or that any such item will
meet VAR's requirements. At ICL's expenses and option, ICL shall
repair or replace a defective item covered by the warranty, subject to
the condition that VAR shall have notified ICL promptly of the defect
describing repair work done (if any). Upon ICL's request, VAR shall
return the defective item or portion(s) thereof to ICL, at ICL's
expense. Items replaced by ICL shall become ICL's property. Repair or
replacement of Software will consist of the delivery of one (1)
corrected copy to VAR. Repaired and replacement items are warranted
applicable to the defective item. Warranty service is provided Monday
through Friday, excluding holidays, from 8:00 a.m. to 5:00 p.m.
Pacific Standard Time. If VAR request service outside the warranty
hours, ICL shall provide such service at its then-current rates.
c. The warranties do not cover defects in any item of Software which are
caused by improper installation, improper or inaccurate reproduction
of Software by VAR, use of software not developed or approved by ICL,
failure of VAR to implement a Software correction provided by VAR by
ICL, failure to provide or the failure of adequate air conditioning or
humidity control, neglect, negligence, accident or any other reason
not attributable to ICL. In the event of any such defect, VAR shall
pay to ICL ICL's standard charges for the repair or replacement of the
-7-
<PAGE>
items including , without limitation, shipping and handling charges.
12. REMEDIES:
a. VAR'S ONLY REMEDY FOR CLAIMS RELATING TO THE SOFTWARE WILL BE THE
REPAIR OR REPLACEMENT OF THE SOFTWARE WITHIN THE WARRANTY PERIOD
UNLESS VAR'S REMEDY OR REPAIR OR REPLACEMENT SHALL FAIL OF ITS
ESSENTIAL PURPOSE IN WHICH CASE ICL SHALL REPURCHASE THE APPLICABLE
SOFTWARE AT VAR'S ORIGINAL PURCHASE PRICE. THE WARRANTIES CONTAINED IN
SECTION 11 ARE EXPRESSLY IN LIEU OF, AND VAR HEREBY WAIVES, ALL OTHER
GUARANTEES AND WARRANTIES AND LIABILITIES ON THE PART OF ICL, EXPRESS
OR IMPLIED (INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), ARISING BY LAW
OR OTHERWISE.
b. IN NO EVENT SHALL ICL BE LIABLE FOR (1) ANY EXEMPLARY, SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES INCLUDING, WITHOUT
LIMITATION, ANY LOSS OF BUSINESS, PROFITS, SAVINGS, USE, DATA, OR
GOODWILL, OR (2) CLAIMS OF THIRD PARTIES, EXCEPT AS SET FORTH IN
SECTION 13, REGARDLESS OF THE FORM OF ACTION, WHETHER BY NEGLIGENCE OR
OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
c. EXCEPT IN CONNECTION WITH THE INDEMNITIES PROVIDED TO VAR BY ICL IN
SECTION 13 OF THIS AGREEMENT, IN NO EVENT SHALL ICL BE LIABLE FOR ANY
LOSSES OR DAMAGES RESULTING FROM ANY CAUSE (INCLUDING NEGLIGENCE) THAT
EXCEED THE PURCHASE PRICE OF THE DEFECTIVE SOFTWARE.
d. VAR and ICL agree that each item of the Software has been licensed by
ICL to VAR for commercial use and is not a "consumer good". VAR is
solely responsible for selection, use, and results obtained from use,
of all items.
13. INDEMNITY:
a. INTELLECTUAL PROPERTY INDEMNITY
-------------------------------
(1) Defense: ICL will, at its cost and expense, defend any claim or
-------
cause of action brought against VAR or a Customer of VAR based
upon a claim that any item of Software furnished under this
Agreement infringes any patent, copyright, trademark, or other
intellectual property right enforceable in the United States or
Canada, provided that VAR promptly notifies ICL of the
institution of such claim or cause of action and ensures that ICL
is given such authority as may be necessary for ICL to defend.
-8-
<PAGE>
ICL shall have sole control of the defense (including the right
to select and control counsel, and control of any and all
appeals) of any such claim and of all negotiations, including the
right to effect the settlement or compromise thereof. VAR shall
give ICL such information and such assistance for the defense as
ICL may reasonably request.
(2) Indemnification: ICL shall pay all damages and costs awarded
---------------
against VAR or its Customer in any settlement agreed to by ICL or
in any final judgment on such claim (after all appeals),
excluding damages not attributable to ICL. ICL will not be
responsible for any settlement made without ICL's written
consent. In the event any item of Software is, in any such
settlement or judgment, held to constitute an infringement and
the use of said item is enjoined, ICL shall, at its expense and
its option, (a) procure for VAR or its Customer the right to
continue using the item, (b) substitute a suitable item or (c)
modify the item so that it becomes non-infringing, provided the
modifications do not impair its originally intended use. If any
of the foregoing options are not commercially practicable, ICL
may elect to purchase the item for an amount equal to its
depreciated value based on a five (5) year, straight line
depreciation schedule, based on the original purchase price paid
to ICL.
(3) Exclusion: ICL shall have no liability or obligation to defend
---------
or indemnify VAR or a Customer with respect to any infringement
of a third party intellectual property right, or claim thereof,
based upon the combination, operation or use of any item of
Software supplied hereunder with equipment, software or data not
supplied by ICL, or in a manner for which such item was not
designed or intended, or for any claim based upon alteration or
modification, without ICL's written approval, of any Software
supplied pursuant to this Agreement.
(4) Entire Liability: This Section 13.b states the entire liability
----------------
of ICL for infringement by any item of Software furnished under
this Agreement. EXCEPT AS STATED IN THIS SECTION 13.B, ICL
DISCLAIMS ALL LIABILITY FOR PATENT, TRADEMARK, COPYRIGHT OR ANY
OTHER ALLEGED INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES.
b. Indemnification by VAR: With the exception of matters for which ICL
----------------------
is responsible under Sections 11, 12, or 13.a, VAR shall protect,
indemnify and hold harmless ICL from and against any and all
liabilities, losses, damages, claims, suits and expenses, including
reasonable
-9-
<PAGE>
attorneys' fees, and all liabilities of whatsoever kind or nature
imposed on, incurred by, or asserted against ICL by any Customer or
other third party relating to or arising out of (1) the possession,
use, selection, delivery, purchase or operation of (a) VAR's products,
or (b) ICL's products sold by, or obtained from or through, VAR; or
(2) the performance or nonperformance of VAR or ICL under this
Agreement.
14. SOFTWARE AND DOCUMENTATION:
a. Software and License Fees:
-------------------------
(1) Unless indicated otherwise in this Agreement, the term "Software"
shall mean the software set forth on Exhibit A. The Software is
licensed only, not sold.
(2) per terminal license fees for Software reproduced in accordance
with this section 14 during the Initial Term shall be those fees
set forth on Exhibit A. ICL shall make available to VAR those
manuals and other documents (the "Documentation") for ICL's then
current per-copy prices.
(3) ICL, from time to time in its sole discretion, may elect to issue
modified releases of Software designated by ICL as mandatory
software upgrades ("Mandatory Software Upgrades"). Mandatory
Software of correcting or enhancing the Software. At ICL's
expenses, ICL will provide VAR with one (1) copy of each
Mandatory Software Upgrade relating to Software being used by VAR
at the time of release. VAR shall have the right to reproduce the
Mandatory Software Upgrade and replace copies of Software being
used by Customers with copies of the corrected Software, for no
extra charge.
(4) ICL, from time to time in its sole discretion, may elect to issue
new releases of Software containing enhancements, upgrades, or
new features ("New Releases"). New Releases shall be available to
VAR at ICL's then-current prices.
b. Licenses: Upon payments of the license fee(s) by VAR, ICL hereby
--------
grants to VAR the following nonexclusive licenses in the United
States, and in Canada if authorized in
(1) A license to use and reproduce the Software, and prepare
derivative works thereof, in object code form, for the purposes
of development, technical support, maintenance and warranty
services of the Software.
-10-
<PAGE>
(2) A license to provide to VAR's Customers, sublicenses to use the
Software, in object code form only, on the condition that VAR
first submits to ICL a software sublicense agreement in the form
attached as Exhibit E, executed by Customer. VAR shall reproduce
such Software and distribute to Customer for installation on the
applicable unit of Equipment. All reproduction and distribution
shall be subject to the provisions of this Agreement, including
without limitation, this Section 14 and the reporting provisions
of Section 7.
(3) These licenses shall be terminated if the Software is removed
from the Equipment, if the Software is transferred without the
execution of the required software sublicense agreement, if VAR
fails to enforce the terms of any software sublicense agreement,
or if VAR or any Customer violates any other material provision
of this Section 14.
c. Use. To ensure optimal performance of the Software, VAR shall use the
---
Software only as provided in each Software specification and only on
equipment authorized or approved for such use by ICL. VAR shall not,
without ICL's prior written consent, (1) make copies of the Software
or Documentation, except copies for VAR's internal use consistent with
the purposes of this Agreement or for purposes of backup and recovery,
or as otherwise expressly authorized herein; or (2) modify the
Software or allow any third party to modify the Software on VAR's
behalf. VAR acknowledges that the Software is of such complexity that
minor errors may not be correctable and that ICL shall have no
liability or obligation under this Agreement if such
errors are not corrected provided the Software is functional and
materially conforms to the Software's specifications.
d. Ownership. The Software and Documentation, together with all
---------
modifications or revisions thereto, made by or for either ICL or VAR,
as well as any and all copies thereof, are the property of either ICL,
or ICL and one or more other owners, and shall be deemed a trade
secret for all purposes and shall conspicuously bear any and all
applicable ICL ownership marks to the same extent that the original
bore such marks. All rights, title and interest in and to the Software
and Documentation, including all copies, modifications and revisions
thereof, shall remain the property of ICL and, if applicable, such
other owners. Nothing in this Agreement shall be deemed to prohibit
ICL from using, and ICL shall have the right to use, in its business,
in any manner, for sale or otherwise, the Software and Documentation,
and any tangible or intangible programming concepts or techniques
which ICL develops and employs in connection
-11-
<PAGE>
with the performance of this Agreement or otherwise, whether or not
patentable or otherwise subject to protection by statute or otherwise.
e. Confidentiality: VAR acknowledges it has been advised by ICL that the
---------------
Software has not been published and that ICL deems the Software to be
valuable, confidential and proprietary of ICL and a trade secret of ICL and
VAR agrees to treat it as such.
f. Nondisclosure: VAR shall take or cause to be taken all reasonable
-------------
precautions to hold in confidence, and to prevent the disclosure or
communication to third parties of, and shall not disclose or communication
to third parties, without ICLAEs prior written consent, all information,
data and know-how pertaining to the design and operation of the Software
including, but not limited to, source and object codes, tapes, machine
listings and flowcharts.
g. Return: In the event of termination of the Software license, VAR or if
------
applicable, its Customer, will discontinue use of the Software and all
information pertaining thereto, will remove the same from the equipment and
will either deliver to ICL all the Software, Documentation, and copies
thereof, or at ICLAEs election , destroy such items and certify to ICL that
they have been destroyed.
15. Confidentiality:
a. It is anticipated that VAR and ICL , in the course of carrying out their
respective responsibilities under this Agreement, will consult with the
other party's personnel about, or receive certain of the other party's
confidential business and technical information ("confidential
information). VAR and ICL agree to keep confidential and, without the
other party's prior written consent, will not use and will not disclose to
any person or entity any Confidential Information except as expressly
permitted by this Agreement. VAR and ICL will each take reasonable
precautions to endure that the Confidential Information of the other party
is made know to, and used only insofar as it is necessary for proper
performance under this Agreement.
b. The foregoing obligations of this Section 15 will not apply to any
information or data that (1) at the time of disclosure or use by the
recipient is known or available to the general public by publication or
otherwise (other than a result of a breach of this Section 15); (2) is
known by the recipient at the time of receiving such known information; (3)
is made public by the disclosing party;
-12-
<PAGE>
(4) is developed independently by the recipient; or (5) is acquired by
the recipient from a third party who independently and rightfully
developed or acquired the information or data.
c. VAR shall not, and shall not allow any other party to, reverse
assemble of reverse compile the Software, for any purpose.
d. Either VAR or ICL may specifically enforce any agreement contained in
this Section 15 through an injunction or otherwise, in the event of
breach or threatened breach by the other. Such remedies will be in
addition to all others that may be available.
16. PROPRIETARY RIGHTS NOTICES; PROMOTIONAL ACTIVITIES:
a. Notices placed by ICL on or in the Software, and Documentation, or on
the packaging for such items, relating to trademark, patent,
copyright, copyright or other proprietary interests, shall not be
removed or modified without ICL's prior written consent. ICL
trademarks, if used by VAR, shall appear in clear association with
legal notice of ICL's proprietary ownership, and all partial and
complete copies of ICL Software and Documentation, modified and
unmodified, shall contain the copyright notices which appear in the
original versions provided to VAR.
b. VAR shall not provide to any party, any representations regarding
ICL's products other than those representations made expressly in
ICL's published documentation.
c. While this Agreement is in effect, each party may use the company name
of the other party in its promotional activities, subject to prior
written approval.
17. CHANGES IN SPECIFICATIONS AND DESIGN:
a. ICL may, from time to time, change the specifications or design of any
item of Software. ICL will advise VAR of any material changes in
specification or design before shipping any item incorporating such
changes. In the event of any change in specifications or design, ICL
will be under no obligation to make the change to any item previously
shipped to VAR. In the event of a material change, VAR may elect, if
VAR so chooses, not to accept the changed item and to cancel any
unfilled orders without liability to ICL for the charges set forth in
Section 4.d..
b. ICL, in its discretion, may elect to make available mandatory
engineering changes ("EC's") developed to enhance safety or
reliability of Software. ICL shall
-13-
<PAGE>
implement EC's for no charge to VAR of its Customers during the term
of this Agreement and may elect to charge for EC's thereafter. VAR
shall ensure that ICL is given prompt access to any item for which a
no-charge EC implementation is made available. At ICL's election, a
Mandatory Software Upgrade (defined in Section 14.a(3)) may be
designated as an "EC" and thereupon shall be subject to this Section
17.b.
18. TERMINATION: Either VAR or ICL may terminate this Agreement prior to its
expiration by written notice to the other party upon the occurrence of any
of the following events: (a) any voluntary petition in bankruptcy or any
petition for similar relief is filed by such other party; (b) any
involuntary petition in bankruptcy is filed against such other party under
any Federal or State Bankruptcy or Insolvency Act and shall not have been
dismissed within sixty (60) days from the filing thereof; (c) a receiver
shall be appointed for such other party or any material portion of the
property of such party by any court of competent jurisdiction, and such
receiver shall not have been dismissed within sixty (60) days from the date
of his appointment; (d) such other party shall make an assignment for the
benefit of creditors; (e) such other party shall admit in writing its
inability to meet its debts as they mature; (f) such other party shall fail
to substantially comply with any material terms, conditions or covenants
contained herein and such party shall fail to correct such lack of
compliance within thirty (30) days after receipt of written notice of such
failure from the nondefaulting party; or (g) for any reason after the
Initial Term with at least ninety (90) days prior written notice to the
non-terminating party.
19. EXCUSABLE DELAYS: Neither party shall be deemed to be in default under
this Agreement or to be liable for delays in delivery or failure to
manufacture or deliver, or otherwise to perform any obligation hereunder,
other than the obligation to make a payment due hereunder, when such delay
or failure is caused by circumstances beyond the control of and without the
fault of or negligence of such party. By way of example but not of
limitation, such causes may include acts of God or public enemies, war,
labor disputes, supplieror material shortages, embargoes, rationing, fuel
shortages, acts of local, state or national governments or public agencies
or military authority, utility or communication failures, delays in
transportation, fire, flood, earthquake, epidemics, riots or strikes. The
time for performance of any right or obligation, other than the obligation
to make a payment due hereunder, delayed by such circumstances will be
postponed for a period equal to the delay, unless the parties agree
otherwise in writing with respect to delivery to a specific location.
20. OTHER PROVISIONS:
-14-
<PAGE>
a. Costs and Expenses: Except as expressly provided herein, each party shall
------------------
be responsible for all costs and expenses it incurs in connection with this
Agreement.
b. Amendment: No modification, amendment or waiver of any of the provisions
---------
of this Agreement, and no prior approval required by this Agreement, shall
be effective unless in writing signed by the parties. Writings signed on
behalf of ICL must be signed by an authorized representative of ICL.
c. Waiver: The failure of any party hereto to enforce at any time any of the
------
provisions of this Agreement or to require at any time performance by the
other party of any of the provisions hereof shall not be construed to be a
waiver of said provision or to affect either the validity of this
Agreement, or any part hereof, or the right of any party thereafter to
enforce each and every such provision in accordance with the terms of this
Agreement. Each shipment made under any order shall be treated as a
separate transaction, and in the event of any default by VAR, ICL may
decline to make further shipments without in any way affecting any of ICL's
rights including without limitation any rights under such order.
d. Severability: In the event that any covenant, condition or other provision
------------
contained in this Agreement is held to be invalid, void or illegal by any
court of competent jurisdiction, the same shall be deemed severable from
the remainder of this Agreement and shall in no way affect, impair or
invalidate any other covenant, condition or other provision contained in
this Agreement, and any such provision held to be invalid, void or illegal
shall be deemed replaced by a provision which comes closest to such
unenforceable provision in language and intent without being invalid, void
or illegal.
e. Assignment: This Agreement and the rights and obligations created
----------
hereunder shall not be assigned, or otherwise transferred by either VAR or
ICL without the prior written consent of the other party except that
without such consent, the rights and obligations of either party hereunder
may at any time be assigned, delegated or transferred by operation of law
or otherwise, in connection with the total acquisition of the business of
either party to which this Agreement pertains. ICL may assign any matters
of warranty to an ICL designated service representative. An assignment
shall not relieve the assigning party of its obligations to preform if the
assignee should fail to do so. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the respective parties
hereto, their successors, assigns and representatives.
-15-
<PAGE>
f. Controlling Law: All questions concerning the validity, operation,
---------------
interpretation and construction of this Agreement will be governed by and
determined in accordance with the laws of the State of California whose
courts shall have sole and exclusive jurisdiction over all matters
pertaining to this Agreement.
g. Other Instruments: The parties to this Agreement agree to execute any
-----------------
instruments or documents that are required in order to effect the terms,
conditions, purposes, and objectives of this Agreement.
h. Captions: The captions of the various paragraphs herein are for
--------
convenience only, and they are not intended to be any part of the body or
text of this Agreement, nor are they intended to be referred to in
construing any of the provisions hereof.
i. Interpretation: This Agreement has been prepared and negotiations in
--------------
connections therewith have been carried on by the joint efforts of the
parties to this Agreement. This Agreement is to be construed simply and
fairly and not strictly for or against any of the parties to this
Agreement.
j. Counterparts: This Agreement may be executed in any number of
------------
counterparts, any of which shall be deemed to be an original.
k. Number and Gender: Whenever the singular number is used in this Agreement,
-----------------
and when required by the context, the same shall include the plural, and
the masculine, feminine and neuter genders shall each include the others,
and the word "person" shall include, in addition to natural persons,
corporations, firms, partnerships, joint ventures, trusts or estates.
l. Survival: The terms, provisions, representations and warranties contained
--------
in this Agreement shall survive the delivery and acceptance of, and payment
for, the Software license(s). The termination of this Agreement shall not
affect or impair the obligations, duties, rights and liabilities of the
parties hereto in any way or respect relating to any transaction or event
occurring prior to such termination.
m. Attorneys' Fees: In the event that any action, suit or proceeding is
---------------
instituted between the parties in connection with any controversy or
dispute arising from, under or related to this Agreement, the judgement
therein shall include a reasonable sum to be paid to the prevailing party
for and on account of attorneys' fees and costs incurred in such action,
suit, or proceeding, including those incurred on appeal.
-16-
<PAGE>
n. Notices: All communications and notices provided for or permitted
-------
hereunder shall be made in writing and shall be personally delivered,
mailed be certified mail, postage prepaid, or sent by overnight courier to
the addresses set forth below or to such other address as either party
shall have communicated by written notice to the other. Each such notice
shall be effective on the date of receipt.
o. Compliance with Laws: Each party will comply with all applicable laws and
--------------------
regulations. ICL is subject to regulation by agencies of the United States
government, including the United States Department of Commerce, which
prohibit export or diversion of ICL's products to certain countries. VAR
warrants that it will not sell or knowingly assist or participate in the
sale of any Software in countries or to users not approved to receive
technical equipment or information under applicable United States laws and
regulations. VAR will hold harmless and indemnify ICL for any damages,
costs, expenses and attorneys' fees resulting to ICL from a breach of this
Section 20.0 by VAR.
p. Integrated Agreement: This Agreement, including its attachments and any
--------------------
documents incorporated by reference herein, is the complete, exclusive
statement of the parties' agreement regarding the subject matter hereof,
superseding all other representations, proposals, and prior agreements,
express or implied, oral and written.
-17-
<PAGE>
THE PARTIES AGREE AND ACKNOWLEDGE THAT THEY
HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND SHALL BE
BOUND BY ITS TERMS AND CONDITIONS.
_________________________________________________________________________
ICL ENTERPRISES
(VAR)
BY:
BY: Charles N. Finkel /s/ Charles N. Finkel
------------------------------------------------------------------
NAME:
NAME:________________________________________________________________
TITLE:
TITLE: PRESIDENT & CEO
--------------------------------------------------------------
DATE:
DATE: 02/27/96
----------------------------------------------------------------
VAR's Billing Address:
Ensec, Inc.
- --------------------------------------------------------------------------------
One World Trade Center
33rd Floor
- --------------------------------------------------------------------------------
New York, NY 10048
- --------------------------------------------------------------------------------
-18-
<PAGE>
EXHIBIT A
Products and Prices
ACCESS MANAGER
PRICING:
First Year of Agreement: $1,000,000 Quota on sales of Access Manager
<TABLE>
<S> <C> <C>
Discounts: $0 - 500,000 30% off list price
$500,001 - 750,000 35% off list price
$750,001 + 37.5% off list price
</TABLE>
-19-
<PAGE>
EXHIBIT B
VAR'S ADDED PRODUCTS
AUTHORIZED TERRITORY AND CUSTOMERS,
NAMED ACCOUNT LIST
1. All Software acquired by VAR shall be provided by VAR to its Customers with
the following "value-added" Product(s):
2. VAR's entire attention and energy expended in connection with the marketing
of ICL's products under this Agreement shall be focused on the authorized
"Customers", and in the authorized "Territory", defined as follows:
Territory:
---------
Worldwide
-20-
<PAGE>
EXHIBIT C
Sales Order/Purchased Equipment Schedule
-21-
<PAGE>
EXHIBIT D
Quarterly Report
Sales Activity During Previous Quarter:
- --------------------------------------
For each Customer
Name and address
Date(s) of sale
Description of Software licensed
Description (including release levels) and number of copies of
Software reproduced and sublicensed
Location where Software installed
Software serial number
Other pertinent Customer data (if requested by ICL)
-22-
<PAGE>
EXHIBIT E
SOFTWARE SUBLICENSE AGREEMENT
_________________________ ("Licensor") and the undersigned ("User") agree:
1. LICENSE: Licensor grants User a perpetual, nonexclusive license in the
-------
United States to use one object code copy of the ICL Inc. ("ICL") software
listed below ("Software") with each item of ICL equipment listed below
("Equipment").
SOFTWARE: EQUIPMENT:
-------- ---------
(Release No. and description) (Model No:
and description)
The "Software" shall include enhancements or updates provided by Licensor,
if any. ICL shall have no obligation to modify or update the Software. The
Software is licensed only, not sold.
2. USE: To ensure optimal performance of the Software, User shall use each
---
item of Software only as provided in ICL's published documentation and
specifications. User shall not make copies of the Software or supporting
documentation, except copies for purposes of backup and recovery.
3. OWNERSHIP: The Software, with each copy made by or for User, is the
---------
property of either ICL, or ICL and one or more other owners, and shall be
deemed a trade secret for all purposes, and each copy shall conspicuously
bear all applicable ownership marks to the same extent that the original
bore such marks. All rights, title and interest in and to the Software,
including each copy, shall remain the property of ICL and, if applicable,
such other owners.
4. CONFIDENTIALITY: User acknowledges that the Software has not been published
---------------
and that the owner(s) deem such Software to be valuable, confidential and
proprietary property, and a trade secret, and User agrees to treat it as
such. User agrees to take or cause to be taken all reasonable precautions
to hold in confidence, and to prevent the disclosure or communication to
third parties of, all information, data and know-how pertaining to the
design and operation of the Software. User shall not itself, or permit any
third party to, modify, reverse engineer, reverse compile, or disassemble
the Software or any ICL Equipment in whole or in part. The
-23-
<PAGE>
obligations or user under this Paragraph 4 shall survive any termination of
the License granted in this Agreement.
5. ASSIGNMENT: In the event User sells or otherwise disposes of the
----------
Equipment, a license to use the Software in object code form may be
transferred to the new owner, subject to ICL's standard license fee in
effect at the time of transfer, and subject to the condition that the new
owner must execute a software license agreement with Licensor equivalent in
all material respects to this Agreement. In the event of any such transfer,
User must transfer all object code copies of the Software, whether
imprinted or in machine-readable form (including all portions of the
Software contained or merged into other software) to the same party or
destroy any copies not transferred.
6. WARRANTY AND LIABILITY EXCLUSIONS: USER SHALL CONTACT LICENSOR EXCLUSIVELY
---------------------------------
IN THE EVENT USER HAS ANY QUESTIONS OR PROBLEMS RELATING ICL AND USER, ICL
SPECIFICALLY EXCLUDES AND DISCLAIMS, AND USER HEREBY WAIVES, ALL
GUARANTIES, WARRANTIES, AND LIABILITIES OF ANY KIND IN CONNECTION WITH ALL
ITEMS OF ICL EQUIPMENT AND SOFTWARE, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. ALL ITEMS PROVIDED BY ICL ARE
PROVIDED ON AN "AS IS" BASIS. IN NO EVENT WILL ICL BE LIABLE FOR ANY
EXEMPLARY, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT
LIMITATION, ANY LOSS OF BUSINESS, PROFITS, USE, DATA, OR GOODWILL, OR
CLAIMS OF THIRD PARTIES, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT OR TORT, HOWEVER CAUSED, WHETHER BY THE NEGLIGENCE OF ICL OR
OTHERWISE,EVEN IF ICL HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR
DAMAGES. USER IS RESPONSIBLE IN ALL RESPECTS FOR SELECTION AND USE OF THE
SOFTWARE, AND THE RESULTS OBTAINED THEREFROM.
7. TERMINATION; REMEDIES: The license granted by this Agreement shall be
---------------------
terminated if User discontinuing use of the Software, if the Software is
removed from the Equipment, if the Software is transferred without
execution of the required software license agreement, if the Software is
used other than as authorized in Paragraph 2, or if User violates any other
material provision of this Agreement. User acknowledges the highly
confidential and proprietary nature of the items described herein, and
agrees that ICL, as third party beneficiary under this Agreement, may take
any legal or equitable action it deems appropriate, directly against User,
to enforce the provisions of this Agreement and/or to terminate this
Agreement. Upon termination, User will either deliver to Licensor all the
Software, documentation, and copies thereof, or at ICL's election, destroy
such items and certify that they have been destroyed. In the event of
breach or threatened breach of this Agreement, Licensor and
-24-
<PAGE>
ICL shall have the right to injunctive relief, in addition to any other
legal and equitable remedies available.
8. SOURCE CODE: Notwithstanding the provisions of Paragraph 5, in the event
-----------
this Agreement includes Software in source code form, source shall not be
transferred by User to any third party at any time. If User sells or
otherwise disposes of the Equipment, all source code and copies thereof
shall immediately be returned to Licensor or ICL.
9. OTHER PROVISIONS:
----------------
a. Amendment: No modification, amendment or waiver of any provision of
---------
this Agreement shall be effective unless in writing signed by the
parties. Writing signed on behalf of Licensor must be signed by an
officer of Licensor.
b. Waiver: Failure by Licensor or ICL at any time to enforce any
------
provision of this Agreement or to require performance by User of any
provision shall not be construed to be a waiver of said provision or
to affect either the validity of this Agreement, or any part hereof,
or the right thereafter to enforce each and every such provision in
accordance with the terms of this Agreement.
c. Controlling Law: All questions concerning the validity, operation,
---------------
interpretation and construction of this Agreement will be
governed by and determined in accordance with the laws of the
State of California.
d. Severability: In the event any provision of this Agreement is held to
------------
be invalid, void or illegal by any court of competent jurisdiction,
the same shall be deemed severable from the remainder of this
Agreement and shall in no way affect, impair or invalidate any other
provision, and any such unenforceable provision shall be deemed
replaced by a provision which comes closest in language and intent
without being invalid , void of illegal.
e. Attorneys' Fees: In the event that litigation is instituted between
---------------
the parties in connection with this Agreement, the judgment therein
shall include a reasonable sum to be paid to the prevailing party for
attorneys' fees and costs incurred in such litigation, including those
incurred on appeal.
f. Compliance with Laws: ICL's products are subject to regulations of
--------------------
agencies of the United States government, including the United States
Department of Commerce, which prohibit export or diversion of ICL's
products to certain countries. User warrants that it will not transfer
or knowingly assist or participate in the transfer of any
-25-
<PAGE>
Software to countries or users not approved to receive technical information
under applicable United States laws and regulations. User will hold harmless
and indemnify Licensor and ICL for any damages resulting to either such
party from a breach of this Paragraph f. by User.
g. Entire Agreement. This Agreement sets forth the entire agreement between the
----------------
parties with regard to the subject matter hereof. All prior and
contemporaneous conversations, negotiations, possible and alleged agreements
and representations, convenants, and warranties with respect to the subject
matter hereof, express or implied, oral or written, are waived, merged
herein and superseded by this Agreement.
THE PARTIES AGREE AND ACKNOWLEDGE
THAT THEY HAVE READ THIS AGREEMENT,
UNDERSTAND IT, AND AGREE TO BE BOUND
BY ITS TERMS AND CONDITIONS
ENSEC, INCORPORATED ICL-HPS
- ---------------------------------- --------------------------------
(User) (Licensor)
One World Trade Center-33rd Floor 11490 Commerce Park Drive
- ---------------------------------- --------------------------------
(Address) Suite 500 (Address)
New York, NY 10048 Reston, VA 22091
- ---------------------------------- --------------------------------
(City, State, Zip) (City, State, Zip)
By: /s/ Charles N. Finkel By: /s/ Andrew Galbraith
------------------------------- -----------------------------
Name: Charles N. Finkel Name: Andrew Galbraith
----------------------------- ---------------------------
Title: PRESIDENT & CEO Title: Financial Controller
---------------------------- --------------------------
Date: 02/27/96 Date: 02/29/96
----------------------------- ---------------------------
-26-
<PAGE>
EXHIBIT F
PROVISION RELATING TO CANADIAN VAR'S
In the event VAR'S principal place of business is located in Canada, the
following provisions shall apply notwithstanding any other provision(s) of this
Agreement to the contrary:
1. Section 9 entitled "Security Interest" shall be deleted and replaced with the
following:
Until all of ICL's claims arising out of the furnishing of Software have been
satisfied in full, VAR hereby grants to ICL a security interest in each
Software license purchased hereunder and the proceeds thereof as defined
under the governing personal property security legislation. It is hereby the
intent of both ICL and VAR that the said security interest shall constitute a
"purchase money security interest" under the applicable legislation. This
Agreement, or a copy thereof, may be filed with appropriate authorities at
any time after signature by the VAR in order to perfect ICL's security
interest. Such filing does not constitute acceptance of this Sales Agreement
by ICL. VAR shall execute, acknowledge, deliver to ICL such documents or
instruments and do all acts as ICL shall deem necessary to perfect ICL's
security interest for the selling price.
2. The second sentence of Section 12.a is deleted and replaced with the
following:
THE WARRANTIES CONTAINED IN SECTION 11 ARE EXPRESSLY IN LIEU OF, AND VAR
HEREBY WAIVES, ALL OTHER GUARANTEES, CONDITIONS, WARRANTIES AND LIABILITIES
ON THE PART OF ICL, EXPRESS OR IMPLIED (INCLUDING BUT NOT LIMITED TO ANY
CONDITION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE), ARISING BY LAW OR OTHERWISE.
-27-
<PAGE>
Exhibit 10.6
MC/CAK
JJC
THE PORT AUTHORITY
OF NY & NJ
THE WORLD TRADE CENTER
BOOK II
CONTACT WTC-893.071
___________________________________________________________
FORM OF CONTRACT FOR CONTRACT WTC-893.071
FOR A ELECTRONIC PARKING ACCESS CONTROL
SYSTEM
___________________________________________________________
OCTOBER 1994
CONFORMED COPY
<PAGE>
CONTRACT VTC-893.071
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
CHAPTER 1 - GENERAL PROVISIONS
<S> <C> <C>
1. Definitions.................................................... 1
2. Contract Documents............................................. 5
3. General Agreement.............................................. 18
4. Authority Access To Records.................................... 19
5. Advertisement.................................................. 20
6. Agency For Rental Of Construction Equipment.................... 20
7. Exemption From NY State And NYC Sales Taxes.................... 21
8. Performance And Payment Bond Or Other Security................. 23
CHAPTER II - ADJUSTMENTS AND PAYMENTS
9. Adjustments Of Lump Sum........................................ 26
10. Compensation For Extra Work.................................... 26
11. Compensation For Emergency Delays.............................. 32
12. Monthly Advances............................................... 32
13. Final Payment.................................................. 34
14. Withholding Of Payments........................................ 35
CHAPTER III - PROVISIONS RELATING TO TIME
15. Time For Completion And Damages For Delay...................... 37
16. Extensions Of Time............................................. 38
17. Idle Salaried Men And Equipment................................ 40
18. Delays To D/BE................................................. 41
19. Cancellation For Delay......................................... 41
CHAPTER IV - CONDUCT OF CONTRACT
20. Authority Of Director.......................................... 42
21. Authority Of The Engineer...................................... 42
22. Notice Requirements............................................ 44
23. Equal Employment Opportunity................................... 45
24. Affirmative Action Requirements - Equal Employment
Opportunity.................................................... 47
25. Affirmative Action Programs.................................... 54
26. Prevailing Rate Of Wage........................................ 54
27. Title To Materials............................................. 55
28. Assignments And Subcontracts................................... 56
29. Claims Of Third Persons........................................ 56
30. Certificate Of Partial Completion.............................. 57
31. Certificate Of Final Completion................................ 57
32. No Gifts, Gratuities, Offers Of Employment, Etc................ 57
</TABLE>
- i -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
CHAPTER V - WARRANTIES MADE AND LIABILITY
ASSUMED BY THE D/BE
<S> <C> <C>
33. Warranties..................................................... 59
34. Risks Assumed By The D/BE...................................... 60
35. No Third Party Rights.......................................... 62
36. Insurance Procured By Authority................................ 62
37. Confidentiality Agreement...................................... 65
38. Software License And Agreement................................. 65
CHAPTER VI - RIGHTS AND REMEDIES
39. Rights And Remedies Of Authority............................... 74
40. Patent And Copyright Indemnity................................. 75
41. Rights And Remedies Of D/BE.................................... 75
42. Performance Of Work As Agent For D/BE.......................... 75
43. No Estoppel Or Waiver.......................................... 76
CHAPTER VII - MISCELLANEOUS
44. Submission To Jurisdiction..................................... 77
45. Provisions Of Law Deemed Inserted.............................. 77
46. Invalid Clauses................................................ 77
47. Non-Liability Of The Authority Representatives................. 77
48. Service Of Notice On The D/BE.................................. 78
49. Modification Of Contract....................................... 78
50. Certification Of No Investigation, (Criminal Or Civil Anti-
Trust), Indictment, Conviction, Suspension, Debarment,
Disqualification, Prequalification Denial Or Termination,
Etc.; Disclosure Of Other Required Information................. 78
51. Non-Collusive Bidding And Code Of Ethics Certification;
Certification Of No Solicitation Based On Commission,
Percentage, Brokerage, Contingent Fee Or Other Fee............. 81
52 D/BE Eligibility For Award Of Contracts-Determinations By An
Agency Of The State Of New York Jersey Concerning
Eligibility To Receive Public Contracts........................ 83
PROPOSAL............................................................... 84
SIGNATURE AND CERTIFICATE OF AUTHORITY.................................. 85
ACKNOWLEDGEMENT........................................................ 86
STATEMENT ACCOMPANYING PROPOSAL........................................ 87
GUARANTY............................................................... 88
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PERFORMANCE AND PAYMENT BOND......................................... 89
ACKNOWLEDGEMENT...................................................... 93
ATTACHMENT A (Confidentiality Agreement)............................. 94
SCHEDULE A........................................................... 99
SCHEDULE B........................................................... 109
SCHEDULE C........................................................... 110
SCHEDULE D........................................................... 111
SCHEDULE E........................................................... 112
SCHEDULE F........................................................... 113
MBE APPROVAL REQUEST................................................. 114
M/W/DBE LISTING...................................................... 115
PREVAILING RATE SCHEDULE............................................. 208
</TABLE>
-iii-
<PAGE>
CONTRACT WTC-893.071
FORM OF CONTRACT
CHAPTER I
GENERAL PROVISIONS
1. DEFINITIONS
To avoid undue repetition, the following terms whenever they occur in
this Form of Contract or any of the other papers forming a part of the Contract
shall be construed as follows:
"Addendum" or "Addenda" is defined in the Clause of this Form of Contract
entitled "Contract Documents".
"Business Days" shall mean the days Monday through Friday, exclusive of federal
or New York State holidays. Whenever work is to be performed on Authority
property by the D/BE during a business day such Work shall be performed during
the hours noted in the Section of Division 1 entitled "Conditions And
Precautions". If no such hours are noted in such Section, such Work shall be
performed during the hours between 8 A.M. and 4 P.M., unless noted otherwise in
the Contract Documents, or unless specified otherwise by the Engineer.
"Calendar days" shall mean consecutive days, Saturdays, Sundays and holidays
included.
"Catalog Cuts" shall mean all standard drawings, diagrams, illustrations,
brochures, schedules, performance charts and instructions submitted by the D/BE
pursuant to the requirements of the Contract Documents or the Engineer to
illustrate some portion of the Contract Documents.
"Change Order" is defined in the Clause of this Form of Contract entitled
"Contract Documents".
"Contract Documents" is defined in the Clause of this Form of Contract entitled
"Contract Documents".
"Design/Build Entity" or "D/BE" shall mean any combination of individuals,
professional corporations, partnerships, corporations or joint ventures, in
which:
A. at least one individual shall be a licensed Professional Engineer,
authorized to practice Professional Engineering in the State of New
York pursuant to the laws of the State of New York, and shall comply
with the requirements of the Section of the Information For
Design/Build Entities, entitled "Authorization To Practice
Professional Engineering"; and
-1-
<PAGE>
B. at least one individual, professional corporation, partnership
corporation or joint venture, has been found qualified by the
Authority to perform the Work of this Contract.
"Director" shall mean the Director of the World Trade Department of the
Authority for the time being, or his successor in duties for the purpose of this
Contract, acting personally or through his authorized representative for the
purpose of this Contract. No person other than those specifically authorized as
such in an express written notice to the D/BE signed by the Director, shall be
deemed a representative of the Director. Further, no person shall be deemed a
successor in duties of the Director unless the D/BE is so notified in a writing
signed by the Executive Director, Deputy Director or Assistant Executive
Director of the Authority.
"Documents" includes any item - including but not limited to printed or written
pages, drawings, samples or materials, photographs, computer discs or any media
capable of transmitting information - which the Director has incorporated into
the Contract Documents by either clear intent, reference or written directive.
"Engineer" shall mean the Assistant Director/Program Director for Redevelopment
of the World Trade Department of the Authority, his designee or his successor in
duties acting personally or through his authorized representative for the
purpose of the Contract.
"Engineer of Record" shall mean an individual who:
A. is authorized to practice Professional Engineering in the State of New
York;
B. fulfills the requirements of the Section of the Information For
Design/Build Entities, entitled "Authorization To Practice
Professional Engineering"; and,
C. is designated by the D/BE as the Engineer of Record pursuant to the
Section of the Information For Design/Build Entities, entitled
"Authorization To Practice Professional Engineering".
The term "construction site" or words of similar import shall mean the area
bounded on the west by the U.S. Pierhead Line (for the easterly shore of the
North River), on the north by the north street line of Vesey Street (including
extension of such line westerly to said pierhead line), on the east by the east
street line of Church Street and on the south by the south street line of
Liberty Street (including extension of such line westerly to said pierhead
line), in the City of New York, and the vicinity of such area.
"Tower A", "North Tower Building" and "No. 1 World Trade Center" shall mean "One
World Trade Center" and "Tower B", "South Tower Building" and "No. 2 World Trade
Center" shall mean "Two World Trade Center".
"Equipment" and "plant" shall include construction equipment and plant rented as
agent for the Authority.
The terms "Subgrade" and "Below Grade" are interchangeable.
-2-
<PAGE>
"Inspector" shall mean any representative of the Engineer designated by him as
Inspector and acting within the scope of the particular authority vested in him.
"Contract" shall mean all the documents noted in the Clause hereof entitled
"Contract Documents". The Contract as so defined shall constitute the complete
and exclusive statement of the terms of the agreement between the parties and
the Contract may not be explained or supplemented by course of dealing, usage of
trade or course of performance.
The word "inspection" shall mean observation, inspection and testing performed
by the Engineer either directly or through the use of authorized agents.
The term "permanent construction" shall include all construction, installation,
structures, equipment and materials (including materials and equipment, if any
furnished by the Authority) to be constructed, installed or left by the D/BE at
or about the construction site (or elsewhere in the possession of the Authority)
after the completion of the Contract (whether or not they are yet delivered or
installed), even though they are subsequently to be removed by others. The terms
"permanent installation", "permanent structure", "permanent materials", and
words of similar import shall have the same meaning as the term "permanent
construction".
"Materialman" shall mean anyone, except the Authority, who furnishes materials,
plant or equipment to the D/BE or any subcontractor in the performance of the
Contract.
"Subcontractor" shall mean anyone who performs Work (other than or in addition
to the furnishing of materials, plant or equipment) at or about the construction
site, directly or indirectly for or in behalf of the D/BE (and whether or not in
privity of contract with the D/BE), but shall not include any person who
furnishes merely his own personal labor or his own personal services or who
performs Work which consists only of the operation of construction equipment of
which he is the lessor.
The words "shown", "indicated", "detailed" and words of similar import shall
mean shown, indicated or detailed on the Contract Drawings, unless specifically
stated to the contrary.
"Materialman" or "subcontractor", however, shall exclude the D/BE or any
subsidiary or parent of the D/BE or any person, firm or corporation which has a
substantial interest in the D/BE or in which the D/BE or the parent or the
subsidiary of the D/BE, or an officer or principal of the D/BE or of the parent
or the subsidiary of the D/BE has a substantial interest, provided, however,
that for the purpose of the Clause hereof entitled "Assignments And
Subcontractors" the exclusion in this paragraph shall not apply to anyone but
the D/BE himself.
"Workingman" or "workman" shall mean any employee of the D/BE or of a
subcontractor who performs personal labor or personal services at the
construction site.
"Notice" shall mean a written notice.
-3-
<PAGE>
"Extra Work" shall mean Work required by the Engineer pursuant to the Clause
hereof entitled "Contract Documents" which is in addition to that required by
the Preliminary Design Criteria in their present form, and any addenda thereto,
as interpreted in the light of all the provisions of this Contract. Inasmuch as
the Authority will rely on the specialized qualifications of the D/BE to prepare
General System Design Documents and Detailed System Design Documents, in all
respects complete and adequate for the proper construction and use of the
Parking Access Control System and related appurtenances and to perform all other
Work required by this Contract, and inasmuch as one of the purposes of the
Authority in entering into this Contract is to alleviate the workload of its own
engineering staff, and inasmuch as the Engineer, in approving such General
System Design Documents and Detailed System Design Documents, will therefore not
fully avail himself of engineering services to have the General System Design
Documents and Detailed System Design Documents, prepared by the D/BE analyzed,
the materials and Work required to obtain the aforementioned results intended by
the Preliminary Design Criteria in their present form and any addenda thereto
shall not be "Extra Work", even though not mentioned in the General System
Design Documents and Detailed System Design Documents, as approved by the
Engineer. The decisions and interpretations of the Engineer regarding what
constitutes "Extra Work" shall be conclusive and binding on the parties to this
Contract. Nothing contained in this Contract however, shall be construed to
prevent the Engineer from consulting whatever sources he may deem proper for
engineering advice and assistance in rendering any of the opinions, decisions or
interpretations referred to in this Contract.
"Shop Drawings" shall mean all drawings, diagrams, illustrations, schedules,
including supporting data, which are specifically prepared for this Contract and
submitted by the D/BE pursuant to the requirements of the Detailed Contract
Specifications or the Engineer to illustrate some portion of the Contract
Documents. The terms "shop drawings", "placing drawings" and "working drawings"
are used interchangeably in this Contract.
"Supplemental Agreement" is defined in the Clause hereof entitled "Contract
Documents".
"Work" shall mean all structures, equipment, plant, labor materials (including
materials and equipment, if any, furnished by the Authority) and other
facilities and all other things which are necessary or proper for or incidental
to the design and construction of the Parking Access Control Systems at the
World Trade Center; and "Performance of Work" and words of similar import shall
mean the furnishing of such facilities and the doing of such things.
"Work Order" or "Order for Extra Work" is defined in the Clause of this Form of
Contract entitled "Contract Documents".
"Work required by the Preliminary Design Criteria, Reference Drawings or
Preliminary Design Specifications in their present form" or words of similar
import shall include all Work required by the Preliminary Design Criteria,
Reference Drawings or Preliminary Design Specifications in their present form
and all Work involved in or incidental to the accomplishment of the results
intended by the Preliminary Design Criteria, Reference Drawings or Preliminary
Design Specifications in their present form (whether or not described in the
Preliminary Design Specifications in their present form).
-4-
<PAGE>
Whenever they refer to the Work or its performance, "directed", "required",
"permitted", "ordered", "designated", "prescribed" and words of similar import
shall mean directed, required, permitted, ordered, designated or prescribed by
the Engineer; and "approved", "acceptable", "satisfactory" and words of similar
import shall mean approved by or acceptable or satisfactory to the Engineer; and
"necessary", "reasonable", "proper", "correct", and words of similar import
shall mean necessary, reasonable, proper or correct in the judgment of the
Engineer.
Whenever "including", "such as" or words of similar import are used, the
specific things thereafter enumerated shall not limit the generality of the
things preceding such words.
2. CONTRACT DOCUMENTS
"Contract Documents" and "Contract" include all the documents described in
the numbered Clause.
A. Information For Design/Build Entities.
Any documents submitted to the Authority by the D/BE pursuant to Book I,
entitled "Request For Proposals", which have been approved by the
Authority.
B. Proposal
The D/BE's Proposal for this Contract WTC-893.071, submitted to the
Authority by the D/BE on the form provided in Book II, attached hereto and
made a part hereof, and any document submitted to the Authority by the D/BE
pursuant to such Proposal, if such Proposal has been accepted by the
Authority.
C. Signature and Certificate of Authority
The signature of the D/BE's authorized representative and certification
that such representative is authorized to represent the D/BE, on the
Signature And Certificate of Authority Form provided herein, attached
hereto and made a part hereof, which have been approved by the Authority.
D. Acknowledgments
The acknowledgments of the D/BE and appropriate D/BE Acknowledgment
personnel, submitted to the Authority by the D/BE on the Acknowledgment
Form provided herein attached hereto and made a part hereof, which have
been approved by the Authority.
E. Statement Accompanying Proposal
Submitted to the Authority by the D/BE on the Statement Accompanying
Proposal Form provided herein, attached hereto and made a part hereof,
which has been approved by the Authority.
-5-
<PAGE>
F. Confidentiality Agreements
Submitted to the Port Authority by the D/BE on the form provided herein,
attached hereto, and made a part hereof.
G. Acceptance Of Proposal
The Authority's letter accepting the Proposal, stating the conditions of
such acceptance if any, sent pursuant to the Section of Book I -
Information for Design/Build Entities-entitled "Acceptance Or Rejection Of
Proposal".
H. Form Of Contract
The Form Of Contract provided herein, and any documents submitted to the
Authority by the D/BE pursuant to such Form of Contract, which have been
approved by the Authority.
I. Performance And Payment Bond
The Performance and Payment Bond, submitted to the Authority by the D/BE on
the form provided herein, and any documents submitted to the Authority by
the D/BE pursuant to such Bond, which have been approved by the Authority.
J. Acknowledgments For Performance And Payment Bond
The acknowledgments of the D/BE, appropriate D/BE personnel, the surety and
appropriate personnel of such surety, on the forms provided herein, and any
documents submitted to the Authority by the D/BE pursuant to such
acknowledgments, which have been approved by the Authority.
K. Preliminary Design Criteria
The Preliminary Design Criteria include the documents described in this
paragraph K. The requirements of the Preliminary Design Criteria are
intended as the general requirements for the Work under this Contract. The
requirements of the Preliminary Design Criteria are not to be construed as
a complete outline of, or a limitation on, the Work, nor do they include
specific mention of all materials, equipment, construction and other things
required to be included in the design, or to be furnished or done by the
D/BE. Nevertheless, the requirements of the Preliminary Design Criteria are
that the D/BE shall include in the General System Design Documents and
Detailed System Design Documents, all materials equipment and construction
which may be necessary or desirable to carry out the functions and purposes
indicated in the Preliminary Design Criteria and to make the Work suitable
for the purpose for which it is intended, whether or not such materials,
equipment, and construction are specially indicated in the requirements of
the Preliminary Design Criteria.
- 6 -
<PAGE>
1. Reference Drawings
The reference Drawings are provided to the D/BE by the Authority, and
bear the general title "The Port Authority of NY & NJ - The World Trade
Center-Garage Access Security Modifications - Combined Set of Plans For: - Ramps
"A", "B" & "H" - Ramp "N" - Ramp "C", "D" & "F/K"", and are separately numbered,
dated and entitled as follows:
<TABLE>
<CAPTION>
Drawing
Number Title Date
------ ----- ----
<S> <C> <C>
T-1 Title Sheet 8/5/94
SECURITY MODIFICATIONS RAMPS "A", "B", "H",
-------------------------------------------
P-1 Street Level Construction Plan 1 8/5/94
P-2 Street level Construction Plan 2 8/5/94
P-3 Street level Construction Plan 3 8/5/94
P-4 Street level Construction Plan 4 8/5/94
P-5 Street level Construction Plan 5 8/5/94
SECURITY MODIFICATIONS RAMPS "C", "D", & "F/K"
----------------------------------------------
P-1 Construction Plan 1 Ramp "C" 8/5/94
P-2 Construction Plan 2 Ramp "D" 8/5/94
P-3 Construction Plan 3 Ramp "K" 8/5/94
BASE BUILDING PLANS
-------------------
</TABLE>
<TABLE>
<CAPTION>
Drawing
Number Title Date
------ ----- ----
<S> <C> <C>
SKA 54/84 Site Plan 1/1/68
SKA 8/84 Floor Plan At Elevation 290-294 B-1 Level 2/9/84
SKA 9/84 Floor Plan At Elevation 279-284 B-2 Level 2/9/84
SKA 10/84 Floor Plan At Elevation 274 B-3 Level 2/9/84
SKA 11/84 Floor Plan At Elevation 264 B-4 Level 2/9/84
</TABLE>
- 7 -
<PAGE>
The Reference Drawings were prepared by the Authority and various Authority
consultants for use on prior projects.
The D/BE may use the information provided in such Drawings, and information
the D/BE may acquire through meetings and correspondence with the
Authority, as a basis from which to generate a more complete set of
drawings - described in the paragraph herein entitled General System Design
Documents consisting of the plans, sections, elevations, details, schedules
and notes necessary to complete the Work. The D/BE has the responsibility
to generate the General System Design Documents, based on the own site
surveys and the communications with Authority personnel. The Authority
makes no express or implied warranty or guaranty regarding any of the
information depicted or described on the Reference Drawings.
The Reference Drawings show various conditions as they may currently exist,
and do not show the Work. Accordingly, they may be supplemented prior to
the date and time noted in the Section of Book I - Information for
Design/Build Entities- entitled "Form and Submission of Proposals", by
written addenda issued by the Director or Engineer pursuant to this
numbered Clause.
An indication on the Reference Drawings of the existence, nature or
location of any utilities, structures, obstructions, conditions or
materials, if any, does not constitute a representation as to the
conclusions to be drawn therefrom nor is it a representation that no other
such items exist in addition to those shown, even in the same location; nor
does the absence of any indication on said Drawings of the existence,
nature or location of any utilities, structures, obstructions, conditions
or materials constitute a representation that none exist.
2. Preliminary Design Specifications
The Preliminary Design Specifications are provided to the D/BE by the
Authority in Book III. The Preliminary Design Specifications were prepared
by the Authority and represent the basis technical requirements for the
Work. The D/BE shall use the information provided in such Specifications,
and information the D/BE may acquire through meetings and correspondence
with the Authority, as a basis from which to generate a more complete set
of specifications described below in the paragraph entitled "General System
Design Documents", consisting of the technical information necessary to
complete the Work. The D/BE has the responsibility to generate the General
System Design Documents based on information acquired by the D/BE. The
Authority makes no express or implied warranty or guaranty regarding any of
the information depicted or described in the Preliminary Design
Specifications.
The Preliminary Design Specifications do not describe all of the technical
information necessary to complete the Work and are intended only to
illustrate the character and extent of the Work to be
-8-
<PAGE>
performed. Accordingly, they may be supplemented prior to the date and
time noted in the Section of Book I - Information for Design/Build
Entities-entitled "Form And Submission of Proposals", by written
addenda issued by the Director or Engineer pursuant to this numbered
Clause.
An indication in the Preliminary Design Specifications of the
existence, nature or location of any utilities, structures,
obstructions, conditions or materials, if any, does not constitute a
representation as to the conclusions to be drawn therefrom nor is it a
representation that no other such items exist in addition to those
shown, even in the same location; nor does the absence of any
indication on said specification of the existence, nature or location
of any utilities, structures, obstructions, conditions or materials
constitute a representation that none exist.
The Preliminary Design Specifications contain:
(I) Division 1 - General Provisions
(II) Introduction
(III) Functional Parameters
(IV) Design and Performance Requirements
(V) Divisions 2-16 Authority Standard Specifications
Divisions 2 through 16 consist of various Authority Standard
Specifications Sections relating to the various disciplines involved
in the Work. Some such Sections have been included in Book III because
they may relate to the Work. Such Sections are not intended to
represent a complete inventory of all the specifications sections
which may be required for the Work. A complete listing of existing
Authority Standard Specifications Sections is included in Book III as
Appendix A. The Authority will provide the D/BE with one copy of each
such Section at the request, provided such Section relates to the Work
and has not been included in Book III. The Authority makes no express
or implied warranty or guaranty any of the information described in
the Authority Standard Specifications Sections.
3. Miscellaneous Documents
Any other documents which the Director or the Engineer has
incorporated into the Preliminary Design Criteria by either clear
intent, reference or written directive.
L. Form Of Contract
The Form Of Contract provided in this book, as completed by the D/BE with
information where required, and any documents submitted by the D/BE to the
Authority pursuant to such Form of Contract, which have been approved by
the Authority.
M. General System Design Documents
The General System Design Documents include the documents described in this
paragraph M.
- 9 -
<PAGE>
1. General System Design Drawings
The General System Design Drawings shall be prepared by the D/BE,
shall incorporate all the information contained in the Preliminary
Design Criteria and as may have been received by the D/BE pursuant to
subparagraphs 3. and 4. of this paragraph M., and shall be submitted
to the Authority by the D/BE with the D/BE's General System Design
Documents. The General System Design Drawings shall be a
representation of all the drawings the D/BE would require to complete
the Work. The depiction of the Work as indicated by the D/BE in the
General System Design Drawings shall be subject to the approval of the
Engineer, and may be rejected by the Engineer if, in the sole opinion
of the Engineer, such Drawings fail in any way to achieve the results
intended by the requirements of the Preliminary Design Criteria or
are not in accordance with sound engineering principles. If the
General System Design Drawings or any portions thereof are rejected by
the Engineer, the D/BE shall forthwith revise such Drawings until they
meet with the Engineer's approval. No approval or rejection, or
failure to approve or reject by the Engineer however, shall relieve
the D/BE of his responsibilities under this Contract, including his
responsibility to furnish aesthetic, practicable Work, suited to meet
the performance requirements for the purpose for which such Work is
intended, and which is in accordance with sound engineering
principles.
2. General System Design Specifications
The General System Design Specifications shall be prepared by the
D/BE, shall incorporate all the information contained in the
Preliminary Design Criteria and as may have been received by the D/BE
pursuant to subparagraphs 3. and 4. of this paragraph M., and shall be
submitted to the Authority by the D/BE with the D/BE's General System
Design Documents. The General System Design Specifications shall be a
representation of all the specifications sections the D/BE would
require to complete the Work. The description of the Work as indicated
by the D/BE in the General System Design Specifications shall be
subject to the approval of the Engineer and may be rejected by the
Engineer if, in the sole opinion of the Engineer, such Specifications
fail in any way to achieve the results intended by the requirements of
the Preliminary Design Criteria or not in accordance with sound
engineering principles. If the General System Design Specifications or
any portions thereof are rejected by the Engineer, the D/BE shall
forthwith revise such Specifications until such Specifications meet
with the Engineer's approval. No approval or rejection, or failure to
approve or reject by the Engineer however, shall relieve the D/BE of
his responsibilities under this Contract, including his responsibility
to furnish aesthetic, practicable Work, meeting the performance
requirements for the purpose for which such Work is intended, and
which is in accordance with sound engineering principles.
- 10 -
<PAGE>
The D/BE may incorporate Authority Standard Specifications Sections,
without alteration, into the D/BE's General System Design
Specifications. However, the D/BE assumes the risk thereby that such
Sections may not apply, in whole or in part, to the Work, and may thus
be rejected by the Authority during the review process. The D/BE may
alter the Authority Standard Specifications Sections by adding to the
information contained in such Sections. All such additions shall be
indicated using bold face type in the specifications sections the D/BE
submits to the Authority as the D/BE's General System Design
Specifications. The D/BE shall not eliminate any information from any
Authority Standard Specifications Sections the D/BE elects to use, in
whole or in part, without the prior permission of the Engineer.
The D/BE may elect to reflect all the Authority Standard
Specifications Sections. The D/BE may create new specifications
sections for the D/BE's General System Design Specifications for any
discipline involved in the Work, providing such new sections conform
to the requirements of the CSI three-part format and are approved by
the Authority. If Authority Standard Specifications Sections are
specifically cited in the Contract Documents, they shall be used
without any changes thereto, unless such changes have been approved by
the Engineer.
3. Addenda
An Addendum (plural form "Addenda") is a written directive to alter
the scope or content of the Work outlined in the Preliminary Design
Criteria issued to the D/BE by the Director prior to the date and time
for the Authority's receipt of Proposals, noted in the Section of Book
I - Information for Design/Build Entities - entitles "Form and
Submission of Proposals". Addenda shall be numbered consecutively by
the Authority and dated as of the date they are issued to the D/BE.
The D/BE shall sign each Addendum, submit all such signed addenda to
the Authority with the D/BE's Proposal and incorporate the
instructions or information contained in all such addenda into the
D/BE's General System Design Documents.
4. Submittal Schedule
The D/BE shall submit to the Engineer a proposed Submittal Schedule
itemizing all the submittals which would be required to comply with
the requirements of the categories outlined in Schedule XIV of
Attachment B in Book I - Information For Design/Build Entities - and,
in accordance with the Contract Documents, within seven (7) calendar
days after the D/BE's receipt of the Authority's acceptance of the
D/BE's Proposal. The Authority makes no representations whatsoever
that proposed deviations from such Schedule XIV will be approved.
- 11 -
<PAGE>
Wherever in the Authority Standard Specifications Sections, shop
drawings, catalog cuts or other items are required to be submitted to
the "Engineer" for approval, such requirement shall be deemed to mean
that such submittals shall first be submitted to the D/BE's Engineer
of Record, for such Engineer of Record's formal written approval-
indicated by such Engineer of Record's signature on such submittals,
along with a printed or stamped "approved" notation and a notation of
the date of such approval on such submittals-and shall then be
submitted to the Engineer for approval. The Engineer may approve,
provide comments requiring resubmission, or reject, each such
submittal written twenty-one (21) calendar days from the date such
submittal is received by the Authority. The D/BE shall submit two
copies (or more, if requested by the Engineer) of each such submittal,
after it has been approved as noted above by the Engineer of Record,
to the Engineer for approval.
Wherever the phrases "as approved by the Engineer" or "as directed by
the Engineer" or similar phrases are used in Authority Standard
Specifications Sections, such phrases shall mean that the approval or
direction of the D/BE's Engineer of Record must be given first, in a
manner similar to that noted above, and then such approval or
direction must be confirmed by the Engineer, in a manner similar to
that noted above.
The Engineer may approve or disapprove all or any portion of such
submittals within the time noted above. If the Engineer fails to give
any such approval or disapproval within the times specified herein,
and if solely as a result thereof the D/BE is thereby necessarily so
delayed in the performance of any part of the Work that he cannot
complete the performance of said part within the time specified for
said completion in the Clause hereof entitled "Time For Completion And
Damages For Delay", then the time for completion of said part may be
extended as provided in the Clause hereof Entitled "Extensions Of
Time". The approval by the Engineer may be either unconditional or be
subject to specific enumerated conditions set out as part of a written
approval. The disapproval by the Engineer will identify why the
submittal is defective or fails to achieve the results intended by the
Preliminary Design Criteria, however the Engineer shall have no
obligation to provide a solution for the noted defects.
5. Miscellaneous Documents
Any other documents which the Director or the Engineer has
incorporated into the General System Design Documents by either clear
intent, reference or written directive.
N. Detailed System Design Documents
The D/BE shall submit to the Engineer Detailed System Design Documents as
stipulated herein, and obtain the Engineer's approval thereof before
ordering any materials or fabricating any components for the Work, unless
directed otherwise by the Engineer, in writing. The Engineer's approval may
be given if at all, within the time stipulated for such approval in the
Clause hereof entitled "Time For Completion And Damages For Delay".
-12-
<PAGE>
The D/BE's Detailed System Design Documents shall be based upon the
requirements of the Preliminary Design Criteria, as articulated by the D/BE
in the general System Design Documents, and shall result in a design which
is in form and in detail suitable for performing the Work and which shall
be relied upon by the Authority in the Authority's review of the D/BE's
design and the Authority's subsequent inspection of the Work.
All designs, drawings, specifications, reports, records, data, charts,
documents, renderings, manuals, and other papers of any type whatsoever,
whether in the form of writing, figures, delineations or electronic data,
any models which are prepared by the D/BE in connection with this Contract,
shall become the property of the Authority and the Originals thereof shall
be delivered to the Authority as soon as practicable but in no event later
than completion of all Work. The D/BE may however, at his own expense, make
copies thereof before delivery to the Authority is required. Except to the
extent that rights are reserved to others under valid patents for which the
Authority is not given a license under the provisions of the Section of the
Preliminary Design Specifications entitled "Workmanship and Materials", all
such material, including but not limited to designs, drawings,
specifications, reports, records, data, charts, documents, renderings,
manuals and other papers and models, or electronic data, and any ideas or
methods represented thereby may be used by the Authority for any purpose
and at any time, without other compensation than that specifically provided
herein. No such material shall be deemed to have been given in confidence.
Any statement or legend to the contrary in connection with any such
material and in conflict with the provisions of this Clause shall be void
and of no effect as to the Authority.
Under no circumstances shall the D/BE communicate in any way with any
board, agency, commission or other organization whether governmental or
private (including any utility company) in connection with the services to
be performed hereunder except when this Contract specifically requires such
communication and except upon prior written approval and instructions of
the Director provided, however, that data from manufacturers and suppliers
of materials shall be obtained by the D/BE when and as the D/BE finds such
data necessary, unless otherwise instructed by the Engineer.
The D/BE shall promptly and fully inform the Authority of any patents or
disputes, whether existing or potential or of which the D/BE has knowledge,
relating to any idea, design, method, materials, equipment or other matter
involved in the Work.
When the D/BE's Detailed System Design Documents are finally approved by
the Authority, the D/BE shall furnish to the Authority one complete set of
reverse-reading wash-off mylar reproducibles of the Detailed System Design
Drawings, ten complete sets of the Detailed System Design Specifications
and three complete sets of all designs calculations. The Detailed System
Design Drawings and Detailed System Design Specifications shall be produced
by, and shall bear the signature and seal of, the Engineer of Record. The
original Detailed System Design Drawings and Detailed System Design
Documents approved by the Engineer prior to the commencement of
- 13 -
<PAGE>
construction and furnished in accordance with the provisions of this Clause
shall be revised by the Engineer of Record, to reflect all changes made
during construction, and shall be so noted prior to submission to the
Authority at the completion of construction. Such revision and submission
of such Drawings and Specifications is a condition precedent to the
Authority's issuance of the Certificate of Final Completion to the D/BE. In
addition, the D/BE shall submit required items in accordance with the
Section of Division 1 of the Preliminary Design Specifications entitled
"Shop Drawings, Catalog Cuts and Samples".
The Engineer of Record, shall, at the completion of the construction,
certify to the Engineer that the construction has been executed in accord
with the Contract Documents, with any deviations specifically noted. Such
certification shall be a condition precedent to the Authority's issuance of
the Certificate of Final Completion to the D/BE.
The Detailed System Design Documents shall include the documents described
in this paragraph N.
1. Detailed System Design Drawings
The Detailed System Design Drawings shall be prepared by the D/BE,
shall incorporate all the information contained in the Preliminary
Design Criteria, the General System Design Documents, and as may have
been received by the D/BE pursuant to subparagraphs 3. and 4. of this
paragraph N. and shall be submitted by the D/BE to the Authority
within the time period noted in paragraphs III. of the Clause hereof
entitled "Time for Completion and Damages for Delays". The Detailed
System Design Drawings shall represent a one hundred percent (100%)
complete set of all the drawings the Authority would require to
approve such Drawings and the D/BE would require to complete the
Work.
Design Drawings shall represent a one hundred percent (100%) complete
set of all the drawings the Authority would require to approve such
Drawings and the D/BE would require to complete the work
The Detailed System Design Drawings shall include architectural,
structural, electrical, mechanical, plumbing, fire protection and
communications drawings, if required, which shall contain, at a
minimum, but shall not be limited to, the following information:
plans, sections and elevations of general areas, at a minimum scale
of 1/4"=1'-0; detail plans, sections and elevations of critical
areas, if any, at a minimum scale of 1/2"=1'-0"; details of critical
construction features, in plan, section or elevation as required, at
a minimum scale of 1 1/2"=1'-0"; all schedules-including but not
limited to door schedules, hardware schedules, finish schedules,
equipment schedules-necessary to specify every item required to
complete the Work in the form intended in the Contract Documents;
information demonstrating compliance with all codes information
specifying the materials and methods of construction; information
identifying the various functional areas within the construction
site; information demonstrating the calculations used to determine
the various architectural, structural, electrical, mechanical,
plumbing, fire protection and communications requirements, if any, of
the Work; and, any other information relevant to the Work.
- 14 -
<PAGE>
All Detailed System Design Drawings submitted to the Authority shall be of
a minimum size of 24 inches by 36 inches, with a one and one-half inch
border along the left side and a one inch border along the right side and
at the top and bottom of the page. The originals of the Detailed System
Design Drawings shall be reverse-reading wash-off mylars. All drawing and
lettering will be of such size to enable the production of readable half
size print. All lettering shall be of a minimum size of 3/32" in height,
with a minimum 1/16" space between each line.
For Detailed System Design Drawings submitted by the D/BE for approval by
the Authority, the D/BE shall submit a minimum of five (5) full-size
prints, ten (10) half-size prints and one full-size brown line sepia. Each
such Drawing submitted shall bear the project title and the Authority
Contract number, the D/BE's name and the name, signature and stamp or seal
of the D/BE's Engineer of Record.
2. Detailed System Design Specifications
The Detailed System Specifications shall be prepared by the D/BE, shall
incorporate all the information contained in the Preliminary Design
Criteria, the General System Design Documents and as may have been received
by the D/BE pursuant to subparagraphs 3. and 4. of this paragraph N. and
shall be submitted by the D/BE to the Authority within the time period
noted in paragraph III. of the Clause hereof entitled "Time for Completion
and Damages for Delay". The Detailed System Design Specifications shall
represent a one hundred percent (100%) complete set of all the
specifications the Authority would require to approve such Specifications,
and the D/BE would require to complete the Work. Wherever the D/BE has
requested changes to any Authority Standard Specifications Sections - such
changes being delineated in bold-face type in the specifications sections
when submitted to the Authority as the General System Design
Specifications-and the Authority has approved such changes, the D/BE shall
retype any specifications sections containing such approved changes,
eliminating the bold-face type so that all the specifications sections have
a typeface of uniform appearance throughout.
For Detailed System Design Specifications and design calculations, submit
five (5) copies of each. Each sheet of calculations shall be numbered,
dated and indexed, and shall bear the seal and signature of the D/BE's
Engineer of Record.
All Detailed System Design Specifications shall be submitted on 8-1/2 inch
by 11 inch paper with each sheet numbered and indexed. All design
calculations submitted to the Authority pursuant to such Specifications or
otherwise shall be on 8-1/2 inch by inch paper.
For Detailed System Design Specifications and design calculations submitted
to the D/BE for approval by the Authority, the D/BE shall submit a minimum
of five (5) copies of each. All Detailed System Design Specifications and
each sheet of design calculations shall be
- 15 -
<PAGE>
numbered, dated and indexed, and shall bear the project title and the
Authority Contract number, D/BE's name, and the name, signature and
stamp or seal of the D/BE's Engineer of Record.
3. Miscellaneous Documents
Any other documents which the Director or the Engineer has
incorporated into the Detailed System Design Criteria by either clear
intent, reference or written directive.
0. Contract Change Requests, Change Orders And Extra Work
1. Contract Change Request
The Contract Change Request Form is used to initiate changes to the
Contract by the D/BE or the Authority. The D/BE will submit to the
Authority or the Authority will submit to the D/BE as the case may be,
the Contract Change Request, which will be used as a basis for
negotiating Change Orders. When the Contract Change Request has been
approved by the Engineer, the appropriate Change Order will be issued
to the D/BE. A copy of Port Authority Document (PA2873) - Contract
Change Request Form - is attached as Schedule E.
2. Change Order and Extra Work
A Change Order is a written directive to alter the scope or content of
the Work as delineated in the General System Design Documents and
Detailed System Design Documents in their final form as approved by
the Authority, issued by the Engineer to the D/BE. "Extra Work" is new
Work - Work which was never expressed or implied in the Preliminary
Design Criteria, General System Design Documents or Detailed System
Design Documents - in addition to the Work as delineated in the
Detailed System Design Documents in their final form as approved by
the Authority. An order for Extra Work is issued by the Director to
the D/BE by Change Order at any time after the Authority accepts the
Proposal. Change Orders shall be numbered consecutively by the
Authority and dated as of the date they are issued to the D/BE. The
D/BE shall sign each Change Order, submit all such signed Change
Orders to the Authority, and incorporate all the instructions or
information contained in such Change Orders into the Contract
Documents and incorporate the reluctant changes in such Documents. A
copy of Port Authority Document (PA39) - Change Order Form-is attached
as Schedule F.
No Extra Work shall be performed except pursuant to written orders of
the Director expressly and unmistakably indicating his intention to
treat the Work described therein as Extra Work; and, exclusive of
Extra Work expressly authorized by or pursuant to a resolution of the
Commissioners of the Authority or its Committee on Construction, the
Engineer shall have authority to order any item of Extra Work, if the
cost thereof to the Authority together with the cost of all other
Extra
- 16 -
<PAGE>
Work previously ordered and not expressly authorized as aforesaid will not be in
the aggregate in excess of the sum specified in the letter of acceptance of the
D/BE's Proposal as the limit on such authority to order Extra Work; provided,
however, that Extra Work in excess of such aggregate amount may be ordered as
above provided to the extent expressly authorized in a writing signed by the
Executive Director of the Authority, delegating authority vested in him pursuant
to the By-Laws or a resolution of the Commissioners of the Authority or its
Committee on Construction.
In the absence of such a Change Order signed by the Director, if the Engineer
shall direct, order or require any Work, whether orally or in writing, which the
D/BE deems to be Extra Work, the D/BE shall nevertheless comply therewith, but
shall within twenty-four hours give written notice thereof to the Director and
the Engineer stating why the D/BE deems it to be Extra Work, and shall moreover
furnish to the Engineer time slips and memoranda as required by the Clause
hereof entitled "Compensation For Extra Work". Said notice, time slips and
memoranda are for the purpose of affording to the Engineer an opportunity to
verify the D/BE's claim at the time and (if he desires so to do) to cancel
promptly such order, direction or requirement of the Engineer, of affording to
the Engineer an opportunity of keeping an accurate record of the materials,
labour and other items involved, and generally of affording to the Authority an
opportunity to take such action as it may deem desirable in light of the claims.
Accordingly, the failure of the D/BE to serve such notice or to furnish such
time slips and memoranda shall be deemed to be a conclusive and binding
determination on his part that the direction, order or requirement of the
Engineer does not involve the performance of Extra Work, and shall be deemed to
be a waiver by the D/BE of all claims for additional compensation or damages by
reason thereof, such written notice, time slips and memoranda being a condition
precedent to such claims.
The provisions of this form of Contract relating generally to Work and its
performance shall apply without exception to any Extra Work required and to the
performance thereof. Moreover, the provisions of the Preliminary Design Criteria
relating generally to the Work and its performance thereof, except to the extent
that a written order in connection with any particular item of Extra Work may
expressly provide otherwise.
For further information about compensation for Extra Work, see the Clause hereof
entitled "Compensation For Extra Work".
- 17 -
<PAGE>
P. Supplemental Agreements
A Supplemental Agreement is a written agreement between the Authority and
the D/BE which alters or eliminates any contractual relationship or
obligation expressed or implied in the Contract Documents, or which creates
new contractual relationships or obligations. Supplemental Agreements shall
be in any form acceptable to the Director, numbered consecutively, dated as
of the date they are issued to the D/BE, signed by the party to be charged,
or both parties if appropriate, and submitted to the Authority by the D/BE.
Q. Miscellaneous Documents
Any other documents which the Director or the Engineer has incorporated
into the Contract Documents by either clear intent, reference or written
directive.
3. GENERAL AGREEMENT
The D/BE agrees to:
(a) prepare the General System Design Documents, noted in the Clause
hereof entitled "Contract Documents", within the time period
indicated in, and subject to the conditions of, the Clause herein
entitled "Time For Completion And Damages For Delay"; and,
(b) prepare the Detailed System Design Documents, noted in the Clause
hereof entitled "Contract Documents", within the time period indicated
in, and subject to the conditions of, the Clause herein entitled "Time
For Completion And Damages For Delay"; and,
(c) perform all the Work required pursuant to the Contract Documents to
design and install a Parking Access Control System at the World Trade
Center; and,
(d) furnish all structures, equipment, plant, labor, materials and other
facilities and to do all other things necessary and proper therefore
or incidental thereto as may be required pursuant to the Contract
Documents; and,
(e) assume and perform all the other duties and obligations as may be
imposed upon the D/BE pursuant to
(i) the Contract Documents; and,
(ii) applicable laws, rules, regulations and ordinances of the
federal government, the State of New York and the City of New
York; and,
(iii) applicable court decisions in the jurisdictions listed above in
(ii), whether at law or in equity.
- 18 -
<PAGE>
The Authority agrees to pay to the D/BE and the D/BE agrees to accept from
the Authority, in full consideration for the performance by the D/BE of his
duties and obligations under this Contract and the whole thereof, a compensation
of
Two Million, Fifty Thousand, Six Hundred Ten Dollars
- ------------------------------------------------------------
and No Cents($2,050,610.00)
------------------------------------------ -------------
(throughout this Contract called the "Lump Sum"), and such compensation only,
subject only to the express provisions of this Contract specifically setting
forth actual, defined additions to or deductions from such compensation.
The enumeration in this Form of Contract and in the Specifications of
particular things to be furnished or done at the D/BE's expense, or without cost
or expense to the Authority, or without additional compensation to the D/BE
shall not be deemed to imply that only things of a nature similar to those
enumerated shall be so furnished and done; but the D/BE shall perform all Work
as required, without other compensation than that specifically provided,
whatsoever changes may be made in the Preliminary Design Criteria, whatsoever
Work may be required in addition to that required by the Preliminary Design
Criteria in their present form, and whatsoever obstacles or unforeseen
conditions may arise or be encountered.
This Contract is one entire contract for the accomplishment of the results
and the doing of the things above specified and is not separable. Similarly, the
D/BE's compensation is one entire compensation for entire performance on his
part.
4. AUTHORITY ACCESS TO RECORDS
The Authority shall have access during normal business hours to all records
and documents of the D/BE relating to any amounts for which the D/BE has been
compensated, or claims he should be compensated, by the Authority by payment
determined on any basis other than by payment of a lump sum or unit price amount
agreed upon in writing by the D/BE and the Authority. The D/BE shall obtain for
the Authority similar access to similar records and documents of subcontractors.
Such access shall be given or obtained both before and within a period of one
year after Final Payment to the D/BE provided, however, that if within the
aforesaid one year period the Authority has notified the D/BE in writing of a
pending claim by the Authority under or in connection with this Contract to
which any of the aforesaid records and documents of the D/BE or of his
subcontractors relate either directly or indirectly, then the period of such
right of access shall be extended to the expiration of six years from the date
of Final Payment with respect to the records and documents involved.
No provision in this Contract giving the Authority a right of access to
records and documents is intended to impair or affect any right of access to
records and documents which the Authority would have in the absence of such
provision.
-19-
<PAGE>
5. ADVERTISEMENT
The D/BE shall not issue or permit to be issued any release, advertisement,
or literature of any kind which refers to the Authority or the services
performed in connection with this Contract without prior written approval of the
Engineer. Such approval may be withheld if for any reason the Director believes
that the publication of such information would be harmful to the public
interest or is in any way undesirable.
6. AGENCY FOR RENTAL OF CONSTRUCTION EQUIPMENT
1. GENERAL PROVISIONS
------------------
The D/BE further agrees to act as the agent of the Authority, subject to
the provisions of this numbered clause relating to such agency, for the rental
of all construction equipment necessary or desirable for or incidental to the
performance of the Contract (other than construction equipment owned and also
used by the D/BE or owned and also used by any subcontractor) and, in the
exercise of such agency, to assume all the obligations and duties imposed upon
him by this Contract. The D/BE may authorize any subcontractor to act as his
subagent for rental of such equipment for use by such subcontractor, subject to
all provisions of this Contract. "Construction equipment" as used in this
numbered clause shall include plant.
The Authority will pay the rental charges for said equipment directly to
the lessors thereof, but the charges so paid shall be deducted from the
compensation payable to the D/BE under the Contract; provided, however, that the
Authority will pay such charges, and the D/BE is authorized by the Authority to
act as such agent, to the extent only that the charges payable for such rental
do not exceed the compensation payable to the D/BE under the Contract; and
provided further that the D/BE performs all the obligations relating to said
agency imposed upon him by this Contract.
The Authority will provide the D/BE with a statement to be furnished by him
and the subcontractors to such lessors which will identify this Contract as the
one under which the D/BE is authorized to rent said equipment and which will
identify the site to which delivery must be made. The D/BE shall arrange for
delivery of said equipment directly to the construction site. Payment of the
rental charges therefor shall be made by the Authority on the basis of invoices
made out to the Authority in which is contained the place of delivery and on
which the D/BE has certified by endorsement that such construction equipment is
being or has been used in the performance of the Contract, said invoices to be
submitted through the D/BE to the Authority at the time said equipment is put
into use at the construction site. In the event said notices are not submitted
promptly, at the time stated above, but are submitted at a time when, by reason
of prior advances and payment to the D/BE or for his account, the amounts still
payable to the D/BE in connection with the Contract are insufficient to pay said
invoices, then the Authority shall not be liable to the lessors for any amounts
in excess of said amounts still payable to the D/BE which remain in the
possession of the Authority.
- 20 -
<PAGE>
Nothwithstanding the above Agency arrangement, the Authority shall not be
liable to lessors of construction equipment for any amounts except rental
charges based on time of use of such equipment, and the agency is limited
accordingly. All obligations incurred by the D/BE or subcontractors for any
other expenses, including repairs and damages for breach of the rental
agreement, shall be obligations incurred by the D/BE or subcontractors as
principal not as agent of the Authority. Moreover, as between the Authority and
the D/BE, the D/BE shall be responsible for all amounts due to lessors of
construction equipment notwithstanding the above agency agreement.
The D/BE shall indemnify the Authority against any claim of any kind
whatsoever made against the Authority by a lessor of construction equipment and
the D/BE assumes the risk of all claims against him by any lessor of
construction equipment, including in both cases, claims in connection with a
subcontractor.
The agency provide for under this numbered clause shall not relieve the
D/BE of any of his duties and obligations elsewhere provided for under this
Contract.
2. Option Not To Act As Agent
--------------------------
Notwithstanding the provisions of (1) above, the D/BE shall have the right
to elect not to act as the agent of the Authority for the rental of any
particular item or items of said construction equipment, in which event, with
regard to any such rentals by the D/BE as principal and not agent, the
provisions of (1) of this numbered clause shall be inapplicable as well as those
provisions of the Clause hereof entitled "Exemption From New York State And New
York City Sales Taxes", which relate to rental of construction equipment.
7. EXEMPTION FROM NEW YORK STATE AND NEW YORK CITY SALES TAXES
A. Materials Incorporated In Permanent Construction
------------------------------------------------
The attention of the D/BE is directed to the following provision of the New
York State and New York City Sales and Compensating Use Tax Act:
"#1115. Exemptions from sales and use taxes. (a) Receipts from the
following shall be exempt from the tax on retail sales imposed under
subdivision (a) of section eleven hundred five and the compensating use tax
imposed under section eleven hundred ten:
(15) Tangible personal property sold to a Contractor, subcontractor or
repairman for use in erecting a structure or building of an organization
described in subdivision (a) of section eleven hundred sixteen, or adding
to, altering or improving real property, property or land of such an
organization, as the terms real property, property or land are defined in
the real property tax law; provided, however, no exemption shall exist
under this paragraph unless such tangible personal property is to become an
integral component part of such structure, building or real property."
The Authority is an exempt organization of the type described in
subdivision (a) of section eleven hundred sixteen.
- 21 -
<PAGE>
In view of the foregoing, the D/BE should not include in his price any
amounts for New York State and New York City Sales and compensating use taxes on
such tangible personal property.
If (i) any claim is made against the D/BE by the State of New York or City
of New York for such sales or compensating use taxes, or (ii) any claim is made
against the D/BE by a materialman or a subcontractor on account of a claim
against such materialman or subcontractor by the State of New York or City of
New York for such sales of compensating use taxes, then the Authority will
reimburse the D/BE in an amount equal to the amount of such tax required to be
paid in accordance with the requirements of the law, provided that:
-------------
(a) The D/BE or the D/BE and any such subcontractor, as the case may be,
have complied with such rules and regulations as may have been promulgated
relating to the claiming of the exemption from such taxes and have filed
all the forms and certificates required by the applicable laws, rules and
regulations in connection therewith; and
(b) The Authority is afforded the opportunity before any payment of tax is
made, to contest said claim in the manner and to the extent that the
Authority may choose and to settle or satisfy said claim and such attorney
as the Authority may designate is authorized to act for the purpose of
contesting, settling and satisfying said claim; and
(c) The D/BE or the D/BE and any such subcontractor, as the case may be,
give immediate notice to the Authority of any such claim, cooperate with
the Authority and its designated attorney in contesting said claim and
furnish promptly to the Authority and said attorney all information and
documents necessary or convenient for contesting said claim, said
information and documents to be preserved for six years after the date of
Final Payment or longer if such claim is pending or threatened at the end
of such six years.
If the Authority elects to contest any such claim, it will bear the
expense of such contest.
B. Rental Of Construction Equipment
--------------------------------
The rental by the D/BE or subcontractor of construction equipment not owned
by the D/BE or subcontractors for use in the performance of the Contract will
also not be subject to New York State or New York City sales or compensating use
taxes, provided that:
-------------
(1) the D/BE and any subcontractor's use of construction equipment rented
from others, and any agreement for such rental, is based upon the
agency arrangement provided for in the clause hereof entitled "Agency
For Rental Of Construction Equipment" and the D/BE and subcontractors
have performed all their obligations under said Clause;
(2) delivery of said equipment is to the construction site;
- 22 -
<PAGE>
(3) the D/BE or subcontractor has furnished to the lessor the statement
from the Authority identifying this Contract as the one under which
the D/BE or subcontractor has been authorized to rent said equipment
and identifying the construction site to which delivery must be made;
(4) the invoice for said equipment is made out to the Authority and
prescribes the place of delivery; and
(5) the amounts payable for rental of said equipment do not exceed the
amount of compensation payable in connection with the Work.
In view of the above, the D/BE should not include in his price any amounts
for New York State and New York City sales and compensating use taxes on such
rental of equipment.
If (i) any claim is made against the D/BE by the State or City of New York
for sales or compensating use taxes on such rental of construction equipment or
(ii) any claim is made against the D/BE by a materialman, lessor or a
subcontractor on account of a claim against such materialman, lessor or
subcontractor by the State or City of New York for sales or compensating use
taxes on rental of said equipment, then the Authority will reimburse the D/BE in
an amount equal to the amount of such tax required to be paid in accordance with
the requirements of law, provided that the provisions listed above in this
-------- ----
numbered Clause as (a) through (c) and (1) through (5) are complied with.
If the Authority elects to contest any such claim, it will bear the expense
of such contest.
8. PERFORMANCE AND PAYMENT BOND OR OTHER SECURITY
If the Authority shall in its sole discretion so elect at the time of
accepting the D/BE's Proposal, the D/BE shall furnish a bond for the faithful
performance of all obligations imposed upon him by the Contract and also for
the payment of all lawful claims of subcontractors, materialmen and workmen
arising out of the performance of the Contract. Such bond shall be in the form
bound herewith entitled "Performance And Payment Bond", shall be in a penal sum
equal to the Lump Sum and such bond shall be signed by one or more sureties*
satisfactory to the Authority.
The bond may be executed on a separate copy of such form not physically
attached to this Contract booklet. In any case, both the form of bond herewith
and any unattached executed copy thereof shall form a part of this Form of
Contract as though herein set forth in full.
* Sureties must be corporations (commonly known as "surety companies"),
authorized to do business as sureties in the state(s) in which the
construction site is located, whose names appear on the current list of the
Treasury Department of the United States in effect at the time of
submission of the Performance and Payment Bond to the Authority as
acceptable as sureties to the Treasury Department. In addition, the
aggregate underwriting limitations on any one risk as set forth in the
aforementioned list of the Treasury Deparment of the sureties shall equal
or exceed the penal sum of the Performance and Payment Bond.
- 23 -
<PAGE>
At any time after the opening of Proposals, the Authority may give notice
to the D/BE to advise the Authority as to the names of its proposed sureties.
Within forty-eight hours thereafter the D/BE shall so advise the Authority. The
giving of such notice to a D/BE shall not be construed as an acceptance of the
Proposal, and omission to give such notice shall not be construed as an election
by the Authority not to require a bond.
If the Authority elects to require the D/BE to furnish a bond, he shall
deliver such bond to the Authority within seven days, after receipt by him of
the acceptance of the Proposal, and the sureties or the bond shall be as
proposed by the D/BE provided, that if the Authority has theretofore given
notice to the D/BE that the proposed sureties or any of them are not
satisfactory, the bond shall be executed by other sureties satisfactory to the
Authority.
The Authority shall give notice to the D/BE within ten (10) calendar days
after receipt of the Performance and Payment Bond as to whether or not such bond
is satisfactory.
In the event of a default by the D/BE in his obligation to furnish a
satisfactory bond or other security within seven (7) calendar days after he
receives an acceptance of his Proposal, such default shall entitle the Authority
in its discretion to terminate this Contract at any time within forty-five (45)
calendar days after the acceptance of the Proposal, without any liability on the
part of the Authority. Inasmuch as the damages to the Authority resulting from a
termination by it upon the failure of the D/BE to furnish a satisfactory bond
will include items whose accurate amount will be difficult or impossible to
compute, such damages shall be liquidated in the sum of the following amounts;
(a) The excess, if any, of the Lump Sum in the Proposal finally accepted
over that in the Proposal of the defaulting D/BE; and
(b) The expense of such new advertisement of the Contract, if any, as may
be deemed necessary by the Authority; and
(c) The sum of $500 for each day after the receipt by the D/BE of the
acceptance of the Proposal that the performance of the Contract is not
commenced by reason of the failure of the D/BE to furnish the required
bond.
In the recovery of the damages above specified, the Authority may take such
other action as it may deem best in the public interest.
If the D/BE furnishes a bond in accordance with the requirements of the
Authority under this numbered Clause, the Authority shall reimburse the D/BE for
the net amount actually paid by the D/BE to the surety or sureties as the
premium on such bond. The D/BE shall deliver to the Engineer receipts from
surety or sureties evidencing such payment and the amount thereof. Within
fifteen (15) calendar days after receipt of such evidence satisfactory to the
Engineer, the Authority shall pay to the D/BE by check the amount provided in
this numbered Clause.
- 24 -
<PAGE>
If at any time the Authority shall be or become dissatisfied with any
surety or sureties then upon any bond furnished in accordance with the
requirements of the Authority, or if for any other reason such bond shall
cease to be adequate security to the Authority, the D/BE shall, within five
(5) business days after notice from the Authority so to do, substitute a
new bond in such form and sum and signed by such other sureties as may be
necessary in the opinion of the Authority to constitute adequate security.
- 25 -
<PAGE>
CHAPTER II
ADJUSTMENTS AND PAYMENTS
9. ADJUSTMENTS OF LUMP SUM
If any Unclassified work required by the Contract Documents in their
present form shall be countermanded or reduced, the Engineer shall have full
authority on behalf of both parties to make such adjustment by way of reduction
in the Lump Sum as he may in his sole discretion deem equitable and reasonable,
and in making such adjustment, no allowance to the D/BE shall be made for
anticipated profits.
The Director shall have authority to agree in writing with the D/BE for
adjustments by way of reduction the Lump Sum in lieu of those for which
provision is heretobefore made in this numbered Clause.
10. COMPENSATION FOR EXTRA WORK
The Director shall have authority to agree in writing with the D/BE on
behalf of the Authority upon Lump Sum or other compensation for Extra Work in
lieu of the compensation for which provision is hereinafter made in this
numbered Clause.
If such agreement on compensation is not made and Extra Work is to be
performed, the D/BE's compensation shall be increased by the following amounts
and such amounts only:
(1) For Extra Work consisting of design or technical services, an amount
equal to the salaries paid to technical employees for time
actually spent in performing such services, plus 100 percent of the
portion of such salaries representing "straight time" payments. No
design services shall be performed as Extra Work on other than a
"straight time" basis without the written approval of the Engineer.
(2) For Extra Work consisting of performance of construction at the
construction site, an amount determined as follows:
(a) In the case of Extra Work performed by the D/BE personally, an
amount equal to the actual net cost in money of the labor and
materials required for such Extra Work, plus twenty (20) percent
do such net cost, plus such rental for equipment (other than
small tools) required for such Extra Work as the Engineer deems
reasonable.
(b) In the case of Extra Work performed by subcontractor, an amount
equal to the actual net cost in money of the labor and materials
required for such Extra Work, plus twenty (20) percent of such
net cost plus such rental for equipment (other than small tools)
required for such Extra Work as the Engineer deems reasonable,
plus seven (7) percent of the sum of the foregoing cost,
percentage of cost, and rental.
- 26 -
<PAGE>
As used in this numbered Clause (and in this Clause only):
"Design Services" means the preparation of any additional Software, any
additional General System Design Documents, General System Design Drawings,
General System Design Specifications, Detailed System Design Documents, Detailed
System Design Drawing, Detailed System Design Specifications and any additional
working or shop drawings required for such Extra Work.
"Salaries paid to technical employees" means salaries actually paid
(excluding payments and factors for holidays, vacations, sick time, bonuses,
profit participations and other similar payments) to architects, engineers,
designers, draftsmen and other technical employees of the D/BE or of any
subcontractor performing such design services, excluding however, any partners,
corporate officers and clerical or administrative personnel.
"Labor" means foremen, surveyors, laborers, mechanics and other employees
below the rank of superintendent, exclusive of timekeepers, directly employed at
the construction site whether employed by the D/BE or by the subcontractors,
subject to the Engineer's authority to determine what employees of any category
are "required for Extra Work" and as to the portion of their time allotted to
Extra Work; and "cost of labor" means the wages actually paid to and received by
such employees plus a proper proportion of (a) vacation allowance and union dues
and assessments which the employer actually pays pursuant to contractual
obligations upon the basis of such wages, and (b) taxes actually paid by the
employer pursuant to law upon the basis of such wages. "Employees" as used above
means only the employees of one employer.
"Materials" means temporary and consumable materials as well as permanent
materials: and "cost of materials" means the price (including taxes actually
paid by the D/BE pursuant to law upon the basis of such materials) for which
such materials are sold for cash by the manufacturers or producers thereof, or
by regular dealers therein, whether or not such materials are purchased directly
from the manufacturer, producer or dealer (or if the D/BE is the manufacturer to
producer thereof, the reasonable cost to the D/BE of the manufacture and
production), plus the reasonable cost of delivering such materials to the
construction site in the event that the price paid to the manufacturer, producer
or dealer does not include delivery and in case of temporary materials, less
their salvage value, if any.
"Work day" in reference to an item of equipment means a day other than a
Saturday, Sunday or legal holiday except that if the particular item of
equipment is actually utilized at the construction site by the D/BE or
subcontractors under this or any other Contract with the Authority on a
Saturday, Sunday or legal holiday said day shall be deemed a work day.
The rental for equipment, whether owned by the D/BE or subcontractors or
rented from others and notwithstanding the actual price of any rental or actual
costs associated with such equipment, shall be computed by the Engineer on the
basis of the following:
-27-
<PAGE>
(1) (a) Hourly rental for those items of equipment listed in the "Rental
Rate Blue Book" (published by Dataquest, a company of The Dun and
Bradstreet Corporation, 1290 Ridder Park Drive, San Jose, California
95131-2398), (hereinafter called "The Blue Book") shall be 100% of
the applicable rates as listed in said book,reduced to an hourly
basis (see formula below). The edition of this publication to be
used shall be the one in effect on the date of the actual rental of
the equipment. The "Estimated Operating Cost per Hour " as set
forth for such item of equipment in the Blue Book shall be added
to the hourly rental for each hour that such equipment is actually
engaged in performing Extra Work. No amount for operating cost will
be allowed during periods when such equipment is not actually
engaged in performing Extra Work (i.e. standby rental time). None of
the provisions of the Blue Book shall be deemed referred to or
included in this Contract except as specifically set forth in this
Section.
(b) If no listing of rental rate and/or hourly operating cost for
the item of equipment is in the Blue Book, the Engineer shall
determine the reasonable rate of rental and/or hourly operating cost
of the particular item of equipment by such other means as he finds
appropriate.
(2) When utilizing the rental rates appearing in the Blue Book, the
Engineer shall determine the applicable rate and the hourly rental
determined therefrom by applying the following criteria:
(a) The rate to be applied for an item of equipment used on a particular
Extra Work order shall be the daily, weekly or monthly rates from
the foregoing publication based on the total number of work days or
portions thereof that a particular item of equipment or substitute
item of equipment is at the construction site for use by the D/BE or
subconstractors whether under this Contract or any other contract
with the Authority. Included within this period will be (i) work
days of idleness of the equipment at the contruction site whether
such idleness results from acts or omissions of the D/BE. Authority
or third persons, breakdowns in the equipment or any other cause,
(ii) work days on which the equipment is removed from the
construction site solely to enable the performance of repairs
theron, and (iii) work days intervening between the removal of
equipment from the construction site for repairs and the delivery to
the construction site of the same or substitute equipment. The
number of work days in the period for each rate shall be an
indicated below:
Three work days or less - dialy rate
More than three work days but
not more than fifteen work days - weekly rate
More than fifteen work days - monthly rate
The pro rata portion which one hour bears to the applicable rate shall be
determined in accordance with the following formula:
-28-
<PAGE>
Hourly rate based on 1/8 of daily rental
daily rental from Blue Book
Hourly rate based on 1/40 of weekly rental
weekly rental from Blue Book
Hourly rate based on 1/176 of monthly rental
monthly rental from Blue Book
(b) The rental rate shall be multiplied by the applicable regional
adjustment factor shown for such item of equipment in the Blue Book.
The adjustment factor shall not apply to the hourly operating cost.
(c) If the engineer should determine that the nature or size of the
equipment used by the D/BE in connection with Extra Work is larger
or more elaborate, as the case may be, than the size or nature of
the minimum equipment determined by the Engineer to be suitable for
the Extra Work, the reasonable rental will not be based upon the
equipment used by the D/BE but will be based on the smallest or
least elaborate equipment determined by the Engineer to have been
suitable for the performance of the Extra Work.
(3) In the case of equipment utilized only for Extra Work: (a) in
addition to amounts determined as provided in subparagraphs (1) and
(2) above, there will be added to the rental as computed above the
reasonable cost of transporting such equipment to and from the
construction site, and (b) notwithstanding the number of hours
during which such equipment is utilized, the minimum rental therefor
will be for a period of eight hours.
In computing the compensation insofar as it based upon Extra Work, and
notwithstanding any provision to the contrary appearing in the Blue Book, no
consideration shall be given to any items of cost or expense not expressly set
forth above, it being expressly agreed that the costs and percentage additions
hereinbefore provided cover items of cost and expense to the D/BE of type
whatsoever, including administration, overhead, taxes (other than those
enumerated above), cleanup, consumable including gas and oil, drafting
(including printing or other reproduction), coordination, field measurements,
maintenance, repairs, insurance, profit to the D/BE and small tools.
Whenever any Extra Work is performed (whether by the D/BE directly or
through a subcontractor), the D/BE shall, at the end of each day, submit to the
Engineer (a) daily time slips showing the name and number of each workman
employed on such Work, the number of hours which he is employed thereon, the
character of his duties, and the wages to be paid to him, (b) a memorandum
showing the state and federal taxes based on such wages, and vacation allowances
and union dues and assessments which the employer actually pays pursuant to
contractual obligation upon basis of such wages (c) a memorandum showing the
amount and character of the materials furnished for such Work, from whom they
were purchased and the amount to be paid therefor, and (d) a memorandum of
equipment used in the performance of such Work, together with the rental claimed
- 29 -
<PAGE>
therefor. Such memoranda and time slips are for the purpose of enabling the
Engineer to determine the amounts to be paid by the Authority under this
numbered Clause; and accordingly, they shall constitute a condition precedent to
such payment and the failure of the D/BE to furnish them with respect to any
Work shall constitute a conclusive and binding determination on his part that
such Work is not Extra Work and shall constitute a waiver by the D/BE of claims
for payment for such Work. In the event that the Director and the D/BE shall
agree in writing upon a lump sum or other compensation for Extra Work in lieu of
compensation as provided in the second paragraph of this Clause, the daily time
slips and memoranda required by this paragraph shall not be required subsequent
to the date on which such agreement has been reached.
The D/BE shall insert the unit prices for Extra Work noted below, in words
and figures, on the appropriate lines. Regardless of any preceding statement to
the contrary, the following unit prices for Extra Work shall be in the unit
prices which the D/BE shall charge the Authority, if the Authority orders any
quantity of any item listed below as Extra Work. The quantity for payment
described in the following provisions shall include the Work as furnished,
installed, performed, and/or placed as indicated in the Contract Documents or
where directed by the Engineer.
I. In the case of Item No. I Dual Directional Detector Pairs, the unit price
for payment shall be the unit price for each Dual Directional Detector Pair
required, including all design, equipment installation and software
development and installation to monitor signals and make decisions
(including initiating alarms based on the signals received from the
detectors). The purpose of these Dual Directional Detector Pairs is to
distinguish between normal vehicular circulation and unauthorized parking
or abandonment of vehicles on critical roadway segments. These Dual
Directional Detector Pairs may be installed in series, with varying total
numbers of Dual Directional Detector Pairs. Conduit and wiring from the
Dual Directional Detector Pair to the nearest local controller are to be
provided under Item No. III.
Writing* Figures*
-------- --------
_____________________________________Dollars
_____________________________________Cents $_______________________
(Type or print the unit price for (Type or print the unit
each Dual Directional Detector Pair price for each Dual
in words) Directional Detectors
pair in figures)
* WORDS SHALL TAKE PRECEDENCE OVER FIGURES.
- 30 -
<PAGE>
II. In the case of Item No. II, Single Presence Detectors, the unit price for
payment shall be the unit price for each Single Presence Detector required,
including all design, equipment installation, and software development and
installation to monitor signals and make decisions (including initiating
alarms based on the signal received from the detectors). The purpose of
these Single Presence Detectors is to identify unauthorized parking or
abandonment of vehicles at critical roadway locations. Conduit and wiring
from the Single Presence Detectors to the nearest local controller are to
be provided under Item No. III.
Writing* Figures*
-------- --------
______________________________________Dollars
______________________________________Cents $____________________________
(Type or print the unit price for each (Type or print the unit
Single Presence Detector in words) price for each Single
Presence Detector in
figures)
III. In the case of Item No. III, Raceways, the unit price for payment shall be
the unit price per linear foot of Raceway required from the Pairs and
Detectors noted in Items No. I and II, respectively, to the nearest local
controller, including all conduit, wiring, splices, terminations and other
devices to complete the installation of Items No. I and II.
Writing* Figures*
-------- --------
______________________________________Dollars
______________________________________Cents $____________________________
(Type or print the unit price per (Type or print the unit
linear foot of Raceway in words) price per linear foot of
Raceway in figures)
* WORDS SHALL TAKE PRECEDENCE OVER FIGURES.
- 30 -
<PAGE>
11. COMPENSATION FOR EMERGENCY DELAYS
If the D/BE is specifically directed by the Engineer to suspend his
operations as stipulated in the Section of the Preliminary Design Specifications
entitled "Conditions And Precautions" or if the D/BE is specifically directed
not to start his operations at a time when operations are permitted to start as
stipulated in such Section, and if solely because of such suspension or
direction not to start any of the D/BE's or subcontractor's employees or
equipment then engaged in or about to start such Work are necessarily kept idle
at the construction site, during the hours when they would otherwise be engaged
in the performance of the Work, then the D/BE's compensation shall be increased
by an amount equal to the salaries and wages in amounts approved by the Engineer
which the employer is required to pay and actually pays to such employees for
the period or periods of such idleness, plus a proper proportion of (a) taxes
actually paid by the employer pursuant to law upon the basis of such salaries
and wages, and (b) vacation allowances and union dues and assessments which the
employer actually pays pursuant to contractual obligations upon the basis of
such salaries and wages, and in addition thereto such rental as the Engineer
deems reasonable for such equipment during the period or periods of such
idleness. The rental for idle equipment shall be computed by the Engineer in
accordance with the provisions of the Clause hereof entitled "Idle Salaried Men
And Equipment".
In the event that the D/BE deems that any payment should be made pursuant
to this numbered Clause, he shall give prompt written notice to the Engineer
stating the reasons why he believes such payments should be made and shall
moreover, furnish to the Engineer at the end of each day, a memorandum showing
the name, payroll title, salary rate and employer of each of the workingmen, and
description, owner and claimed rental rate for each item of equipment claimed to
have been kept idle. Said notice and memorandum are for the purpose of enabling
the Engineer to verify the D/BE's claim at the time. Accordingly,
notwithstanding any other provisions hereof, the failure of the D/BE to furnish
such notice and memorandum shall constitute a conclusive binding determination
on his part that the D/BE is not entitled to compensation as provided herein and
shall constitute a waiver by the D/BE of all claims for such payment, such
notice and memorandum being conditions precedent to payment under this numbered
Clause.
12. MONTHLY ADVANCES
On or about the first day of each month, the Engineer shall (upon receipt
from the D/BE of such information as the Engineer may require, including a
certification in writing, in such form as may be required pursuant to the Clause
hereunder entitled "Prevailing Rate of Wage", that he has paid and caused his
subcontractors to pay at least the prevailing rate of wage and supplements
required by such clause and a written statement indicating the names and amounts
paid during the preceding month or months to subcontractors and materialmen)
estimate and certify to the Authority the approximate amount of Work performed
and compensation earned by the D/BE up to that time showing separately:
-32-
<PAGE>
(a) The amount of Work (other than Extra Work) performed by the Contractor
up to that time and a sum bearing the same proportion to the Lump Sum
as the Work performed (other than Extra Work) bears to the Work
performed and to be performed (other than Extra Work).
(b) The increases, if any, in the compensation for which provision is
specifically made elsewhere in this Contract.
As an aid to the D/BE and to facilitate his performance, the Authority
shall within fifteen days after the receipt of each such monthly certificate,
advance to the D/BE by check the sums so certified, minus, however, either ten
(10) percent of the sum certified pursuant to subparagraphs (a) and (b) of this
numbered clause or five (5) percent of the Total Lump Sum Price, whichever is
less, and minus all prior advances and payments to the D/BE or for his account.
Within seven (7) calendar days of receipt of any sum attributable to Work
performed by a subcontractor or materialman or within such later period as is
provided in the subcontract or purchase agreement, the D/BE shall advance to the
subcontractor or materialman said sum, less such amount, if any, as the D/BE is
authorized to retain under the subcontract or purchase agreement.
Notwithstanding the above, the Authority shall have the right, at its sole
discretion, to directly pay the subcontractors and material suppliers who
perform Work for or furnish materials to the D/BE in connection with the Work of
this Contract.
Prior to certifying any amount for payment hereunder, the Engineer may
require that the D/BE submit a certification accurately and fully setting forth
the total amount due and payable to each subcontractor or supplier for Work
performed or materials provided by such subcontractor or supplier in connection
with the Work of this Contract. Any payment made by the Authority to a
subcontractor or supplier pursuant to the provisions of this numbered Clause
shall be made in reliance upon such certification and all such payments shall be
considered as advances to the D/BE of the compensation payable hereunder. No
such payment shall relieve the D/BE of any of its obligations hereunder.
- 33 -
<PAGE>
Furthermore, within fifteen (15) calendar days of the D/BE's receipt of the
Authority's acceptance of the D/BE's Proposal, the D/BE shall submit to the
Engineer a listing of all subcontract and material supply agreements entered
into by the D/BE for the performance of Work required by this Contract. Such
listing shall include the names and addresses of each subcontractor and supplier
and the amounts payable under each such agreement. As and when any modifications
are made to such agreements or any additional subcontracts or supply agreements
are entered into, the D/BE shall inform the Engineer of such and shall indicate
the amounts payable hereunder.
Nothing contained herein shall be deemed to create any additional rights in
such subcontractors or suppliers or to alter the rights of the Authority as such
are set forth in the Clause hereof entitled "Withholding Of Payments".
13. FINAL PAYMENT
After the rendition of the Certificate of Final Completion and upon receipt
from the D/BE of such information as may be required, the Engineer shall certify
in writing to the Authority and to the D/BE the total compensation earned by the
D/BE.
If so required, the D/BE shall thereupon (i) certify to the Authority in
writing, in such form as may be required pursuant to the Clause hereof entitled
"Prevailing Rate Of Wage", that he has paid and caused his subcontractors to pay
at least the prevailing rate of wage and supplements required by such clause and
(ii) furnish to the Authority a detailed sworn statement of all claims, just and
unjust, of subcontractors, materialmen and other third persons then outstanding
and which he has reason to believe may thereafter be made on account of the
Work.
Within thirty (30) calendar days after issuance of such certificate of
total compensation earned (or within thirty days after receipt of the documents
provided for in the immediately preceding paragraph, if required), the Authority
shall pay to the D/BE by check the amount stated in said certificate, less all
other payments and advances whatsoever to or for the account of the D/BE. All
prior estimates and payments shall be subject to correction in this payment,
which is throughout this Contract called the Final Payment.
The acceptance by the D/BE or by anyone claiming by or through him, of
Final Payment shall be and shall operate as a release to the Authority of all
claims and of all liability to the D/BE for all things done or furnished in
connection with the Contract and for every act and neglect of the Authority and
others relating to or arising out of the Contract, including claims arising out
of breach of contract and claims based on claims of third persons, excepting
only his claims for reimbursement for certain sales taxes as hereinbefore
provided. No payment, however, final or otherwise, shall operate to release the
D/BE or his sureties from any obligations in connection with this Contract or
the Performance and Payment Bond.
-34-
<PAGE>
The D/BE's agreement as provided in the immediately preceding paragraph
above shall be deemed to be based upon the consideration forming part of this
Contract as a whole and not to be gratuitous; but in any event if deemed
gratuitous and without consideration, such agreement as provided in the
immediately preceding paragraph above shall nevertheless be effective. Such
release shall include all claims, whether or not in litigation and even though
still under consideration by the Authority or the Engineer. Such release shall
be effective notwithstanding any purported reservation of right by the D/BE to
preserve such claim. The acceptance of any check designated as "Final Payment"
or bearing any similar designation shall be conclusively presumed to demonstrate
the intent of the D/BE that such payment was intended to be accepted as final,
with the consequences provided in this numbered Clause, notwithstanding any
purported reservation of rights.
The D/BE agrees that he shall not be entitled to, and hereby waives any
right he might otherwise have to, and shall not seek any judgment whether under
this Contract or otherwise for any such Final Payment or for an amount
equivalent thereto or based thereon, or for any part thereof, if such judgment
would have the effect of varying, setting aside, disregarding or making
inapplicable the terms of this numbered Clause or have the effect in any way of
entitling the D/BE to accept such Final Payment or an amount equivalent thereto
or based thereon or any part thereof other than in the same fashion as a
voluntary acceptance of a Final Payment subject to all the terms of this
Contract including this numbered Clause, unless and until the D/BE should obtain
a judgment on any claim arising out of or in connection with this Contract
(including a claim based on breach of contract) for an amount not included in
said Final Payment. In any case in which interest is allowable on the amount of
the Final payment, such interest shall be at the rate of six (6) percent per
annum for the period, if any, in which such interest is due.
14. WITHHOLDING OF PAYMENTS
If (1) the D/BE fails to perform any of his obligations under this Contract
or any other agreement between the Authority and the D/BE (including his
obligation to the Authority to pay any claim lawfully made against him by any
materialman, subcontractor or workman or other third person which arises out of
or in connection with the performance of this Contract or any other agreement
with the Authority) or (2) any claim (just or unjust) which arises out of or in
connection with this Contract or any other agreement between the Authority and
the D/BE is made against the Authority or (3) any subcontractor under this
Contract or any other agreement between the Authority and the D/BE fails to pay
any claims lawfully made against him by any materialman, subcontractor, workman
or other third person which arises out of or in connection with this Contract or
any other agreement between the Authority and the D/BE or if in the opinion of
the Director any of the aforesaid contingencies is likely to arise, then the
Authority shall have the right, in its discretion, to withhold out of any
payment (final or otherwise and even though such payment has already been
certified as due) such sums as the Director may deem ample to protect it against
delay or loss or to assure the payment of just claims of third persons, and to
apply such sums in such manner as the Engineer may deem proper to secure such
-35-
<PAGE>
protection or satisfy such claims. All sums so applied shall be deducted from
the D/BE's compensation. Omission by the Authority to withhold out of any
payment, final or otherwise, a sum for any of the above contingencies, even
though such contingency has occurred at the time of such payment, shall not be
deemed to indicate that the Authority does not intend to exercise its right with
respect to such contingency. Neither the above provisions for rights of the
Authority to withhold and apply monies nor any exercise or attempted exercise
of, or omission to exercise, such rights by the Authority shall create any
obligation of any kind to such materialman, subcontractors, workmen or other
third persons.
Until actual payment to the D/BE his right to any amount to paid under this
Contract (even though such amount has already been certified as due) shall be
subordinate to the rights of the Authority under this numbered clause.
If, however, the payment of any amount due the D/BE shall be improperly
delayed by the fault of the Authority, the Authority shall pay the D/BE interest
thereon at the rate of six (6) percent per annum for the period of delay, it
being agreed that such interest shall be in lieu of and in liquidation of any
damages to the D/BE because of such delay.
-36-
<PAGE>
CHAPTER III
PROVISIONS RELATING TO TIME
15. TIME FOR COMPLETION AND DAMAGES FOR DELAY
The performance of Work under this Contract shall proceed as follows:
A. The D/BE shall complete the performance of all Work under this Contract
within three hundred sixty-five (365) calendar days after receipt by
the D/BE of the Authority's acceptance of the D/BE's Proposal, as
follows:
I. the D/BE shall submit the Project Plan and Schedule to the
Engineer within fourteen (14) calendar days after receipt by the
D/BE of the Authority's acceptance of the D/BE's Proposal; and,
II. the D/BE shall submit the General System Design Documents to the
Engineer within sixty (60) calendar days after receipt by the
D/BE of the Authority's acceptance of the D/BE's Proposal; and,
III. the D/BE shall submit the Detailed System Design Documents to the
Engineer within one hundred twenty (120) calendar days after
receipt by the D/BE of the Authority's acceptance of the D/BE's
Proposal; and,
IV. the D/BE shall submit the Acceptance Test Plan and the
Installation Plan to the Engineer within one hundred fifty-two
(152) calendar days after receipt by the D/BE of the Authority's
acceptance of the D/BE's Proposal; and,
V. the D/BE shall submit the Training Plan to the Engineer and shall
complete the Factory Test within two hundred thirteen (213)
calendar days after receipt by the D/BE of the Authority's
acceptance of the D/BE's Proposal; and,
VI. the D/BE shall complete the Installation of all the equipment and
new construction required under this Contract and shall complete
the Field Test within three hundred four (304) calendar days
after the receipt by the D/BE of the Authority's acceptance of
the D/BE's Proposal; and,
VII. the D/BE shall complete the Operational Test within three hundred
thirty-four (334) calendar days after receipt by the D/BE of the
Authority's acceptance of the D/BE's Proposal; and,
VIII. the D/BE shall complete the Training of Authority personnel and
shall complete Work on any outstanding Punch List Items and shall
submit all required Final Documents to the Engineer and shall
complete all Work required under this Contract within three
hundred sixty-five (365) calendar days after receipt by the D/BE
of the Authority's acceptance of the D/BE's Proposal.
- 37 -
<PAGE>
B. If a Performance And Payment Bond is required, the D/BE shall not
commence the performance of the Work, until the date of receipt by him
of notice from the Authority that the Performance And Payment Bond
furnished by him is satisfactory. The time for completion shall not be
extended on account of the time required to furnish the bond referred
to above, but the Authority shall give notice to the D/BE within ten
(10) days after receipt of the Performance And Payment Bond as to
whether or not such bond is satisfactory.
C. The D/BE shall perform all Extra Work ordered in accordance with the
provisions of this Contract as expeditiously as possible. Such orders
may be issued at any time up to and including 90 days after completion
of all other Work required by the Contract Drawings and Specifications
in their present form.
D. The D/BE's attention is directed to the fact that it may be necessary
to pay overtime wages and/or to employ a larger work force than normal
in order to complete the performance of the Contract within the times
above provided. In such event, the D/BE shall not be entitled to any
additional compensation by reason thereof.
E. The D/BE obligations for the performance and completion of the Work
within the time or times provided for in this Contract are of the
essence of this Contract. The D/BE guarantees that he can and will
complete the performance of the Work within the time hereinbefore
stipulated or within the time as extended in accordance with the
clause of the Form of Contract entitled "Extensions Of Time". Inasmuch
as the damages and loss to the Authority which will result from delay
in completing the performance of the Work within the Three Hundred
Sixty five (365) days herein stipulated will include items of loss
whose amount will be incapable or very difficult of accurate
estimation, the damages to the Authority for each calendar day by
which the D/BE does not complete performance of the Work within the
time above stipulated or within such time as extended in accordance
with the clause of the Form of Contract entitled "Extensions Of Time",
shall be liquidated in the sum of $500. per calendar day.
16. EXTENSIONS OF TIME
The time above provided for completion of any part of the Contract shall be
extended (subject, however, to the provisions of this numbered Clause) only if
in the opinion of the Engineer the D/BE is necessarily delayed in completing
such part by such time solely and directly by a cause which meets all the
following conditions:
1. Such cause is beyond the D/BE's control and arises without his fault;
2. Such cause comes into existence after the opening of Proposals on this
Contract and neither was nor could have been anticipated by
investigation before such opening.
- 38 -
<PAGE>
In any event, even though a cause of delay meets all the above conditions,
an extension shall be granted only to the extent that (i) the performance of the
work is actually and necessarily delayed and (ii) the effect of such cause
cannot be anticipated and avoided or mitigated by the exercise of all reasonable
precautions, efforts and measures (including planning, scheduling and
rescheduling), whether before or after the occurrence of the cause of delay, and
an extension shall not be granted for a cause of delay which would not have
affected the performance of the Contract were it not for the fault of the D/BE
or for other delay for which the D/BE is not entitled to an extension of time.
Any reference herein to the D/BE shall be deemed to include subcontractors
and materialmen, whether or not in privity of contract with the D/BE and
employees and others performing any part of the Contract and all the foregoing
shall be considered as agents of the D/BE.
The period of any extension of time shall be that necessary to make up the
time actually lost, subject to the provisions of this numbered Clause, and
shall be only for the portion of his decision on an extension and any extension
of time may be deferred, rescinded or shortened if it subsequently is found that
the delays can be overcome or reduced by the exercise of reasonable precautions,
efforts and measures.
As a condition precedent to an extension of time, the D/BE shall give
written notice to the Engineer within 48 hours after the time when he knows or
should know of any cause which might under any circumstances result in delay for
which he claims or may claim an extension of time (including those causes which
the Authority is responsible for or has knowledge of), specifically stating that
an extension is or may be claimed, identifying such cause and describing, as
fully as practicable at the time, the nature and expected duration of the delay
and its effect on the various portions of the Contract. Since the possible
necessity for an extension of time may materially alter the scheduling, plans
and other actions of the Authority, and since, with sufficient opportunity, the
Authority might if it so elects attempt to mitigate the effect of a delay for
which an extension of time might be claimed, and since merely oral notice may
cause disputes as to the existence or substance thereof, the giving of written
notice as above required shall be of the essence of the obligations and failure
of the D/BE to give written notice as above required shall a conclusive waiver
of an extension of time.
It shall in all cases presumed that no extension or further extension of
time is due unless the D/BE shall affirmatively demonstrate to the satisfaction
of the Engineer acting personally that it is. To this end, the D/BE shall
maintain adequate records supporting any claim for an extension of time, and in
the absence of such records, the foregoing presumption shall be deemed
conclusive.
-39-
<PAGE>
17. IDLE SALARIED MEN AND EQUIPMENT
If any salaried men or equipment of the D/BE or any subcontractor are
necessarily kept continuously idle and wholly unoccupied at the construction
site for a full day on each of two or more full days on which they would be
engaged in the performance of the Work but for causes due solely to acts or
omissions of the Authority or the Engineer occurring after the opening of
Proposals on this Contract, and if such idleness is not due to any cause within
the control of the D/BE or of any of his subcontractors or materialmen or his or
their employees, then the Authority shall pay to the D/BE and the D/BE shall
accept (in addition to any sums otherwise payable under this Contract, and in
full satisfaction of an in liquidation of all claims for damages because of such
act or omission of the Authority or the Engineer) an amount equal to that which
the employer actually pays such salaried employees during such full days of
idleness, plus a proper proportion of the premiums actually paid for Workers'
Compensation Insurance upon the basis of such salaries, a proper proportion of
vacation allowances and union dues and assessments actually paid by the employer
pursuant to contractual obligations on the basis of such salaries, and a proper
proportion of the taxes actually paid by the employer pursuant to law upon the
basis of such salaries and plus such rental equipment shall be computed by the
Engineer in accordance with the provisions of the Clause of the Form of Contract
entitled "Compensation For Extra Work"; provided, however, that the seven (7)
percent of the rental to be paid in accordance with said Claus in the case of
equipment utilized by subcontractors shall not be payable in connection with
such idle equipment; and provided further that the provisions of subparagraph
(3) of said Clause shall not be applicable to such idle equipment.
The D/BE shall give written notice to the Engineer before the end of the
second of the above-mentioned 2 or more full days (whether or not the Authority
is aware of the existence of any circumstances which might constitute a basis
for payment under this numbered clause), specifically stating that salaried men
or equipment have been kept idle under circumstances which result in payment
under this numbered clause; and he shall furnish with such notice, for all the
days that have occurred, and shall in addition furnish at the end of each
additional day of the above-mentioned 2 or more full days, (a) memorandum
showing the name, payroll title, salary rate and employer of each of the
salaried men claimed to have been kept idle at the construction site, and the
rates and amounts of Workers' Compensation Insurance premiums and taxes based
upon their salaries and the holiday and vacation allowances and union dues and
assessments which the employer must actually pay pursuant to contractual
obligations based on their salaries, and (b) a memorandum of the equipment
claimed to be kept idle, together with the amount claimed as rental therefor.
Said notice and memoranda are for the purpose of enabling the Engineer to verify
the D/BE's claim at the times, and of enabling the D/BE to take such steps as
may be necessary to remedy the conditions upon which the claim is based. The
furnishing of such notice and memoranda shall be condition precedent to payment
under this numbered Clause, so that the day on which notice is given shall be
counted as not later than the second of the above mentioned 2 or more full days
and no subsequent day shall be counted for which the above memoranda are not
furnished at the end of such day.
- 40 -
<PAGE>
18. DELAYS TO D/BE
As between the D/BE and the Authority, the D/BE assumes the risk of all
suspensions of or delays in performance of the Contract regardless of the length
thereof, arising from all causes whatsoever, whether or not relating to this
Contract, including wrongful acts or omissions of the Authority, its officers,
agents, employees and contractors, except only to the extent, if any, that
compensation or any extension of time may be due as expressly provided for
elsewhere in the Contract for such suspension or delays, and subject only to
such exception, the D/BE shall bear the burden of all costs, expenses and
liabilities which he may incur in connection with such suspensions or delays,
and all such suspensions, delays, costs, expenses and liabilities of any nature
whatsoever, whether or not provided for in this Contract, shall conclusively be
deemed to have been within the contemplation of the parties.
Notwithstanding any provisions of this Contract, whether relating to time
of performance or otherwise, the Authority makes no representation or guaranty
as to when the construction site or any part thereof will be available for the
performance of the Contract or as to whether conditions at the construction site
will be such as to permit the Contract to be performed thereon without
interruption or by any particular sequence or method or as to whether the
performance of the Contract can be completed by the time required under this
Contract or by any other time.
Wherever in connection with this Contract it is required, expressly or
otherwise, that the Authority shall perform any act relating to the Contract,
including making available or furnishing any real property, materials, or other
things, no guaranty is made by the Authority as to the time of such performance
and the delay of the Authority in fulfilling such requirement shall not result
in liability of any kind on the part of the Authority except only to the extent,
if any, that an extension of time or compensation may be due as expressly
provided for elsewhere in this Contract.
19. CANCELLATION FOR DELAY
If the performance of the Contract or any portion of it shall, in the
opinion of the Director be materially delayed, whether or not through the fault
of the D/BE, by any cause which affects the D/BE's ability to perform the
Contract without affecting to the same degree the Authority's own ability to
perform it, either directly or through others, the Authority shall have the
right at any time during the existence of such delay to cancel this Contract as
to any portion not yet performed, without prejudice to the rights, liabilities
and obligations of the parties under this Contract arising out of portions
already performed, provided, however, that such right of cancellation shall not
exist if the delay be due to any wrongful act or omission of the Authority. In
the event of such cancellation, no allowance shall be made for anticipated
profits.
- 41 -
<PAGE>
CHAPTER IV
CONDUCT OF CONTRACT
20. AUTHORITY OF DIRECTOR
Inasmuch as the public interest requires that the Work to which this
Contract relates shall be performed in the manner which the Authority, acting
through the Director, deems best, the Director shall have the absolute authority
to determine what is or is not necessary or proper for or incidental to such
Work, and any statements made, or directives issued, by the Director regarding
the Contract Documents shall be deemed merely his present determination on this
point. In the exercise of this authority, the Director shall have the power to:
alter the Contract Documents; require the performance of Work not required by
them in their present form, even though of a totally different character from
that now required; and, vary, increase and diminish the character, quantity and
quality of, or to countermand any Work now or hereafter required. Such
variation, increase, diminution or countermanding need not be based on necessity
but may be based on convenience.
If at any time it shall be, from the viewpoint of the Authority,
impracticable or undesirable in the judgment of the Director to proceed with or
continue the performance of the Contract or any part thereof, whether or not for
reasons beyond the control of the Authority, he shall have authority to suspend
performance of any portion or all of the Contract until such time as he may deem
it practicable or desirable to proceed. Moreover, if at any time it shall be,
from the viewpoint of the Authority, impracticable or undesirable in the
judgment of the Director to proceed with or continue the performance of the
Contract or any part thereof for reasons beyond the control of the Authority, he
shall the authority to cancel this Contract as to any or all portions not yet
performed. Such cancellations shall be without prejudice to the rights and
obligations of the parties arising out of portions already performed, but no
allowance shall be made for anticipated profits.
In the event of a cancellation hereunder, the D/BE shall promptly deliver
to the Authority all Contract Documents in his possession, including but not
limited to design calculations, whether preliminary or final, produced to the
time of termination, and the Authority shall have an irrevocable, non-exclusive,
royalty-free license to make, have made and use, either itself or by anyone on
its behalf, the subject matter of such design documents in connection with any
activity now or hereinafter engaged in or permitted by the Authority. Further,
if the Director determines to cancel this Contract, the Director shall have the
right to require the D/BE to complete any Contract Documents the Director may
require, including but not limited to General System Design Drawings, Detailed
System Design Specifications and design calculations, and deliver them to the
Authority but to cease all construction activities, with the Contract to be
deemed terminated upon delivery of the approved final design documents and the
Authority shall have the right of use of such Documents as set forth in the last
preceding sentence and with determination of compensation to the D/BE to be at
the sole discretion of the Director.
- 42 -
<PAGE>
Wherever the Contract Documents refer to or require an approval by "the
Authority", the Director may grant such approval, on behalf of the Authority.
The Director may terminate this Contract WTC-893.071 and Contract WTC-799.54
with or without cause, upon thirty (30) calendar days written notice to the
D/BE.
21. AUTHORITY OF THE ENGINEER
To resolve all disputes and to prevent litigation the parties to this
Contract authorize the Engineer, acting personally, to decide all questions of
any nature whatsoever arising out of, under, or in connection with, or in any
way related to or on account of, this Contract (including claims in the nature
of breach of contract or fraud or misrepresentations before or subsequent to
acceptance of the D/BE's Proposal and claims of a type which are barred by the
provisions of this Contract) and his decision shall be conclusive, final and
binding on the parties. The effect of his decision shall not be impaired or
waived by any negotiations or settlement offers in connection with the question
decided, whether or not he participated therein himself, or by any prior
decision of others, which prior decisions shall be deemed subject to review, or
by any termination or cancellation of this Contract.
All such questions shall be submitted in writing by the D/BE to the
Engineer, for his decision, together with all evidence and other pertinent
information in regard to such questions, in order that a fair and impartial
decision may be made. In any action against the Authority relating to any such
question the D/BE must allege in his complaint and prove such submission, which
shall be a condition precedent to any such action. No evidence or information
shall be introduced or relied upon in such an action that has not been so
presented to the Engineer personally. Neither the requirements of this paragraph
nor the time necessary for compliance therewith, however, shall affect the time
when the cause of action shall be deemed to have accrued for purposes of any
statute controlling actions against the Authority, and the time of such accrual
shall be determined without reference to this paragraph.
In the performance of the Contract, the D/BE shall conform to all orders,
directions and requirements of the Engineer and shall perform the Contract to
the satisfaction of the Engineer at such times and places, by such methods and
in such manner and sequences as he may require, and the Contract shall at all
stages be subject to his inspection. The Engineer shall determine the amount,
quality, acceptability and fitness of all parts of the Work and shall interpret
the Contract Documents. The D/BE shall employ no equipment, materials, methods
or men to which the Engineer objects, and shall remove no materials, equipment
or other facilities from the construction site without permission. Upon request,
the Engineer shall confirm in writing any oral order, direction, requirements or
determination.
The D/BE is requested to orally advise the Engineer of questions as they
arise. Although such advice will not substitute for the written notice and
information for which requirements are set forth elsewhere herein, it is
anticipated that it will facilitate prompt decisions on the part of the Engineer
and others.
-43-
<PAGE>
The enumeration in the Contract Documents of particular instances in which
the opinion, judgment, discretion or determination of the Engineer shall control
or in which the Contract shall be performed to his satisfaction or subject to
his inspection, shall not imply that only the matters of a nature similar to
those enumerated shall be so governed and performed, but without exception the
entire Contract shall be so governed and so performed.
Wherever the Contract Documents refer to or require an approval by "the
Authority", the Engineer may grant such approval, on behalf of the Authority,
unless noted otherwise.
22. NOTICE REQUIREMENTS
No claim against the Authority shall be made or asserted in any action or
proceeding at law or in equity, and the D/BE shall not be entitled to allowance
of such claim, unless the D/BE shall have complied with all requirements
relating to the giving of written notice and of information with respect to such
claim as provided in this numbered Clause. The failure of the D/BE to give such
written notice and information as to any claim shall be conclusively deemed to
be a waiver by the D/BE of such claim, such written notice and information being
conditions precedent to such claim. As used herein, "claim" shall include any
claim arising out of, under, or in connection with, or in any way related to or
on account of, this Contract (including claims in the nature of breach of
contract of fraud or misrepresentation before or subsequent to acceptance of the
D/BE's Proposal and claims of a type which are barred by the provisions of this
Contract) for damages, payment or compensation of any nature or for extension
of any time for performance of any part of this Contract.
The requirements as to the giving of written notice and information with
respect to claims shall be as follows:
1. In the case of any claims for Extra Work, extensions of time for
completion, idle salaried men and equipment, or any other matter for which
requirements are set forth elsewhere in this Contract as to notice and
information, such requirements shall apply.
2. In the case of all other types of claim, notice shall have been given
to the Engineer, personally, as soon as practicable, and in any case, within 48
hours, after occurrence of the act, omission, or other circumstance upon which
the claim is or will be based, stating as fully as practicable at the time all
information relating thereto. Such information shall be supplemented with any
further information as soon as practicable after it becomes or should become
known to the D/BE, including daily records showing all costs which the D/BE may
be incurring or all other circumstances which will affect any claim to be made,
which records shall be submitted to the Engineer, personally.
The above requirements for notices and information are for the purpose of
enabling the Authority to avoid waste of public funds by affording it promptly
the opportunity to cancel or revise any order, change its plans, mitigate or
remedy the effects of circumstances giving rise to a claim or take such other
-44-
<PAGE>
action as may seem desirable and to verify any claimed expense or circumstances
as they occur, and the requirements herein for such notice and information are
essential to this Contract and are in addition to any notice required by statute
with respect to suits against the Authority.
The above-referred-to notices and information are required whether or not
the Authority is aware of the existence of any circumstances which might
constitute a basis for a claim and whether or not the Authority has indicated it
will consider a claim.
No act, omission, or statement, of any kind shall be regarded as a waiver
of any of the provisions of this numbered clause or may be relied upon as such
waiver except only either a written statement signed by the Executive Engineer
of the Authority or a resolution of the Commissioners of the Authority expressly
stating that a waiver is intended as to any particular provision of this
numbered Clause, and more particularly no discussion, negotiations,
consideration, correspondence, or requests for information with respect to a
claim by any Commissioner, officer, employee, agent, consultant or contractor of
the Authority shall be construed as a waiver of any provision of this numbered
Clause or as authority or apparent authority to effect such a waiver.
Since merely oral notice or information may cause disputes as to the
existence or substance thereof, and since notice, even if written, to other than
the Authority representative above designated to receive it may not be
sufficient to come to the attention of the representative of the Authority with
the knowledge and responsibility of dealing with the situation, only notice and
information complying with the express provision of this numbered Clause shall
be deemed to fulfill the obligation under this Contract.
23. EQUAL EMPLOYMENT OPPORTUNITY
During the performance of this Contract, the D/BE agrees as follows:
(a) The D/BE will not discriminate against any employee or applicant for
employment because of race, creed, sex, color or national origin, and will take
affirmative action to insure that they are afforded equal employment
opportunities without discrimination because of race, creed, sex, color or
national origin. Such action shall be taken with reference, but not be limited
to: recruitment, employment, job assignment, promotion, upgrading, demotion,
transfer, layoff or termination, rates of pay or other forms of compensation,
and selection for training or retraining, including apprenticeship and
on-the-job training.
(b) The D/BE shall send to each labor union or representative of workers
with which he has or is bound by a collective bargaining or other agreement or
understanding, a notice, to be provided by the State Commission for Human
Rights, advising such labor union or representative of the agreement under
paragraphs (a) through (h) (hereinafter called "nondiscrimination paragraphs").
If the D/BE was directed to do so by the Authority as part of the Proposal or
negotiation of this Contract, the D/BE shall request such labor union or
representative to furnish him with written statement that such labor union or
representative will not discriminate because of race, creed, sex,
- 45 -
<PAGE>
color or national origin and that such labor union or representative either will
affirmatively cooperate, within the limits of its legal and contractual
authority, in the implementation of the policy and provisions of these
nondiscrimination paragraphs or that it consents and agrees that recruitment,
employment, and the terms and conditions of employment under this Contract shall
be in accordance with the purposes and provisions of these nondiscrimination
paragraphs. If such labor union or representative fails or refuses to comply
with such a request that it furnish such a statement, the D/BE shall promptly
notify the State Commission for Human Rights of such failure or refusal.
(c) The D/BE shall post and keep posted in conspicuous places, available
to employees and applicants for employment, notices to be provided by the State
Commission for Human Rights setting forth the substance of the provisions of
paragraphs (a) and (b) and such provisions of the State's laws against
discrimination as the State Commission for Human Rights shall determine.
(d) The D/BE shall state, in all solicitations or advertisements for
employees placed by or on behalf of the D/BE, that all qualified applicants will
be afforded equal employment opportunities without discrimination because of
race, creed, sex, color or national origin.
(e) The D/BE shall comply with the provisions of Sections 291-299 of the
Executive Law and the Civil Rights Law, shall furnish all information and
reports deemed necessary by the State Commission for Human Rights under these
nondiscrimination clauses and such sections of the Executive Law, and shall
permit access to his books, records, and accounts by the State Commission for
Human Rights, the Attorney General and the Industrial Commissioner for the
purpose of investigation to ascertain compliance with these nondiscrimination
paragraphs and such sections of the Executive Law and Civil Rights Law.
(f) This Contract may be forthwith canceled, terminated or suspended, in
whole or in part, by the Authority upon the basis of a finding made by the State
Commission for Human Rights that the D/BE has not complied with these
nondiscrimination paragraphs, and the D/BE may be declared ineligible for future
contracts made by or on behalf of the State, the Authority or other public
authority or agency of the State, until he has satisfied the State Commission
for Human Rights that he has established and is carrying out a program in
conformity with the provisions of these nondiscrimination paragraphs. Such
finding shall be made by the State Commission for Human Rights after
conciliation efforts by the Commission has failed to achieve compliance with
these nondiscrimination paragraphs and after a verified complaint has been filed
with the Commission, notice thereof has been given to the D/BE by the Commission
and an opportunity has been afforded him to be heard publicly before the State
Commissioner of Human Rights or his designee. Such sanctions may be imposed and
remedies invoked independently of or in addition to sanctions and remedies
otherwise provided by law.
- 46 -
<PAGE>
(g) The D/BE shall include the provisions of nondiscrimination paragraphs
(a) through (f) in every subcontract or purchase order in such a manner that
such provisions will be binding upon each subcontractor or vendor as to
operations to be performed within the State of New York. The D/BE shall take
such action in enforcing such provisions of such subcontract or purchase order
as the Authority may direct, including sanctions or remedies for noncompliance.
If the D/BE becomes involved in or is threatened with litigation with a
subcontractor or vendor as a result of such direction by the Authority, the D/BE
shall promptly so notify the General Counsel of the Authority, requesting him to
intervene and protect the interests of the Authority.
(h) The provisions of this numbered Clause which refer to the State
Commission for Human Rights, the Attorney General and the Industrial
Commissioner are inserted in the Contract for the benefit of such parties, as
well as for the benefit of the Authority, and said Commission, Commissioner and
the Attorney General shall have a direct right of action against the D/BE to
effectuate the intent of this Clause.
24. AFFIRMATIVE ACTION REQUIREMENTS - EQUAL EMPLOYMENT OPPORTUNITY
The D/BE shall comply with the provisions set forth hereinafter. These
provisions are modeled on the conditions for Proposing on federal government
contracts adopted by the Office of Federal Contract Compliance in 1987.
The D/BE and all the D/BE's subcontractors (hereinafter called the "D/BE")
must fully comply with the Clause hereof entitled "Equal Employment Opportunity"
as to each construction trade the D/BE intends to use on this Contract. The D/BE
commits itself to the goals for minority and female utilization set forth below
and all other requirements, terms and conditions of this Contract by submitting
a properly signed Proposal.
The D/BE shall appoint an executive of the D/BE to assume the
responsibility for the implementation of the requirements, terms and conditions
of this Contract.
A. The goals for minority and female participation, expressed in
percentage terms, for the workforce at the construction site
under this Contract are as follows:
<TABLE>
<S> <C>
Minority, except laborers 30%
Minority, laborers 40%
Female, except laborers 6.9%
Female, laborers 6.9%
</TABLE>
These goals are applicable to all construction Work performed at the
construction site under this Contract.
-47-
<PAGE>
The D/BE's compliance with this Section shall be based on its
implementation of the Clause entitled "Equal Employment Opportunity", and
specific affirmative action obligations required herein of minority and female
employment and training must be substantially uniform throughout the length of
the contract, and in each trade. The transfer of minority or female employees or
trainees from contractor to contractor or from project to project for the sole
purpose of meeting the D/BE's goals shall be violation of the Contract.
Compliance with the goals will be measured against the total work hours
performed.
B. 1. The D/BE shall provide written notification to the Engineer of
The Office of Business and Job Opportunity of the Authority
within 10 working days of award of any construction subcontract
in excess of $10,000 at any tier for construction Work under this
contract. The notification shall list: the name, address and
telephone number of the subcontractor; the subcontractor's
employer identification number; estimated dollar amount of the
subcontract; estimated starting and completion dates of the
subcontract; and the geographical area in which the subcontract
is to be performed.
2. The D/BE shall submit a Workforce Projection Schedule, which
shall be correlated to the progress schedule, within thirty days
after acceptance of the proposal, for the approval of the
Engineer. The D/BE shall maintain and periodically update such
schedule at intervals as required by the Engineer. The Workforce
Projection Schedule shall include the time period in which each
trade shall be utilized, the average number of workers required
per trade on a weekly basis, the peak period for each trade, and
the number of workers required per trade for the peak on a weekly
basis.
C. 1. As used in this numbered Clause:
a. "Manager" means Director of the Office of Minority Business
Development of the Authority:
b. "Employer identification number" means the Federal Social
Security number used on the Employer's Quarterly Federal Tax
Return, U.S. Treasury Department Form 941;
c. "Minority" includes:
(i) Black (all persons origins in any of the Black
African racial groups not of Hispanic
(ii) Hispanic persons of Puerto Rican, Mexican, Dominican,
Cuban, Central or South American or other Spanish
culture or origin, regardless of race;
(iii) Asian and Pacific Islander (all persons having
origins in any of the original peoples of the Far
East, Southeast Asia, the Indian Subcontinent, or the
Pacific Islands); and
- 48 -
<PAGE>
(vi) Native American or Alaskan native (all persons having origins in
any of the original peoples of North America and maintaining
identifiable tribal affiliations through membership and
participation or identification).
2. Whenever the D/BE or any subcontractor at any tier, subcontracts a portion
of the Work involving any construction trade, it shall physically include
in each subcontract in excess of $10,000 these provisions which include the
applicable goals for minority and female participation.
3. The D/BE shall implement the specific affirmative action standards provided
in paragraphs 6.a. through 6.p. hereof. The goals set forth above are
expressed as percentages of the total hours of employment and training of
minority and female utilization the D/BE should reasonably be able to
achieve in the total workforce at the construction site under the Contract
including employees of the D/BE and the subcontractors. The D/BE is
expected to make substantially uniform progress toward its goals in each
craft during the period specified. These goals may be achieved through
utilization of journeyworkers and apprentices. In the event they are not
achieved through the utilization of journeyworkers, the maximum number of
apprentices provided for in the applicable collective bargaining agreement
may be utilized to achieve said goals.
4. Neither the provisions of any collective bargaining agreement, nor the
failure by a union with whom the D/BE has a collective bargaining
agreement, to refer either minorities or women shall excuse the D/BE's
obligations hereunder.
5. In order for the nonworking training hours of apprentices and trainees to
be counted in meeting the goals, such apprentices and trainees must be
employed by the D/BE during the training period, and the D/BE must have
made a commitment to employ the apprentices and trainees at the completion
of their training, subject to the availability of employment opportunities.
Trainees must be trained pursuant to training programs approved by the U.S.
Department of Labor.
6. The D/BE shall take specific affirmative actions to ensure equal employment
opportunity. The evaluation of the compliance with these provisions shall
be based upon its effort to achieve maximum results from its actions.
Further each D/BE and subcontractor shall utilize his best efforts to
attain such goals with his own workforce and, at a minimum, shall achieve
goals which are higher than the minority and female participation achieved
in the preceding calendar year. The D/BE and subcontractors shall document
these efforts fully, and shall implement affirmative action steps at least
as extensive as the following:
- 49 -
<PAGE>
a. Establish and maintain a current list of minority and female
recruitment sources, provide written notification to
minority and female recruitment sources and to community
organizations when the D/BE or its unions have employment
opportunities available, and maintain a record of the
organizations' responses.
b. Develop maximum job opportunities for apprentice appropriate
to the conditions of the Work and subject to the applicable
collective bargaining agreement, in conjunction with
training programs for the area which expressly include
minorities and women, including upgrading programs and
apprenticeship programs relevant to the employment needs,
especially those programs funded or approved by the
Department of Labor. The D/BE shall provide notice of these
programs to the sources complied under 6.a. above.
c. Maintain a current file of the names, addresses and
telephone numbers of each minority and female off-the-street
applicant and minority or female referral from a union, a
recruitment source or community organization and of what
action was taken with respect to each individual. If such
individual was sent to the union hiring hall for referral
and was not referred back to the D/BE by the union or, if
referred, not employed by the D/BE, this shall be documented
in the file with the reason therefor, along with whatever
additional actions the D/BE may not have taken.
d. Provided immediate written notification to the Manager when
the union or unions with which the D/BE has collective
bargaining agreement has not referred to the D/BE a minority
person or woman sent by the D/BE or when the D/BE has other
information that the union referral process has impeded the
efforts to meet its obligations.
e. Ensure and maintain a working environment free of
harassment, intimidation, and coercion at all sites, and in
all facilities at which the employees are assigned to work.
The D/BE, where possible, will assign two or more women to
each construction project. The D/BE shall specifically
ensure that all foreman, superintendents, and other onsite
supervisory personnel are aware of and carry out the D/BE's
obligation to maintain such working environment, with
specific attention to minority or female individuals working
at such sites or in such facilities.
- 50 -
<PAGE>
f. Disseminate the D/BE's EEO policy by providing notice of the
policy to unions and training programs and requesting their
cooperation in assisting the D/BE in meeting its EEO
obligation; by including it in any policy manual and
collective bargaining agreement; by publicizing it in the
company newspaper, annual report, etc.; by specific review
of the policy with all management personnel and with all
minority and female employees at least once a year; and by
posting the D/BE's EEO policy on bulletin boards accessible
to all employees at each location where construction work is
performed.
g. Review, at least annually, the s EEO policy and affirmative
action obligations hereunder with all employees having any
responsibility for hiring, assignment, layoff, termination
or other employment decisions including specific review of
these items with onsite supervisory personnel such as
Superintendents, General Foremen, etc., prior to the
initiation of construction work at any job site. A written
record shall be made and maintained identifying the time and
place of these meetings, persons attending, subject matter
discussed, and disposition of the subject matter.
h. Disseminate the D/BE's EEO policy externally by including it
in any advertising in the news media, specifically including
minority and female news media, and providing written
notification to and discussing the D/BE's EEO policy with
other contractors and Subcontractors with whom the D/BE does
or anticipates doing business.
i. Direct its recruitment efforts, both oral and written, to
minority, female and community organizations to schools with
minority and female students and to minority and female
recruitment and training organizations serving the
recruitment area and employment needs. Not later than one
month prior to the date for the acceptance of applications
for apprenticeship or other training by any recruitment
source, the D/BE shall send written notification to
organizations such as the above, describing the openings,
screening procedures, and tests to be used in the selection
process
j. Encourage present minority and female employees to recruit
other minority persons and women and, where reasonable,
provide after school, summer and vacation employment to
minority and female youth both on the site and in other
areas of a D/BE's work force.
k. Tests and other selection requirements shall comply with 41
CFR Part 60-3
- 51 -
<PAGE>
l. Conduct, at least annually, an inventory and evaluation at least of
all minority and female personnel for promotion opportunities and
encourage these employees to seek or to prepare for, through
appropriate training, etc., such opportunities.
m. Ensure that seniority practices, job classifications, work assignments
and other personnel practices, do not have a discriminatory effect by
continually monitoring all personnel and employment related activities
to ensure that the EEO policy and the D/BE's obligation hereunder are
being carried out.
n. Ensure that all facilities and company activities are non-segregated
except that separate or single-user toilet and necessary changing
facilities shall be provided to assure privacy between the sexes.
o. Document and maintain a record of all solicitations of offers for
subcontracts from minority and female construction contractors and
suppliers, including circulation of solicitations to minority and
female contractor associations and other business associations.
p. conduct a review, at least annually, of all supervisors' adherence to
and performance under the D/BE's EEO policies and affirmative action
obligations.
7. The D/BE is encouraged to participate in voluntary associations which
assist in fulfilling one or more of their affirmative action obligations
(6.a through 6.p above). The efforts of a contractor association, joint
contractor-community, or other similar group of which the D/BE is a member
and participant, may be asserted as fulfilling any one or more of its
obligations under 6.a. through 6.p. above provided that the D/BE actively
participates in the group, makes every effort to assure that the group has
a positive impact on the employment of minorities and women in the
industry, ensures that the concrete benefits of the program are reflected
in the minority and female work force participation, makes a good faith
effort to meet its individual goals and timetables, and can provide access
to documentation which demonstrates the effectiveness of actions taken on
behalf of the D/BE. The obligation to comply, however, is the and failure
of such a group to fulfill an obligation shall not be a defense for the
D/BE's noncompliance.
- 52 -
<PAGE>
8. Goals for minorities for women have been established. The D/BE, however, is
required to provide equal employment opportunity and to take affirmative
action for all minority groups, both male and female, and all women, both
minority and non-minority. Consequently, the D/BE may be in violation
hereof if a particular group is employed in a substantially disparate
manner (for example, even though the D/BE has achieved its goals for women
generally, the D/BE may be in violation hereof if a specific minority group
of women is underutilized).
9. The D/BE shall not use the goals and timetables or affirmative action
standards to discriminate against any person because of race, color,
religion, sex, or national origin.
10. The D/BE shall not enter into any subcontract with any person of firm
debarred from Government contracts pursuant to Executive Order 11246.
11. The D/BE shall carry out such sanctions and penalties for violation of this
Clause and of the clause entitled "Equal Employment Opportunity", including
suspension, termination and cancellation of existing subcontracts as may be
imposed or ordered by the Authority. If the D/BE fails to carry out such
sanctions and penalties the D/BE shall be in violation hereof.
12. The D/BE, in fulfilling its obligations hereunder shall implement specific
affirmative action steps, at least as extensive as those standards
prescribed in paragraph 6. above, so as to achieve maximum results from its
efforts to ensure equal employment opportunity. If the D/BE fails to comply
with the requirements of these provisions, the Authority shall proceed
accordingly.
13. The D/BE shall designate a responsible official to monitor all employment
related activity to ensure that the company EEO policy is being carried
out, to submit reports, including the Monthly Employment Utilization
Report, relating to the provisions hereof as may be required and to keep
records. Records shall at least include for each employee the name,
address. telephone numbers, construction trade, union affiliation if any,
employee identification number when assigned, social security number, race,
sex, status (e.g. mechanic, apprentice trainee, helper, or laborer) dates
of changes in status, hours worked per week in the indicated trade, rate of
pay, and locations at which the work was performed. Records shall be
maintained in an easily understandable and retrievable form; however, to
the degree that existing records satisfy this requirement, contractors
shall not be required to maintain separate records.
- 53 -
<PAGE>
14. Nothing herein provided shall be construed as a limitation upon
the application of any laws which establish standards of
compliance or upon the application of requirements for the hiring
of local or other area residents (e.g., those under the Public
Works Employment Act of 1977 and the Community Development Block
Grant Program).
25. AFFIRMATIVE ACTION PROGRAMS
The D/BE assures that it will undertake an affirmative action program as
required by 14 CFR Part 152, subpart E, to ensure that no person shall on the
grounds of race, creed, color, national origin, or sex be excluded from
participating in any employment activities covered in 14 CFR Part 152, Subpart
E. The D/BE assures that no person shall be excluded on these grounds from
participating in or receiving the services, or benefits of any program or
activity covered by this Subpart. The D/BE assures that it will require that its
covered suborganizations provide assurances to the D/BE that they similarly will
undertake affirmative action programs and that they will require assurances from
their suborganizations, as required by 14 CPR Part 152, Subpart E, to the same
effect.
26. PREVAILING RATE OF WAGE
The D/BE shall pay or provide (and shall cause all subcontractors to pay or
provide) to his or their workmen, laborers and mechanics (who are employed by
him or them to work on an hourly or daily basis at any trade or occupation at or
about the construction site) at least the prevailing rate of wage and
supplements for others engaged in the same trade or occupation in the locality
in which the Work is being performed as determined by the Engineer and
notwithstanding that such rate may be higher than the rate in effect on the date
of opening of Proposals.
For purposes of this Contract, the Engineer has determined that the
prevailing rates of wage and supplements are those established by the
Commissioner of Labor of the State of New York for the locality and for the
period of time in which the Work is performed. The currently prevailing rates of
wage and supplements are set forth in the Prevailing Rate Schedule annexed
hereto and made apart hereof. These rates are subject to annual adjustment
effective July 1st of each year and a Prevailing Rate Schedule reflecting all
adjustments will be available for the D/BE's inspection on or about July 15th of
each year in Room 51W, 1 World Trade Center, New York, New York 10048 during
regular business hours.
- 54 -
<PAGE>
The provisions of this numbered Clause are inserted in this Contract for
the benefit of such workmen, laborers and mechanics as well as for the benefit
of the Authority and if the D/BE or any subcontractor shall pay or provide any
such workman, laborer or mechanic less than the rates of wages and supplements
above described, such workman, laborer or mechanic shall have a direct right of
action against the D/BE or such subcontractor for the difference between the
wages and supplements actually paid or provided and those to which he is
entitled under this Clause. If such workman, laborer or mechanic is employed by
any subcontractor whose subcontract does not contain a provision substantially
similar to the provisions of this clause (requiring the payment or provision of
at least the above minimum, and providing for a cause of action in the event of
the subcontractor's failure to pay or provide such wages and supplements) such
workman, laborer or mechanic shall have a direct right of action against the
D/BE. The Authority shall not be a necessary party to any action brought by any
workman, laborer or mechanic to obtain a money judgment against the D/BE or any
subcontractor pursuant to this numbered Clause.
Nothing herein contained shall be construed to prevent the D/BE or any
subcontractor from paying higher rates of wages or providing higher supplements
than the minimum hereinbefore prescribed; and nothing herein contained shall be
construed to constitute a representation or guarantee that the D/BE or any
subcontractor can obtain workmen, laborers and mechanics for minimum
hereinbefore prescribed.
The Engineer may at any time request that the D/BE certify in writing that
he has paid or provided (and has caused all subcontractors to pay or provide) at
least the prevailing rates of wage and supplements required by this numbered
Clause and the D/BE shall comply with any such request within ten (100 calendar
days of his receipt thereof. The D/BE shall include in his certification such
detail as the Engineer may require with respect to hourly wages and supplements
actually paid or provided by the D/BE or any subcontractor to each of his or
their laborers, workmen and mechanics employed as described in this numbered
Clause.
The D/BE's failure to comply with any provision of this numbered Clause
shall be deemed a substantial breach of this Contract.
27. TITLE TO MATERIALS
All material to become part of the permanent construction shall be and
become the property of the Authority upon delivery at the construction site or
upon being especially adapted for use in or as a part of the permanent
construction, whichever may first occur, subject however to the assumption of
risk under the Clause hereof entitled "Risks Assumed By The D/BE", subparagraph
(a).
The D/BE shall promptly furnish to the Authority such bills of sale and
other instruments as may be required by it, properly executed, acknowledged and
delivered, assuring to it title to such materials, free of encumbrances and
shall mark or otherwise identify all such materials as the property of the
Authority.
- 55 -
<PAGE>
28. ASSIGNMENTS AND SUBCONTRACTS
Any assignment or other contract transfer by the D/BE of this Contract or
any part hereof or of any of his rights hereunder or of any monies due or to
become due hereunder and any delegation of any of his duties hereunder without
the express consent in writing of the Authority shall be void and of no effect
as to the Authority, provided however, that the D/BE may subcontract portions of
the Work to such persons as the Engineer may, from time to time, expressly
approve in writing. For each individual, partnership or corporation proposed by
the D/BE may subcontract portions of the Work to such persons as the Engineer
may, from time to time, expressly approve in writing. For each individual,
partnership or corporation proposed by the D/BE as a subcontractor, the D/BE
shall submit to the Authority a certification or, if a certification cannot be
made, a statement by each person, partnership or corporation to the same effect
as the certification of statement required from the D/BE pursuant to the Clauses
of the "Information For" entitled "Certification Of No Indictment, Conviction,
Suspension, Debarment Or Termination" and "Non-Collusive Bidding And Code Of
Ethics Certification; Certification Of No Solicitation Based on Commission,
Percentage, Brokerage, Contingent Fee Or Other Fee". All further subcontracting
by any contractor shall also be subject to such approval of the Engineer.
Approval of a subcontractor may be conditioned on (among other things) the
furnishing, without expense to the Authority, of a surety bond guaranteeing
payment by the subcontractor or claims of materialmen, subcontractors, workmen
and other third persons arising out of the subcontractor's performance of any
part of the Work.
No consent to any assignment or other transfer, and no approval of any
subcontractor, shall under any circumstances operate to relieve the D/BE of any
of his obligations; no subcontract, no approval of any subcontract and no act or
omission of the Authority or the Engineer shall create any rights in favor of
such subcontractor and against the Authority; and as between the Authority and
the D/BE, all assignees, subcontractors, and other transferees shall for all
purposes be deemed to be agents of the D/BE. Moreover, all subcontracts and all
approvals of subcontractors shall be and, regardless of their form, shall be
deemed to be conditioned upon performance by the subcontractor in accordance
with this Contract; and if any subcontractor shall fail to perform the Contract
to the satisfaction of the Engineer, the Engineer shall have the absolute right
to rescind his approval forthwith and to require the performance of the Contract
by the D/BE personally or through other approved subcontractors.
29. CLAIMS OF THIRD PERSONS
The D/BE undertakes to pay all claims lawfully made against him by
subcontractors, materialmen and workmen, and all claims lawfully made against
him by other third persons arising out of or in connection with or because of
the performance of this Contract and to cause all subcontractors to pay all such
claims lawfully made against them.
-56-
<PAGE>
30. CERTIFICATE OF PARTIAL COMPLETION
If at any time prior to the rendition of the Certificate of Final
Completion, any portion of the permanent construction has been satisfactorily
completed, and if in the judgment of the Engineer such portion of the permanent
construction is not necessary for the operations of the D/BE but will be
immediately useful to and is needed by the Authority for other purposes, the
Engineer may render to the Authority and to the D/BE a certificate in writing to
that effect (herein called Certificate of Partial Completion), and thereupon or
at any time thereafter the Authority may take over and use the portion of the
permanent construction described in such Certificate and exclude the D/BE
therefrom.
The rendition of a Certificate of Partial Completion shall not be construed
to constitute an extension of the time to complete the portion of the permanent
construction to which it related in the event that he has failed to complete the
same in accordance with the terms of this Contract. Moreover, the acceptance of
a Certificate of Partial Completion by the Authority shall not operate to
release the D/BE or his sureties from any obligations under or upon this
Contract or the Performance and Payment Bond.
31. CERTIFICATE OF FINAL COMPLETION
After the satisfactory completion of all Work whatsoever required and the
making of such tests and inspections as may be necessary or desirable, and
including written certification by the D/BE's Engineer or Record that the
construction has been executed in accordance with the Contract Documents, with
any deviations specifically noted, the Engineer shall render to the Authority
and to the D/BE a certificate in writing (herein called the Certificate of Final
Completion) certifying that in his opinion all Work under this Contract,
including extra Work, has been completed in accordance with the Contract
Documents and the requirements of the Engineer, and certifying the date as of
which it was so completed.
The rendition of the Certificate of Final Completion shall not be construed
to constitute an extension of the D/BE's time for performance in the event that
he has failed to complete the Work in accordance with the terms of this
Contract. Moreover, the acceptance of the Certificate of Final Completion by the
Authority shall not operate to release the D/BE or his sureties from any
obligations under or upon this Contract or the Performance and Payment Bond.
32. NO GIFTS, GRATUITIES, OFFERS OF EMPLOYMENT, ETC.
During the term of this Contract, the D/BE shall not offer, give or agree
to give anything of value either to an Authority employee, agent, job shopper,
consultant, construction manager or other person or firm representing the Port
Authority, or to a member of the immediate family (i.e., a spouse, child,
parent, brother or sister) of any of the foregoing, in connection with the
performance by such employee, agent, job shopper, consultant, construction
manager or other person or firm representing the Authority of duties involving
transactions with the D/BE on behalf of the Authority, whether or not such
duties are related to this Contract or any other Authority contract or matter.
Any such conduct shall be deemed a material breach of this Contract.
-57-
<PAGE>
As used herein "anything of value" shall include but not be limited to any
(a) favors, such as meals, entertainment, transportation (other than that
contemplated by the Contract or any other Authority Contract) etc., which might
tend to obligate the Authority employee to the D/BE, and (b) gift, gratuity,
money, goods, equipment, services, lodging, discounts not available to the
general public, offers or promises of employment, loans or the cancellation
thereof, preferential treatment or business opportunity. Such terms shall not
include compensation contemplated by this Contract or any other Authority
contract.
Where used in this Clause, the term "Authority" shall be deemed to include
all subsidiaries of the Authority. Currently, those subsidiaries are the Port
Authority Trans-Hudson Corporation (PATH) and the Newark Legal and
Communications Center.
In addition, during the term of this Contract, the D/BE shall not made an
offer of employment or use confidential information in a manner prescribed by
the Code of Ethics and Financial Disclosure dated as of July 18, 1994 (a copy of
which is available upon request to the Office of the Secretary of the
Authority).
The D/BE shall include the provisions of this Clause in each subcontract
entered into under this Contract.
-58-
<PAGE>
CHAPTER V
WARRANTIES MADE AND LIABILITY ASSUMED
BY THE D/BE
33. WARRANTIES
The D/BE represents and warrants:
(a) That he is financially solvent, that he is experienced in and
competent to perform the type of services contemplated by this
Contract, that the facts stated or shown in any papers submitted or
referred to in connection with his Proposal are true, and, if the D/BE
is a corporation, that it is authorized to perform this Contract;
(b) That he has carefully examined and analyzed the provisions and
requirements of this Contract and inspected the construction site,
that from his own investigations he has satisfied himself as to the
nature of all things needed for the performance of this Contract, the
general and local conditions, and all other matters which in any way
affect this Contract or its performance, and that the time available
to him for such examination, analysis, inspection and investigations
was adequate;
(c) That the Contract is feasible of performance in accordance with all
its provisions and requirements and that he can and will perform it in
strict accordance with such provisions and requirements;
(d) That no Commissioner, officer, agent, employee, consultant or
contractor of the Authority is personally interested directly or
indirectly in this Contract or the compensation to be paid hereunder;
and
(e) That except only for those representations, statements or promises
expressly contained in this Contract, no representation, statement or
promise, oral or in writing of any kind whatsoever by the Authority,
its Commissioners, officers, agents, employees or consultants has
induced the D/BE to enter into this Contract or has been relied upon
by the D/BE, including any with reference to: (1) the meaning,
correctness, suitability, or completeness of any provisions or
requirements of this Contract; (2) the nature, existence or location
of materials, structures, obstructions, utilities or conditions,
surface or subsurface, which may be encountered at the construction
site; (3) the nature, quantity, quality or size of the materials,
equipment, labor and other facilities needed for the performance of
this Contract; (4) the general or local conditions which may in any
way affect his Contract or its performance; (5) the price of the
Contract; or (6) any other matters, whether similar to or different
from those referred to in (1) through (5) immediately above, affecting
or having any connection with this Contract, the Proposing thereon,
any discussions thereof, the performance thereof or those employed
therein or connected or concerned therewith.
-59-
<PAGE>
Moreover, the D/BE accepts the conditions at the construction site as they
may eventually be found to enter and warrants and represents that he can and
will perform the Contract under such conditions and that all materials,
equipment, labor and other facilities required because of any unforeseen
conditions (physical or otherwise) shall be wholly at his own cost and expense,
anything in this Contract to the contrary notwithstanding.
Nothing in the Preliminary Design Criteria or any other part of the
Contract Documents is intended as or shall constitute a representation by the
Authority as to the feasibility of performance of this Contract or any part
thereof. Moreover, the Authority does not warrant or represent either by
issuance of the Preliminary Design Criteria, or by any provision of this
Contract as to time for performance or completion or otherwise that the Contract
may be performed or completed by the times required herein or by any other
times.
The D/BE further represents and warrants that he was given ample
opportunity and time and by means of this paragraph was requested by the
Authority, to review thoroughly all documents forming this Contract prior to
opening of Proposals on this Contract in order that he might request inclusion
in this Contract of any statement, representation, promise or provision which he
desired or on which he wished to place reliance; that he did so review said
documents; that either every such statement, representation, promise or
provision has been included in this Contract or else, if omitted, that he
expressly relinquishes the benefit of any such omitted statement,
representation, promise or provision and is willing to perform this Contract
without claiming reliance thereon making any other claim on account of such
omission.
The D/BE further recognizes that the provisions of this numbered Clause
(though not only such provisions) are essential to the Authority's consent to
enter into this Contract and that without such provisions, the Authority would
not have entered into this Contract.
34. RISKS ASSUMED BY THE D/BE
The D/BE assumes the following distinct and several risks, to the extent
caused by the negligent acts or omissions of the D/BE, its employees, agents and
subcontractors during the performance of the Work, but not to the extent by
others.
(a) The risk of loss or damage to the Work prior to the rendition of the
Certificate of Final Completion (other than loss or damage to the portions of
the Work with respect to which Certificates of Partial Completion have been
issued), and the D/BE shall forthwith repair, replace and make good any such
loss or damage to the Work without cost to the Authority:
-60-
<PAGE>
(b) The risk of losses, fines or penalties, just or unjust, suffered by
third persons or assessed by courts or governmental agencies or entities
against the D/BE or the Authority on account of injuries (including wrongful
death), loss, damage or liability of any kind whatsoever arising out of or in
connection with the performance of the Work or out of or in connection with the
operations or presence at or in the vicinity of the construction site or
Authority premises, including the payment of workers' compensation, whether such
losses, fines or penalties are suffered or assessed and whether such injuries,
damage and loss and liability are sustained at any time both before and after
the rendition of the Certificate of Final Completion;
(c) The risk of loss or damage to any property of the D/BE and of claims
made against the D/BE or the Authority, for loss or damage to any property of
subcontractors, materialmen, workmen and other performing the Work, occurring at
any time prior to completion of removal of such property from the construction
site or Authority premises or the vicinity thereof.
The D/BE shall indemnify the Authority against all losses described in
subparagraphs (b) and (c) above to the extent caused by the negligent acts or
omissions of the D/BE, including all expense incurred by it in the defense,
settlement or satisfaction thereof, including expenses of attorneys, except
where indemnity would be precluded by New York State General Obligations Law,
Section 5-322.1 or by other applicable law.
If so directed, the D/BE shall defend against any claim described in
subparagraphs (b) and (c) above, in which event he shall not without obtaining
express advance permission from the General Counsel of the Authority raise any
defense involving in any way jurisdiction of the tribunal, immunity of the
Authority, governmental nature of the Authority or the provisions of any
statutes respecting suits against the Authority. Unless a claim is one which
the D/BE is not required to indemnify the Authority against as described in the
first sentence of this Paragraph, such defense shall be at the cost.
The provisions of this numbered Clause shall also be for the benefit of the
Commissioners, officers, agents and employees of the Authority, so that they
shall have all the rights which they would have under this numbered Clause if
they were named at each place above at which the Authority is named, including a
direct right of action against the D/BE to enforce the foregoing indemnity,
except, however, that the Authority by action of its board of Commissioners may
at any time in its sole discretion and without liability on its part cancel the
benefit conferred on any of them by this numbered Clause, whether or not the
occasion for invoking such benefit has already arisen at the time of such
cancellation.
Neither the issuance of a Certificate of Final Completion nor the making of
Final Payment shall release the D/BE from his obligations under this numbered
Clause. Moreover, neither the enumeration in this numbered Clause nor the
enumeration elsewhere in this Contract of particular risks assumed by the D/BE
or of particular claims for which he is responsible shall be deemed (a) to limit
the effect of the provisions of this numbered Clause or of any other
- 61 -
<PAGE>
clause of this Contract relating to such risks or claims, (b) to imply that he
assumes or is responsible for risks or claims only of the type enumerated in
this numbered Clause or in any other clause of this Contract, or (c) to limit
the risks which he would assume or the claims for which he would be responsible
in the absence of such enumerations.
35. NO THIRD PARTY RIGHTS
Nothing contained in this Contract is intended for the benefit of third
persons, except to the extent that the Contract specifically provides otherwise
by use of the words "benefit" or "direct right of action".
36. INSURANCE PROCURED BY AUTHORITY
In order to reduce the cost of this Contract, the Authority will procure
and will maintain in force and pay the premiums on:
A. A policy of primary public liability (Comprehensive - Commercial
General Liability, including Contractual) insurance on which the D/BE
and the subcontractors will be insureds issued by an insurance company
satisfactory to the Authority, with current coverage limits of $2
million per occurrence, combined single limit for bodily injury and
property damage liability.
B. Policies of excess public liability insurance from various insurers,
with combined coverage limits of $23 million per occurrence, excess of
the primary $22 million insurance coverage.
C. A policy of workers' compensation and employer's liability insurance
fulfilling the D/BE's and the subcontractor's obligations under the
applicable State Workers' Compensation's Law for those employees of
the D/BE and the subcontractors employed pursuant to this Contract in
operations conducted at or from the site of the Work hereunder.
Coverage under this policy may, as appropriate, include one or more of
the following endorsements:
(1) Longshoremen's and Harbor Workers' Compensation Act Coverage
Endorsement. (Applies when performing work on or around navigable
waters).
(2) Maritime Coverage Endorsement (Applies to masters or members of
the crews of vessels, if vessels are used).
(3) Federal Employer's Liability Act Coverage Endorsement.
(May apply to railroad related Work).
Determination in any instance as to the appropriateness of the included
coverage described in (1), (2) and (3) above will be made based upon information
to be provided by the D/BE relating to the mode of performance of Work to be
done under the Contract.
- 62 -
<PAGE>
The current policies described in A., B. and C. of this numbered Clause are
on file and available for examination in the office of the General Manager, Risk
Management, The Port Authority of NY and NJ, 241 Erie Street, Room 306, Jersey
City, New Jersey 07310-1397. These policies under A. and B. are subject to
certain liability coverage exclusions, which include, but are not limited to,
exclusions from liability from claims arising from pollution and exposure to
asbestos.
D. A policy of builder's risk insurance, covering the improvements, or
other Work to be effectuated by the D/BE and the subcontractors, with
coverage limits of $50 million per occurrence for all locations
combined (subject to a $50 million annual aggregate for flood and
earthquake damage and a limit of $10 million per occurrence for damage
to property in-transit). The deductible is $10,000 per occurrence for
all losses except those caused by flood and earthquake, and $50,000
per occurrence with respect to flood and earthquake. The policy form
contains various exclusions, including but not limited to the
following property exclusions: automobiles; aircraft; and
subcontractor's machinery, tools, and equipment and property of a
similar nature, including forms, shoring, scaffolding and similar
property, not intended to become a permanent part of a building or
structure. The D/BE and the subcontractors must refer to the policy
form to determine all properties and perils included and excluded and
to determine their rights and responsibilities as insureds under the
policy form. Coverage for the aforesaid builder's risk insurance has
been placed. Certain provisions of the proposed policy form with
respect to such coverage are under discussion. A copy of the proposed
policy form provided on behalf of the underwriters in connection with
such coverage (and, upon finalization, a copy of the actual policy
form) may be examined during normal business hours by the D/BE, or at
the D/BE's request, by any of the subcontractors performing Work for
the D/BE under this Contract, at the office of the General Manager,
Risk Management of the Port Authority. The D/BE and the subcontractors
are responsible for payment for all losses within the deductibles and
losses not covered by the builder's risk policies.
The D/BE and subcontractors shall comply with all obligations of the
insured under or in connection with all of the policies described in A. through
D. above.
The Authority shall have the right at any time and from time to time at its
option to procure insurance substituting in whole or in part for any or all of
the policies described in A. through D. above or to require that the D/BE and
the subcontractors themselves obtain insurance substituting in whole or part for
that above referred to, provided always, however, that the D/BE and the
subcontractors shall be afforded coverage as stipulated by the Authority and the
Authority shall either pay the premiums on such substitute insurance or
reimburse the D/BE and the subcontractors therefor.
- 63 -
<PAGE>
Neither the procurement of the above insurance or any substitute insurance
not the extent of the coverage or the limits of liability thereunder shall be
construed to be a limitation on the nature or extent of the D/BE's obligations,
or to relieve the D/BE of any such obligations, and the procurement of the above
insurance is only for the purpose of reducing the cost of the Contract without
constituting any representation by the Authority as to the adequacy of the
insurance or protect the D/BE against the obligations imposed on him by law
(except the applicable State Workers' Compensation Law) or by this or any other
Contract.
Notwithstanding any provision of this Clause, however, no subcontractor
shall be or have the right to be covered under the policies of insurance above
referred to until he has been expressly approved in writing by the Engineer, as
required under this Contract, and such approval may be withheld, among other
reasons, until execution by the subcontractor of agreements affirming his
obligations provided in this Clause with respect to the above insurance.
The provisions of this numbered Clause are not intended to create any
rights in the D/BE other than rights which may be available to him under said
policies themselves, whatever such rights may be. Moreover, the Authority makes
no representation or guaranty, either by the provisions of this numbered Clause
or otherwise, as to the effect of or the coverage under said policies, and no
employee or agent of the Authority is authorized to make any such representation
or guaranty, either by the provisions of this numbered Clause or otherwise, as
to the effect of or the coverage under said policies, and no employee or agent
of the Authority is authorized to make any such representation or guaranty or to
offer any interpretation of or information on said policies. The D/BE warrants
and represents that he has examined and is familiar with the above stated
coverages and that in submitting his Proposal he has relied solely on his own
interpretation thereof and not on any representations or statements, oral or
written, of the Authority, its Commissioners, officers, agents, employees,
consultants or contractors.
All negotiations and adjustments with any insurer concerning payment for
any loss, the risk of which is borne by the D/BE under this Contract, shall be
the responsibility of and shall be conducted by the D/BE unless the applicable
policy provides otherwise. The D/BE shall, however, inform the Engineer of the
progress of all such negotiations and notify him sufficiently in advance of all
meetings thereon so that he or his representatives may attend said negotiations
if they so desire.
The Authority shall be entitled to all returned premiums, dividends and
credits which may become payable at any time for any reason whatsoever in
connection with the aforementioned insurance. The D/BE hereby assigns to the
Authority all such returned premiums dividends and credits and the
subcontractors shall be deemed to have assigned to the Authority all such
returned premiums, dividends and credits by becoming subcontractors under this
Contract. The D/BE shall execute and cause the subcontractors to execute any
instrument necessary or convenient to evidence the Authority's right to such
returned premiums, dividends and credits.
- 64 -
<PAGE>
Notwithstanding any payment by the Authority of any insurance premiums, the
Authority shall not be deemed the employer of any employees hired by the D/BE or
any subcontractor covered by such insurance nor shall it be liable for any of
the obligations of such employer.
The D/BE and the subcontractors shall cooperate to the fullest extent with
the Authority in all matters relating to the aforementioned insurance and shall
comply with all requirements of all insurance policies procured by the
Authority. They shall also at their own expense furnish the Engineer or his duly
authorized representative with copies of all payroll, correspondence, papers,
records and other things necessary or convenient for dealing with or defending
against any claims and for procuring or administering the aforementioned
insurance including furnishing the name of any of their employees, officers, or
agents whose presence or testimony is necessary or convenient in any
negotiations or proceedings involving such insurance.
37. CONFIDENTIALITY AGREEMENT
The Confidentiality Agreement must be fully executed in the form appended
herewith (ATTACHMENT A) signed by a person authorized to bind your organization.
38. SOFTWARE LICENSE AND AGREEMENT
The Authority hereby accepts and the D/BE hereby provides to the Port
Authority (hereinafter "the Authority") a non-exclusive and non-transferable
perpetual license to the below-identified software products and documentation
delivered pursuant to Contract WTC-893.071 between the Authority and the D/BE
for the Supply And Installation Of An Electronic Parking Access Control System
(PACS). The License Terms and Conditions contained herein are part of this
Software License. This License pertains to the material identified by the
Contract in the Preliminary Design Specifications (PDS). This License pertains
to the material identified by the D/BE in the Detailed System Design
Specifications and Detailed System Design Drawings.
A. Definitions - The following definitions apply to terms used within
this Software License Agreement:
1) "Contract" shall mean the Contract WTC-893.071 between the D/BE
and the Authority by which the D/BE agrees to design, furnish,
install and test THE PACS, and the Authority agrees to purchase
the PACS.
2) "PACS Software" and "Licensed Program(s)" shall mean the computer
programs identified in the PDS (bound herein) and furnished to
the Authority by the D/BE pursuant to the terms and conditions of
the Contract.
-65-
<PAGE>
3) "Licensed Materials" shall mean the supportive documentation and
materials identified in PDS (bound herein) and required to be
furnished under the Contract with respect to the PACS Software.
4) "Licensed Agreement" shall mean the License Agreement between the
D/BE and the Authority granting the Authority the right to use
the Licensed Programs and Licensed Materials identified in the
PDS. (bound herein).
5) "Purchased Hardware Products" shall mean all computer hardware
delivered pursuant to the PACS Contract or other future Authority
contracts being intended for use in connection with any Licensed
Program identified in PDS (bound herein).
6) "Designated Site" shall mean the physical location or locations
at the World Trade Center (WTC) of one or more workstations(s) or
Center Computer (CC), which form a part of the Purchased Hardware
Products, which for the purpose of this Agreement means the
operation at the WTC, including all present, and any future sites
at all buildings at the WTC.
7) "Update" shall mean any periodic releases of a Licensed Program
encompassing any improvements, updates and other changes which
are logical improvements of said Licensed Program. Updates shall
include releases which are generally made available at no
additional cost to the licensees who have a current Maintenance
Agreement with the D/BE in effect. Once delivered to the
Authority, Updates shall become part of the Licensed Programs and
documentation concerning Updates shall become part of the
Licensed Materials.
8) "Use" shall mean the copying of any portion of the source or
object code of a Licensed Program into a CPU audit or
workstation(s) for processing of the instructions or statements
contained in such Licensed Program. "Use" shall also mean the Use
of any Licensed Materials.
9) "Proprietary Software" shall mean any software including all
operating systems, system software, software shell, firmware and
programs that are D/BE owned or licensed or are integral to D/BE
products. Application programs, date files or routines which
operate within but are not part of D/BE Proprietary Software are
defined separately under subparagraph 15 of this Section,
"Application Programs" and are not considered under limits of
this subparagraph.
-66-
<PAGE>
10) "Third Party Software" shall mean computer programs owned or
developed by persons or entities other than D/BE and which forms
any part of programs licensed hereunder or is required for proper
processing. The D/BE warrants that it has or will have the full
right and authority to license to the Authority any Third Party
Software which forms a part of the Licensed Programs, and that
the license terms, between the Authority and said third party
developers or owners, permit or will permit the D/BE to grant to
the Authority the right of use given herein. Any right of Use
granted to the D/BE by any third party, and consistent with, but
not in excess of, any rights granted herein, shall inure to the
benefit of the Authority as a third party beneficiary. The D/BE
agrees to include this language in its third party contracts and
shall provide proof of same upon request.
11) "Third Party Software Vendors" shall mean owners and developers,
other than the D/BE, of any of the Licensed Programs or Licensed
Materials which have ownership, trade secret, copyright, patent
or other rights in any of the Licensed Programs or Licensed
Materials.
12) "Source of Code Programs" shall mean the Licensed Programs as
written by programmers or otherwise created so that they are
intelligible to humans and which can also be compiled, assembled,
interpreted or otherwise converted by standard utilities directly
into executable form for processing on a computer system.
13) "Confidential Materials" shall mean those parts of the Licensed
Materials which are claimed by the D/BE or any of its Third Party
Software Vendors to constitute or contain trade secrets, or
confidential or other proprietary data which is or might be
competitive advantage in the marketplace.
14) "Protected Data" shall mean the Source Code and the Confidential
Materials.
15) "Application Programs" shall mean any programs written by the
D/BE which operate within the software environment of the D/BE
Proprietary Software, or Third Party Software, including all
software, firmware or programs developed by the D/BE or by anyone
during the term of this Agreement which result in direct
enhancements to the D/BE owned products based upon the
Authority's design and/or proprietary information such as
attributes, objects, algorithm or programs and configurations
that are specific to the Authority's PACS.
B. Applicability - The software license herein applies to all software
-------------
and software documentation (including firmware) which has been, is being or will
be developed by the D/BE and furnished to the Authority pursuant to the terms of
the Contract for use in and on equipment furnished and installed by the D/BE for
the benefit of the Authority's PACS, including any and all present and any
future Designated Sites.
-67-
<PAGE>
C. Term - The term of the within license shall commence upon the
----
effective date of this Contract and shall be perpetual, unless terminated as
provided below:
1. Failure to Perform. If the Authority defaults in the performance
------------------
of any of its material obligations under this Software License
Agreement and such default is not corrected within sixty (60)
days after written notification of such default from the D/BE,
the within license may be terminated by the D/BE upon ten (10)
days additional written notice of termination to the Authority.
To be effective, the initial sixty (60) day notice must:
a) Have attached thereto a copy of the Software License
Agreement;
b) Specify the particular section or sections hereof which are
believed to have been breached, and the specific nature of
each claim breach; and
c) Specify the corrective action which will be acceptable to
the D/BE, the Authority to effect a cure of the claimed
violation or violations.
In the event the claimed default or defaults cannot be
cured within (60) days then it shall be sufficient if the
Authority commences action within said sixty (60) day peroid
which is reasonably designed to effect a cure and thereafter
diligently pursues said cure until it is accomplished.
2. Termination By The Authority. The Authority may terminate this
----------------------------
Software License Agreement, at its option, with a (30) day
advance written notice served to the D/BE.
D. System Use
----------
1. License.
--------
a) Object Code. The D/BE hereby grants the Port Authority a
-----------
personal, non-transferable non-exclusive and royalty-free
license to use the Object Code (machine readable) and
executable form of all Licensed Programs on the purchased
hardware products or other compatible hardware as may be
required to enable utilization of the Licensed Programs for
their intended purpose. Licensed Programs shall include all
System Level programs, Application Programs, and Utility
Programs developed by the D/BE or any of the D/BE's
subcontractors under this Contract (either directly for the
purpose of this Contract or previously) that are required
for the proper and complete functioning of the PACS and all
of its components as stipulated in the PDS section of this
Contract and in the detailed software and system designs
submitted by the D/BE and approved by the Port Authority.
- 68 -
<PAGE>
Use is limited to the Authority's internal business purposes
only. The D/BE further grants to the Port Authority a
personal, non-transferable, non-exclusive license for the
Authority to use all Licensed Materials in connection with
the use and operation of the Licensed Programs. The
foregoing licenses shall also apply to Applications Programs
and shall also exist in perpetuity, subject to the rights of
termination set forth elsewhere herein. All charges and fees
for use of the Licensed Programs and Licensed Materials are
included in the price under the Contract, and there shall be
no further fees or royalties of any description for such
Use; however, it is expressly understood that normal
software maintenance, including the right to receive Updates
without additional charge, after the one (1) year warranty
period under the Contract is not included. However, software
maintenance and updates after said one year warranty period
shall be included under the Maintenance Contract-WTC-799.54.
The Licensed Material to be delivered by the D/BE and
utilized by the Authority under the term of this Contract
shall include, but not be limited to, complete installation,
maintenance, operation, and trouble-shooting documentation
for the Licensed programs.
The D/BE shall retain all rights and ownership of all system
level, application, and utility software developed by the
D/BE. The license to use Licensed Programs shall include the
right to make copies of each version and/or module of the
Licensed Programs for backup, archival, and other
appropriate purposes rising directly from the Port
Authority's business purposes and requirements.
Unauthorized use, modification, transfer and merging in
whole or in part, compiling, reverse compiling,
disassembling, merging into other programs or sale of any of
the Licensed Programs by the Authority, without the express
written consent of the D/BE is prohibited.
b) Responsibility - The D/BE shall provide to the Authority, as
--------------
part of this Contract, all necessary software to enable the
PACS to operate as specified in the PDS and in the Detailed
System Design Document submitted by the D/BE and approved by
the Port Authority. This includes all operating system,
utility, applications, and other software which are not
developed by the D/BE (Third Party Software), but which are
necessary for the full and proper functioning of the PACS.
The D/BE is also responsible for the performance and support
of all software acquired and/or licensed under this
Agreement for one (1) year after issuance of the Certificate
of Final Completion, and is solely responsible to the Port
Authority that such software complies with its published
specifications and meets all of the specific requirements of
the PACS for three years after issuance of the Certificate
of Final Completion.
-69-
<PAGE>
For all Third Party Software, the D/BE shall provide to the
Authority: Fully paid-up, executed, proper and legal
perpetual licenses for said software issued to the Port
Authority for all Authority use on AFT Systems, full rights
and access to all upgrades, enhancements, revisions, and
changes by the developer/owner for the term of the license
agreements, full documentation for the software which
includes complete installation, maintenance, operation, and
trouble-shooting documentation for the software. The D/BE
must supply documentation provided with the purchased
software.
2. Third Party Software
--------------------
a. Sub-contractor developed software. The Third Party
---------------------------------
Software that is developed by any subcontractor(s) for
this contract shall be subject to all the disclosure
and escrow requirements as software developed by the
D/BE, and the license(s) for this software shall meet
all stipulations of item 1. a) above.
b. Off-the-shelf Software. For licensed Third Party
----------------------
Software provided to the Authority which is provided as
"off-the-shelf" or as standard software from
established vendors, the D/BE shall ensure that the
Authority is provided with the latest release/revision
of the software, with all appropriate and current
documentation and customer support agreements included
in the paid-up license stipulated above.
3. APPLICATIONS PROGRAMS SOFTWARE. Shall be furnished to the
Authority by (the D/BE) and Vendor) in a high-level
language, and the D/BE shall demonstrate the ability of the
software to compile and execute on the Purchased Hardware
products. Source Code for applications Programs shall be
furnished, in fully commented assembly and/or machine
language and source language listings. The D/BE shall retain
all rights and ownership of the Applications Programs, and
the D/BE shall grant a license to the Authority to make
unlimited copies of each version or module of the
Application programs provided, either in machine-readable,
or printed form high-level language, for all business
purposes and requirements of the Authority. All requirements
of this Agreement binding the Authority in the matters of
the D/BE Proprietary Software and Third Party Software shall
be also binding upon the D/BE in the matter of Applications
Programs.
-70-
<PAGE>
E. SOURCE CODE PROGRAMS AND CONFIDENTIAL MATERIALS
1. Delivery of Protected Data. The Protected Data shall be delivered to
--------------------------
the Authority by the D/BE.
2. Confidential Relationship. With respect to all protected Data
-------------------------
delivered to the Authority by the D/BE, or any of the Third Party
Software Vendors, the Authority states that it intends to and will
accept the same in relationship and status of trust and
confidentiality.
3. Security. Protected Data which may come into the possession of the
--------
Authority, shall be maintained under strict confidentiality so as to
ensure that is not disclosed to any non-Authority personnel. Nothing
contained in this Section shall be construed to grant to the Authority
the right to make derivative works or obtain or use any of the Source
Code Programs, and such rights, if any, shall exist only where and to
the extent granted elsewhere herein.
4. Relocation. If any workstation(s) or Central Computer at any
----------
Designated Site should become inoperative due to a malfunction, any
license granted hereunder for said Designated Site shall be
temporarily extended to authorize the Authority to use the Licensed
Programs at any other Authority-owned-or-operated site, at the sole
discretion of the Authority, until the Designated Site is returned to
operation. If any designed site is relocated for any reason, any
license granted hereunder for that Site shall be extended to authorize
the Authority to use the Licensed Programs at said relocated Site
without written notification to Vendor. The Authority may not relocate
a Designated Site to any location that is not owned or controlled by
the Authority without the express written notification to the D/BE,
Sub-Contractor, Third Party or Vendor. however, the Authority will
make every reasonable effort to notify the appropriate entity of said
change within 30 calender days.
5. Replacement Hardware. If the Authority should replace any workstation
or Central Computer, (CC) which is a part of the Purchased Hardware
Products, with another workstation, or Central Computer, then this
License may be transferred to such replacement units following which
the Use of the Licensed Programs on the original units shall be
discontinued. The Licensed Programs may be used on both workstations
and Central Computers for a reasonable time, as may be necessary
during the process of changing from one workstation or Central
COmputer to the other. The Authority shall make every reasonable
effort to notify the D/BE in writing of any such transfer prior to
commencing operations on the hardware.
6. Copies. The Authority shall not copy the Licensed Programs in whole or
------
in part, except as expressly provided in this Section. The Authority
shall have the right to make such number of back-up and archival
copies of the Licensed Programs, either complete or partial, for use
by the Authority at the Designated Site, as its business needs shall
reasonably require.
- 71 -
<PAGE>
7. Proprietary Markings. The Authority agrees not to remove or destroy
---------------------
any proprietary markings or proprietary legends, including copyright
notices, appearing on or contained within any Licensed Programs,
Licensed Materials and Protected Data.
8. Right to Make Derivative Works. The within license does not include
-------------------------------
the right to make derivative works to the Source Code Programs or to
compile the same into Object Code.
F. Limited Warranties
1) One Year Warranty. The D/BE warrants for a period of one (1) year
following the issuance of the Certificate of Final Completion that the
Licensed Programs as installed on the Purchased Hardware Products will
perform in accordance with the PDS which form a part of Contract WTC-
893.071, as well as with Authority approved design documents.
2) The D/BE hereby warrants that the PACS Software and Licensed Programs
furnished under this Agreement are free of so-called viruses, Trojan
Horses, other devices or any deflects which could be manually or
automatically activated to damage or render inoperable the furnished
software and programs or data bases used by the Authority.
G. Assignment
Without the prior express written consent of the D/BE, the Authority's
rights to any Licensed Programs or Licenses Materials shall not be
assigned, licensed, or otherwise transferred, voluntarily or otherwise, by
the Authority, provided that such consent shall not be unreasonably
withheld. Any such assignees must agree in writing to be bound by all of
the terms and conditions of this Agreement before any such assignment is
effected.
H. Derivative Procedures
Any and all Derivative Work performed, commissioned, authorized and/or
purchased by the Authority is the sole property of the Authority.
Should the Authority authorize use of such Derivative Work by the D/BE,
Vendors, and/or other participants in the Project, such D/BE, Vendors
and/or other participants in the Project shall fully indemnify and hold
harmless the Authority from all resulting damages, both consequential and
derivative.
Term, conditions and consideration for such use shall be agreed to in
writing, by the user and the Authority prior to such authorization taking
effect .
- 72 -
<PAGE>
I. Governing Law
This Agreement shall be deemed to have been entered into, and shall be
interpreted, in accordance with the laws of the State of New York. Any and
all actions brought pursuant to this Agreement shall be commenced in the
Supreme Court, State of New York, First Department.
J. Headings
The paragraph headings contained in this Agreement are for reference only
and shall nor affect the interpretation or meaning of this Agreement.
- 73 -
<PAGE>
CHAPTER VI
RIGHTS AND REMEDIES
39. RIGHTS AND REMEDIES OF AUTHORITY
The Authority acting through the Director shall have the following rights
in addition to any other rights as may be noted in any other Clause of this
Contract or otherwise, in the event the Director, acting personally, shall deem
the D/BE guilty of a breach of any term whatsoever of this Contract:
(a) The right to take over and complete the Work or any part thereof as
agent for and at the expense of the D/BE, either directly or through
other contractors.
(b) The right to cancel this Contract as to any or all of the Work yet to
be performed.
(c) The right to specific performance, an injunction or any other
appropriate equitable remedy.
(d) The right to money damages.
For the purpose of this Contract, breach shall include but not be limited
to the following, whether or not the time has yet arrived for performance of an
obligation under this Contract: a statement by the D/BE to any representative of
the Authority indicating that he cannot or will not perform any one or more of
his obligations under this Contract; any act or omission of the D/BE or any
other occurrence which makes it improbable at the time that he will be able to
perform any one or more of his obligations under this Contract; any suspension
of or failure to proceed with any part of the Work by the D/BE which makes it
improbable at the time that he will be able to perform any one or more of his
obligations under this Contract; any false certification at any time by the D/BE
as to any material item certified pursuant to the Clauses entitled
"Certification Of No Investigation (Criminal or Civil Anti-Trust), Indictment,
Conviction, Suspension, Debarment, Disqualification, Prequalification Denial Or
Termination, Etc.; Disclosure Of Other Required Information" and "Non-Collusive
Bidding And Code Of Ethics Certification; Certification Of No Solicitation Based
On Commission, Percentage, Brokerage, Contingent Fee Or Other Fee", or the
willful or fraudulent submission of any signed statement pursuant to such
clauses which is false in any material respect; or the incomplete or inaccurate
representation of its status with respect to the circumstances provided for in
such clauses.
Inasmuch as this Contract is made in reliance upon the D/BE's personal
qualifications, the Authority shall also have the rights set forth above in the
event the D/BE shall become insolvent or bankrupt or if his affairs are placed
in the hands of a receiver, trustee or assignee for the benefit of creditors.
- 74 -
<PAGE>
The enumeration in this numbered Clause or elsewhere in this Contract of
specific rights and remedies of the Authority shall not be deemed to limit any
other rights or remedies which the Authority would have in the absence of such
enumeration; and no exercise by the Authority of any right or remedy shall
operate as a waiver of any other of its rights or remedies not inconsistent
therewith or to stop it from exercising such other rights or remedies.
40. PATENT AND COPYRIGHT INDEMNITY
A. To the extent that a third party claim is unrelated to the portions of
the Preliminary Design Criteria generated by the Authority, the D/BE
shall defend or settle, at its own expense, any claim or suit against
the Authority alleging that any D/BE products furnished under this
Contract infringe any United States patentor copyright. The D/BE shall
also pay all damages and costs that by final judgment may be assessed
against the Authority due to such infringement. The D/BE's obligation
is expressly conditioned upon the following: (i) that the Authority
shall promptly notify the D/BE in writing; (ii) that the D/BE shall
have sole control of the defense or settlement; (iii) that the
Authority shall cooperate with the D/BE in a reasonable way to
facilitate the settlement or defense; and (iv) the action does not
arise from the Authority's modifications, or from use or combinations
of products provided by the D/BE with products provided by the
Authority or others. The D/BE shall not, without obtaining express
advance permission from the Authority's General Counsel, raise any
defense involving in any way jurisdiction of the tribunal, immunity of
the Authority, governmental nature of the Authority or the provisions
of any statutes respecting suits against the Authority.
B. If any D/BE product becomes, or in the D/BE's opinion is likely to
become, the subject of a claim of infringement, the D/BE shall, at its
option: (i) procure for the Authority the right to continue using the
applicable product or (ii) replace or modify the product to provide
the Authority with a non-infringing product that is functionally
equivalent in all material respect.
41. RIGHTS AND REMEDIES OF D/BE
Inasmuch as the D/BE can be adequately compensated by money damages for any
breach of this Contract which may be committed by the Authority, the D/BE
expressly agrees that no default, act or omission of the Authority shall
constitute a material breach of this Contract, entitling him to cancel or
rescind it or (unless the Engineer shall so direct) to suspend or abandon
performance.
42. PERFORMANCE OF WORK AS AGENT FOR D/BE
In the exercise of its right to take over and complete Work as agent for
the D/BE, for which provision is made in the Clause hereof entitled "Rights And
Remedies Of Authority", the Authority shall have the right to take possession
- 75 -
<PAGE>
of and use or permit the use of any and all plant, materials, equipment and
other facilities provided by the D/BE for the purpose of the Work and the D/BE
shall not remove any of the same from the site of the Work without express
permission. Unless expressly directed to discontinue the performance of all
Work, the D/BE shall continue to perform the remainder thereof in such manner as
in no way will hinder or interfere with the portions taken over by the
Authority.
In the certificate of total compensation earned, for which provision is
made in the Clause hereof entitled "Final Payment", the Engineer shall
separately state the amount of Work performed by the Authority as agent for the
D/BE, shall credit to the Authority the cost thereof, and shall credit to the
D/BE the compensation earned thereby; and the difference between them shall be
payable by the D/BE to the Authority, or vice-versa, as the case maybe. If such
difference is in its favor, the Authority may deduct it from and moneys due the
D/BE, and if such moneys be insufficient, the balance thereof shall be payable
to it on demand, if in the favor, it shall constitute part of the Final Payment.
The exercise by the Authority of its right to take over the Work shall not
release the D/BE or his sureties from any of his or their obligations or
liabilities under this Contract or the Performance and Payment Bond, or other
security approved by the Authority.
43. NO ESTOPPEL OR WAIVER
The Authority shall not be precluded or estopped by any acceptance,
certificate or payment, final or otherwise, issued or made under this Contract
or otherwise issued or made by it, the Engineer, or any officer, agent or
employee of the Authority, from showing at any time the true amount and
character of Work performed, or from showing that any such acceptance,
certificate or payment is incorrect or was improperly issued or made; and the
Authority shall not be precluded or estopped, notwithstanding any such
acceptance, certificate of payment, from recovering from the D/BE any damage's
which it may sustain by reason of any failure on his part to comply strictly
with this Contract, and any moneys which may be paid to him or for his account
in excess of those to which he is lawfully entitled.
Neither the acceptance of the Work or any part thereof, nor any payment
therefor, nor any order or certificate issued under this Contract or otherwise
issued by the Authority, the Engineer, or any officer, agent or employee of the
Authority, nor any permission or direction to continue with the performance of
Work, nor any aid lent to the D/BE by the Authority in his performance of such
duties or obligations, nor any other thing done or omitted to be done by the
Authority, its Commissioners, officers, agents or employees shall be deemed to
be a waiver of any provision of this Contract or of any rights or remedies to
which the Authority may be entitled because of any breach thereof, excepting
only a resolution of its Commissioners, providing expressly for such waiver. No
cancellation, rescission or annulment hereof, in whole or as to any part of the
Work, because of any breach hereof, shall be deemed a waiver of any money
damages to which the Authority may be entitled because of such breach. Moreover,
no waiver by the Authority of any breach of this Contract shall be deemed to be
a waiver of any other or any subsequent breach.
- 76 -
<PAGE>
CHAPTER VII
MISCELLANEOUS
44. SUBMISSION TO JURISDICTION
The D/BE hereby irrevocably submits himself to the jurisdiction of the
Courts of the State of New York in regard to any controversy arising out of,
connected with, or in any way concerning the Proposal or this Contract. The
D/BE agrees that service of process on the D/BE in relation to such jurisdiction
may be made, at the option of the Authority, either by fax or by registered or
certified mail addressed to the applicable office as provided for in the Clause
hereof entitled "Service Of Notices On The D/BE", by registered or certified
mail addressed to any office actually maintained by the D/BE or by actual
personal delivery to the D/BE if the D/BE be an individual, to any partner if
the D/BE be a partnership or to an officer, director or managing or general
agent if the D/BE be a corporation.
Such service shall be deemed to be sufficient when jurisdiction would not
lie because of the lack of basis to serve process in the manner otherwise
provided by law. In any case, however, process may be served as stated whether
or not it might otherwise have been served in a different manner.
45. PROVISIONS OF LAW DEEMED INSERTED
Each and every provision of law and clause required by law to be inserted
in this Contract shall be deemed to be inserted herein and the Contract shall be
read and enforced as though it were included herein, and if through mistake or
otherwise any such provision is not inserted, or is not correctly inserted, then
upon the application of either party, the Contract shall forthwith be physically
amended to make such insertion.
46. INVALID CLAUSES
If any provision of this Contract shall be such as to destroy its mutuality
or to render it invalid or illegal, then, if it shall not appear to have been so
material that without it the Contract would not have been made by the parties,
it shall not be deemed to form part thereof but the balance of the Contract
shall remain in full force and effect.
47. NON-LIABILITY OF THE AUTHORITY REPRESENTATIVES
Neither the Commissioners of the Authority nor any officer, agent, or
employee thereof shall be charged personally by the D/BE with any liability or
held liable to him under any term or provision of this Contract, or because of
its execution or attempted execution, or because of any breach hereof.
-77-
<PAGE>
48. SERVICE OF NOTICE ON THE D/BE
Whenever provision is made in this Contract or the giving of any notice to
the D/BE, a Fax to the D/BE's designated office, or the deposit of the notice in
any post office or post office box, enclosed in a postpaid wrapper addressed to
the D/BE at his office, or its delivery to his office, shall be sufficient
service thereof as of the date of such deposit or delivery, except to the
extent, if any, otherwise provided in the Clause entitled "Submission To
Jurisdiction". Until further notice to the Authority, the D/BE's office will be
that stated in his Proposal. Notices may also be serviced personally upon the
D/BE is a corporation, upon any officer, director, or managing or general agent
thereof.
49. MODIFICATION OF CONTRACT
No change in or modification, termination or discharge of this Contract, in
any form whatsoever, shall be valid or enforceable unless it is in writing and
signed by the party to be charged therewith or his duly authorized
representative, provided, however, that any change in or modification,
termination or discharge of this Contract expressly provided for in this
Contract shall be effective as so provided.
The authority of any person to order Extra Work or to alter the Contract
Documents does not include the power to cancel, modify or waive any provisions
of the Form of Contract, and no officer or other representative of the Authority
shall have the power so to do unless and until hereafter so authorized by or
pursuant to a resolution of the Commissioners of the Authority or by a pursuant
to a resolution of their appropriate Committee.
50. CERTIFICATION OF NO INVESTIGATION (CRIMINAL OR CIVIL ANTI-TRUST),
INDICTMENT, CONVICTION, SUSPENSION, DEBARMENT, DISQUALIFICATION,
PREQUALIFICATION DENTAL OR TERMINATION, ETC.; DISCLOSURE OF OTHER REQUIRED
INFORMATION
By Proposing on this Contract, each D/BE and each person signing on behalf
of any D/BE certifies, and in the case of a joint Proposal each party thereto
certifies as to its own organization, that the D/BE and each parent and/or
affiliate of the D/BE has not (a) been indicated or convicted in any
jurisdiction; (b) been suspended, debarred found not responsible or otherwise
disqualified from entering into contracts with any governmental agency or been
denied a government contract for failure to meet prequalification standards; and
(c) had a contract terminated by any governmental agency for breach of contract
or for any cause related directly or indirectly to an indictment or conviction
(d) changed its name and/or employer identification number (taxpayer
identification number) following its having been indicted, convicted, suspended,
debarred or otherwise disqualified, or had a contract terminated as more fully
provided in (a), (b) and (c) above; (e) ever used a name, trade name or
abbreviated name, or an employer identification number different from those
inserted in the proposal; (f) been denied a contract by any governmental agency
for
- 78 -
<PAGE>
failure to provide the required security, including Proposal, payment or
performance bonds or any alternative security deemed acceptable by the Agency
letting the contract; (g) failed to file any required tax returns or failed to
pay any applicable federal, state or local taxes; (h) had a lien imposed upon
its property based on taxes owed and fines and penalties assessed by any agency
of the federal, state or local government; (i) been, and is currently, the
subject of a criminal investigation by any federal, state or local prosecuting
or investigative agency and/or a civil Anti-Trust investigation by any federal,
state or local prosecuting or investigative agency; (j) had any sanctions
imposed as a result of a judicial or administrative proceeding with respect to
any professional license held or with respect to any violation of a federal,
state, or local environmental law, rule or regulation; and (k) shared space,
staff, or equipment with any business entity,
The foregoing certification as to "(a)" through "(k)" shall be deemed to
have been made by the D/BE as follows: If the D/BE is a corporation, such
certification shall be deemed to have been made not only with respect to the
D/BE itself, but also with respect to each Engineer and officer, as well as, to
the best of the certifier's knowledge and belief, each stockholder with an
ownership interest in excess of 10%, if the D/BE is a partnership, such
certification shall be deemed to have been made not only with respect to the
D/BE itself, but also respect to each partner. Moreover, the foregoing
certification, if made by a corporate D/BE, shall be deemed to have been
authorized by the Board Of Engineers of the D/BE, and such authorization shall
be deemed to include the signing and submission of the Proposal and the
inclusion therein of such certification as the act and deed of the corporation.
In any case where the D/BE cannot make the foregoing certification, the
D/BE shall so state and shall furnish with the signed Proposal a signed
statement which sets forth in detail the reasons therefor. If the D/BE is
uncertain as to whether it can make the foregoing certification, it shall so
indicate in a signed statement furnished with its Proposal, setting forth an
explanation for its uncertainty.
Notwithstanding that the certification may be an accurate representation of
the D/BE's status with respect to the enumerated circumstances provided for in
this clause as requiring disclosure at the time that the Proposal is submitted,
the D/BE agrees to immediately notify the authority in writing of any change in
circumstances during the period of irrevocability, or any extension thereof.
The foregoing certification or signed statement shall be deemed to have
been made by the D/BE with full knowledge that it would become a part of the
records of the Authority and that the Authority will rely on its truth and
accuracy in awarding this contract. In the event that the Authority determines
at any time prior or subsequent to the award of the contract that the D/BE has
falsely certified as to any material item in the foregoing certification;
willfully or fraudulently submitted any signed statement pursuant to this clause
which is false in any material respect; or has not completely and accurately
represented its status with respect to
- 79 -
<PAGE>
the circumstances provided for in this clause as requiring disclosure, the
Authority may determine that the D/BE is not responsible D/BE with respect to
its Proposal on this contract or with respect to future Proposals and may, in
addition to exercising any other rights or remedies available to it, exercise
any of the rights or remedies set forth in the Clause hereof entitled "Rights
And Remedies Of Authority". In addition, D/BE's are advises that knowingly
providing a false certification or statement pursuant hereto may be the basis
for prosecution for offering a false instrument for filing (see e.g., New York
Penal Law, Section 175.30 et seq.). are also advised that the inability to make
such certification will not in and of itself disqualify a D/BE, and that in each
instance the Authority will evaluate the reasons therefor provided by the D/BE.
As used in this clause, the following terms shall mean:
Affiliate - An entity in which the parent of the D/BE owns more than fifty
---------
percent of the voting stock, or an entity in which a group of principal owners
which owns more that fifty percent of the D/BE also owns more that fifty percent
of the voting stock.
Agency or Governmental Agency - Any federal, state, city or other local
-----------------------------
agency, including departments, offices, quasi-public agencies, public
authorities and corporations, boards of education and higher education, public
development corporations, local development corporations and others.
Employer Identification Number - The tax identification number assigned to
------------------------------
firms by the federal government for tax purposes.
Investigation - Any inquiries made by any federal, state or local criminal
-------------
prosecuting agency and any inquiries concerning civil Anti-Trust investigations
made by any federal, state or local governmental agency, except for inquiries
concerning civil Anti-Trust investigations, the term does not include inquiries
made by any civil government agency concerning compliance with any regulation,
the nature of which does not carry criminal penalties, nor does it include any
background investigations for employment, or federal, state, and local inquiries
into tax returns.
Officer - Any individual who serves as chief executive officer, chief
-------
financial officer, or chief operating officer of the D/BE by whatever titles
known.
Parent - An individual, partnership, joint venture or corporation which
------
owns more than 50% of the voting stock of the D/BE.
Space Sharing - Space shall be considered to be shared when any part of
-------------
the floor space utilized by the submitting business at any of its sites is also
utilized on a regular or intermittent basis for any purpose by any other
business or not-for-profit organization, and where there is no lease or sublease
in effect between the submitting business and any other business or
not-for-profit organization that is sharing space with the submitting business.
- 80 -
<PAGE>
Staff Sharing - Staff shall be considered to be shared when any individual
-------------
provides the services of an employee, whether paid or unpaid, to the D/BE and
also, on either a regular or irregular basis, provides the services of an
employee, paid or unpaid, to one or more other business(es) and/or
not-for-profit organization(s), if such services are provided during any part of
the same hours the individual is providing services to the D/BE or if such
services are provided on an alternating or interchangeable basis between the
D/BE and the other business(es) or not-for-profit organization(s). "The
services of an employee" should be understood to include services of any type or
level, including managerial or supervisory. This type of sharing may include,
but is not limited to, individuals who provide the following services: telephone
answering, receptionist, delivery, custodial, and driving.
Equipment Sharing - Equipment shall be considered to be shared whenever the
-----------------
D/BE shares the ownership and/or the use of any equipment with any other
business or not-for-profit organization. Such equipment may include, but is not
limited to, telephones or telephone systems, photocopiers, computers, motor
vehicles, and construction equipment. Equipment shall not be considered to be
shared under the following two circumstances: when, although the equipment is
owned by another business or not-for-profit organization, the D/BE has entered
into a formal lease for the use of the equipment and exercises exclusive use of
the equipment; or when the D/BE owns equipment that it has formally leased to
another business or not-for-profit organization, and for the duration of such
lease the D/BE has relinquished all right to the use of such leased equipment.
51. NON-COLLUSIVE BIDDING AND CODE OF ETHICS CERTIFICATION; CERTIFICATION OF NO
SOLICITATION BASED ON COMMISSION, PERCENTAGE, BROKERAGE, CONTINGENT FEE OR
OTHER FEE
By Proposing on this contract, each D/BE and each person signing on behalf
of any D/BE certifies, and in the case of a joint Proposal each party thereto
certifies as to its own organization, that: (a) the prices in its Proposal have
been arrived at independently without collusion, consultation, communication or
agreement, for the purpose of restricting competition, as to any matter relating
to such prices with any other D/BE or with any competitor; (b) the prices quoted
in its Proposal have not been and will not be knowingly disclosed, directly or
indirectly, by the D/BE prior to the official opening of such Proposal to any
other D/BE or to any competitor; (c) no attempt has been made and none will be
made by the D/BE to induce any other person, partnership or corporation to
submit or not to submit a Proposal for the purpose of restricting competition;
(d) this organization has not made any offers or agreements, or given or agreed
to give anything of value (see definition of "anything of value" appearing in
the Clause of the Form of Contract entitled "No Gifts, Gratuities, Offers of
Employment, etc."), or taken any other action with respect to any Authority
employee or former employee or immediate family member of either which would
constitute a breach of ethical standards under the Code of Ethics and Financial
Disclosure effective July 18, 1994 (a copy of which is available upon request
to the individual named in the clause hereof entitled "Questions by D/BE'S"),
nor does this organization have any knowledge of any act on the part of an
Authority employee or former
- 81 -
<PAGE>
Authority employee relating either directly or indirectly to this organization
which constitutes a breach of the ethical standards set forth in said code; and
(e) no person or selling agency, other than a bon fide employee or bona fide
established commercial or selling agency maintained by the D/BE for the purpose
of securing business, has been employed or retained by the D/BE to solicit or
secure this Contract on the understanding that a commission, percentage,
brokerage, contingent or other fee would be paid to such person or selling
agency.
The foregoing certification as to "(a)", "(b)", "(c)", "(d)" and "(e)"
shall be deemed to have been made by the D/BE as follows: if the D/BE is a
corporation, such certification shall be deemed to have been made not only with
respect to the D/BE itself, but also with respect to each parent, affiliate,
director and officer of the D/BE, as well as, to the best of the certifier's
knowledge and belief, each stockholder with an ownership interest in excess of
10%; if the D/BE is a partnership, such certification shall be deemed to have
been made not only with respect to the D/BE itself, but also with respect to
each partner. Moreover, the foregoing certification, if made by a corporate
D/BE, shall be deemed to have been authorized by the board of directors of the
D/BE, and such authorization shall be deemed to include the signing and
submission of the Proposal and the inclusion therein of such certification as
the act and deed of the corporation.
In any case where the D/BE cannot make the foregoing certification, the
D/BE shall so state and shall furnish with the signed Proposal a signed
statement which sets forth in detail the reasons therefor. If the D/BE is
uncertain as to whether it can make the foregoing certification, it shall so
indicate in a signed statement furnished with its Proposal, setting forth in
such statement the reasons for its uncertainty.
Notwithstanding that the D/BE may be able to make the foregoing
certification at the time the Proposal is submitted, the D/BE shall immediately
notify the Authority in writing during the period of irrevocability of Proposals
on this Contract or any extension of such period, of any change of circumstances
which might under this clause make its unable to make the foregoing
certification or required disclosure. The foregoing certification or signed
statement shall be deemed to have been made by the D/BE with full knowledge that
it would become a part of the records of the authority and that the Authority
will rely on its truth and accuracy in awarding this Contract. In the event that
the Authority should determine at any time prior or subsequent to the award of
this contract that the D/BE has falsely certified as to any material item in the
foregoing certification or has willfully or fraudulently furnished a signed
statement which is false in any material respect, or has not fully and
accurately represented any circumstance with respect to any item in the
foregoing certification required to be disclosed, the Authority may determine
that the D/BE is not a responsible D/BE with respect to its Proposal on this
contract or with respect to future Proposals on Authority contracts and may, in
addition to exercising any other rights or remedies it may have, exercise any
of the rights or remedies set forth in the Clause hereof entitled "Right And
Remedies Of The Authority".
- 82 -
<PAGE>
In addition, D/BEs are advised that knowingly providing a false
certification or statement pursuant hereto may be the basis for prosecution for
offering false instrument for filing (see e.g., New York Penal Law, Sections
175.30 et seq.) D/BEs are also advised that the inability to make such
certification will not in and of itself disqualify a D/BE, and that in each
instance the Authority will evaluate the reasons therefor provided by the D/BE.
52. D/BE ELIGIBILITY FOR AWARD OF CONTRACTS - DETERMINATIONS BY AN AGENCY OF
THE STATE OF NEW YORK OR NEW JERSEY CONCERNING ELIGIBILITY TO RECEIVE
PUBLIC CONTRACTS.
D/BEs are advised that the Authority has adopted a policy to the effect
that in awarding its contracts it will honor any determination by an agency of
the State of New York or New Jersey that a D/BE is not eligible to make a
Proposal or be awarded public contracts because the D/BE has been determined to
have engaged in illegal or dishonest conduct or to have violated prevailing rate
of wage legislation.
The policy permits a D/BE whose ineligibility has been so determined by an
agency of the State of New York or New Jersey to submit a Proposal on a Port
Authority contract and then to establish that it is eligible to be awarded the
Contract on which it has Proposed because (i) the state agency determination
relied upon does not apply to the D/BE, or (ii) the state agency determination
relied upon was made without affording the D/BE the notice and hearing to which
the D/BE was entitled by the requirements of due process of law, or (iii) the
state agency determination was clearly erroneous or (iv) the state agency
determination relied upon was not based on a finding of conduct demonstrating a
lack of integrity or a violation of a prevailing rate of wage law.
The full text of the resolution adopting the policy may be found in the
Minutes of the Authority's Board of Commissioners meeting of September 9, 1993.
- 83 -
<PAGE>
CONTRACT WTC-893.071
PROPOSAL
To the Port Authority of New York and New Jersey:
The undersigned (*) Ensec, Inc. a corporation organized under the laws of the
-----------------------------------------
State of Florida.
hereby offers to perform all the obligations and to assume all the duties and
liabilities of the D/BE provided for in the annexed Contract, at the price
inserted by the undersigned in the Clause of the Form of Contract, at the price
inserted by the undersigned in the Clause of the Form of Contract entitled "Unit
Prices and Lump Sum".
This offer shall be irrevocable for 90 days after the date on which The
Port Authority of New York and New Jersey opens this Proposal.
To induce the acceptance of this Proposal, the undersigned hereby makes
each and every certification, statement, assurance, representation and warranty
made by the D/BE in said Contract. Moreover as a condition to receipt and
consideration by the Authority of the Proposal whether or not it is accepted,
the undersigned agrees that all information of any nature whatsoever, regardless
of the form of the communication, received from the undersigned (including its
officers, agents, or employees) by the Authority, its Commissioners, officers,
agents or employees, and notwithstanding any statement therein to the contrary,
has not been given in confidence and may be used or disclosed by or on behalf of
the Authority without liability of any kind except as may arise under letters
patent of the undersigned, if any.
Unless expressly stated otherwise, the Information for D/BEs, all papers
required by it and submitted in connection herewith at any time, said Form of
COntract, and all papers made part of the Contract by the terms of the Form of
Contract are made part of this Proposal.
The undersigned hereby designates the following as his office:
(**)2600 N. Military Trail, Boca Raton, FL 33431
----------------------------------------------------------------
The telephone number of the D/BE is:
Area Code 407- 997-2511
- ---------------------------------------------------------------------
(*) (1) Insert D/BE's name. If a corporation, give state of incorporation,
using the phrase, "a corporation organized under the laws of the state
of
If a partnership, give full names of partners, using also the phrase,
"copartners doing business under the firm name of
If an joint venture, give information required in (1) above for each
participant in the joint venture.
(**) Insert office address.
- 84 -
<PAGE>
SIGNATURE AND CERTIFICATE OF AUTHORITY
Dated, March 20 1995
---------------------
(Signature of individual or name
of corporation or partnership) Ensec, Inc.
--------------------------------
(Signature of agent, partner or /s/ Charles N. Finkel
corporate officer) By(*)(**)-----------------------
(Acknowledgment of signature to Charles N. Finkel President/CEO
--------------------------------
be taken on proper form on following
page) 7181 Lyons Head Lane
--------------------------------
Boca Raton, FL 33496
CERTIFICATE OF AUTHORITY, IF D/BE
IS A CORPORATION OR A PROFESSIONAL CORPORATION
I, the undersigned, as Secretary of the corporation submitting the
foregoing Proposal, hereby certify that under and pursuant to the bylaws and
resolutions of said corporation, each officer who has signed said Proposal on
behalf of the corporation is fully and completely authorized so to do.
(Corporate Seal) /s/ Steven L. Siegel
---------------------------------
Steven L. Siegel
_______________________________________________________________________________
(*) If D/BE is a joint venture, insert signatures as appropriate for one
participate of the joint venture on this page and attach and complete an
additional signature sheet in the same form as appears on this page for each
other participant as required.
(**) If Proposal is signed by an officer or agent, give title and address.
(***)The foregoing signature shall be deemed to have been provided with full
knowledge that the foregoing Proposal, the accompanying Contract booklet, as
well as any certification, statement, assurance, representation, warranty,
schedule or other document submitted by the D/BE with the Proposal will become a
part of the records of the Authority and that the Authority will rely in
awarding the Contract on the truth and accuracy of such Proposal and each such
certification, statement, assurance, representation, warranty and schedule made
therein by the D/BE. Knowingly submitting a false statement in connection with
any of the foregoing may be the basis for prosecution for offering a false
instrument for filing (see, e.g., New York Penal Law, Sections 175.30 et seq.).
- 85 -
<PAGE>
ACKNOWLEDGMENT
ACKNOWLEDGMENT OF D/BE, IF A CORPORATION
State of Florida
...........................)
) SS.: ###-##-####
County of Palm Beach County )
..........................
On this Twentieth day of March , 1995, before me personally
.................. .................
came and appeared Charles N. Finkel , to me known, who being by me duly
............................
sworn, did depose and say that he resides at 7181 Lyons Head Lane, Boca Raton,
.................................
FL 33496 , that he is the President/CEO of Ensec, Inc.
............... ................................................
the corporation described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that one of the seals affixed to said
instrument is such seal; that it was so affixed by order of the directors of
said corporation, and that he signed his name thereto by like order.
(Seal) Shayne D. Kirst /s/ Shanyne D. Kirst
.......................................
ACKNOWLEDGMENT OF D/BE, IF A PARTNERSHIP
State of .........................)
) SS.:
County of.........................)
On this.........................day of....................., 19 , before
me personally came and appeared.............................., to me known and
known to me be one of the members of the firm of.............................,
the foregoing instrument and he acknowledged to me that he executed the same as
and for the act and deed of said firm.
(Seal)
.......................................
ACKNOWLEDGMENT OF D/BE, IF AN INDIVIDUAL
State of .........................)
) SS.:
County of.........................)
On this.........................day of....................., 19 , before
me personally came and appeared.............................. to me known and
known to me to be the person described in and who executed the foregoing
instrument and he acknowledged to me that he executed the same.
(Seal) .......................................
________________________________________________________________________________
(**) If D/BE is a joint venture, insert signature as appropriate for one
participant of the joint venture on this page and attach and complete an
additional Acknowledgment sheet in the same form as appears on this page for
each other participant as required.
- 86 -
<PAGE>
CAK/MC
JJC
THE PORT AUTHORITY
OF NY & NJ
THE WORLD TRADE CENTER
BOOK IV
CONTRACT WTC-799.54
- --------------------------------------------------------------------------------
FORM OF CONTRACT FOR CONTRACT WTC-799.54
FOR MAINTENANCE FOR AN ELECTRONIC
PARKING ACCESS CONTROL SYSTEM
- --------------------------------------------------------------------------------
October 1994
CONFORMED COPY
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHAPTER I
GENERAL PROVISIONS
1. Definitions.................................................... 1
2. General Agreement.............................................. 6
3. Incorporation of Clauses from Contract WTC-893.071............. 7
4. Performance And Payment Bond................................... 8
CHAPTER II
ADJUSTMENTS AND PAYMENTS
5. Adjustments of Lump Sum........................................ 10
6. Compensation For Extra Work.................................... 10
7. Monthly Advances............................................... 14
8. Escalation..................................................... 16
CHAPTER III
PROVISIONS RELATING TO TIME
9. Time For Completion And Damages For Delay...................... 18
10. Extensions Of Time............................................. 20
CHAPTER IV
CONDUCT OF CONTRACT
11. Extra Work Orders.............................................. 22
12. Performance Of Extra Work...................................... 23
13. Claims Of Third Persons........................................ 23
14. Confidentiality................................................
PROPOSAL 24
SIGNATURE AND CERTIFICATE OF AUTHORITY 25
STATEMENT ACCOMPANYING PROPOSAL 27
PERFORMANCE AND PAYMENT BOND 28
CONFIDENTIALITY AGREEMENT "ATTACHMENT "A" 33
EXHIBIT A SAMPLE LIST OF EQUIPMENT AND HARDWARE 38
EXHIBIT B EXTRA WORK HOURLY LABOR RATES 39
EXHIBIT C MAINTENANCE COST SUMMARY 40
</TABLE>
- i -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPECIFICATIONS
DIVISION 1 GENERAL PROVISIONS
1. Maintenance Required By The Specifications..................... 41
2. Available Property............................................. 42
3. Service Management Review and Quality Meeting.................. 43
4. Working Hours.................................................. 43
5. Daily Progress, Equipment And Labor Reports.................... 44
6. Materials Furnished By The Authority........................... 44
SCHEDULE A............................................................... 46
SCHEDULE B............................................................... 56
SCHEDULE C............................................................... 57
SCHEDULE D............................................................... 58
MBE APPROVAL REQUEST..................................................... 59
</TABLE>
- ii -
<PAGE>
CONTRACT WTC-799.54
FORM OF CONTRACT
CHAPTER I
GENERAL PROVISIONS
1. DEFINITIONS
To avoid undue repetition, the following terms whenever they occur in this
Form of Contract or any of the other papers forming a part of the Contract shall
be construed as follows:
The term "Contract" shall mean this Contract WTC-799.54 contained in this
Book, entitled "Form of Contract for Maintenance for an Electronic Parking
Access Control System". The Contract as so defined shall constitute the complete
and exclusive statement of the terms of the agreement between the parties and
the Contract may not be explained or supplemented by course of dealing, usage of
trade or course of performance.
The term "Reference Documents" shall mean Contract WTC-893.071, the
Information for D/BE's, the Preliminary Design Specifications and exhibits
contained in this Book, which together describe the items to be maintained under
the terms of this Contract.
The term "days" or "calendar days" in reference to a period of time shall
mean consecutive calendar days, Saturdays, Sundays and holidays included.
The term "construction site", or "maintenance site", or words of similar
import shall mean the area bounded on the west by the U.S. Pierhead Line (for
the easterly shore of the North River), on the north by the north street line of
Vesey Street (including extension of such line westerly to said pierhead line),
on the east by the east street line of Church Street and on the south by the
south street line of Liberty Street (including extension of such line westerly
to said pierhead line), in the City of New York, and the vicinity of such area.
"Work" shall mean all structures, equipment, plant, labor, materials
(including materials and equipment, if any, furnished by the Authority) and
other facilities and all other things which are necessary or proper for or
incidental to the performance of the Contract WTC-799.54 complete maintenance
and repair services for the Parking Access Control System. (PACS).
The term "Base Date" shall mean the date of successful completion of the
thirty (30) day operational test and acceptance by the Engineer of the PACS
System including any punch list items required to be completed by the Engineeer,
and issuance of certificate of final completion, as required in
Contract WTC-893.071.
- 1 -
<PAGE>
"Tower A", "North Tower Building" and "No. 1 World Trade Center" shall mean "One
World Trade Center" and "Tower B", "South Tower Building" and "No. 2 World Trade
Center" shall mean "Two World Trade Center".
"Equipment" and "plant" shall include construction equipment and plant
rented as agent for the Authority.
The term "Month", unless otherwise specified, shall mean a calendar month.
The term "Designee", unless otherwise specified, shall mean an individual
designated by the Director or Assistant Director.
The term "System" shall mean the PACS.
The term "Network" shall mean software, as well as physical components of
the PACS' voice and data communications distribution system, including but not
limited to: the network communications medium (whether they be public utility or
proprietary hard lines or circuits, or radio frequency), junctions, terminators,
connectors, controllers, intercoms, or other associated hardware.
The terms "Drawing " or "Drawings" in the Specifications shall mean the
"Drawings" identified in the Reference Documents.
The terms "Subgrade" and "Below Grade" are interchangeable.
"Work required by the Specifications and reference documents in their
present form" or words of similar import shall include all Work required by the
Specifications in their present form and all Work involved in or incidental to
the accomplishment of the results intended by the Specifications and reference
documents in their present form (whether or not mentioned or shown thereon).
"Shop Drawings" shall mean all drawings, diagrams, illustrations,
schedules, including supporting data, which are specifically prepared for this
Contract and submitted by the D/BE pursuant to the requirements of the
Specifications or the Engineer to illustrate some portion of the Work. The
terms "shop drawings", "placing drawings" and "working drawings" are used
interchangeably in this Contract.
"Catalog Cuts" shall mean all standard drawings, diagrams, illustrations,
brochures, schedules, performance charts and instructions submitted by the D/BE
pursuant to the requirements of the Specifications or the Engineer to illustrate
some portion of the Work.
- 2 -
<PAGE>
"Director" shall mean the Director of the World Trade Department of the
Authority for the time being, or his successor in duties for the purpose of this
Contract, acting personally or through his authorized representative for the
purpose of this Contract, who is at present the Assistant Director of the World
Trade Department of the Authority. No persons other than those specifically
identified above shall be deemed a representative of the Director except to the
extent specifically authorized in an express written notice to the D/BE signed
by the Director as the case may be. Further, no person shall be deemed a
successor in duties of the Director, unless the D/BE is so notified in writing
by the Executive Director, Deputy Executive Director or Assistant Executive
Director of the Authority.
"Engineer" shall mean the Assistant Director/Program Director For
Redevelopment of the World Trade Department of the Authority, his designee or
his successor in duties acting personally or through his duly authorized
representative for the purpose of this Contract. No other person shall be
deemed a representative of the Engineer except to the extent specifically
authorized in an expressly written notice to the D/BE signed by the Engineer
unless the D/BE is so notified in writing signed by the Director of the World
Trade Department.
"Inspector" shall mean any representative of the Engineer designated by
him as Inspector and acting within the scope of the particular authority vested
in him.
The words "the D/BE", or "this D/BE", or "The Design/Build Entity" or
"D/BE", as used herein shall mean the D/BE under this Contract which is the same
as the D/BE in the Reference Documents.
Whenever reference is made in the Specifications to the words "shown" and
"noted" on the Contract Drawings such references shall mean shown or noted on
the Contract Drawings.
The term "permanent construction" shall include all construction,
installation, structures, equipment and materials (including materials and
equipment, if any furnished by the Authority) to be constructed, installed or
left by the D/BE at or about the construction site (or elsewhere in the
possession of the Authority) after the completion of the Contract (whether or
not they are yet delivered or installed), even though they are subsequently to
be removed by others. The terms "permanent installation", "permanent structure",
"permanent materials", and words of similar import shall have the same meaning
as the term "permanent construction".
"Materialman" shall mean anyone, except the Authority, who furnishes
materials, plant or equipment to the D/BE or any subcontractor in the
performance of the Contract.
- 3 -
<PAGE>
"Subcontractor" shall mean anyone who performs Work (other than or in
addition to the furnishing of materials, plant or equipment) at or about the
maintenance site, directly or indirectly for or in behalf of the D/BE (and
whether or not in privity of contract with the D/BE), but shall not include any
person who furnishes merely his own personal labor or his own personal
services or who performs Work which consists only of the operation of
construction equipment of which he is the lessor.
The term "Maintenance Period" shall mean the term of this Contract
beginning on the Base Date, and the terminating three (3) years after the Base
Date, unless extended as profiled in the Clause of this Contract entitled "Time
for Completion and Damages for Delay", during which the D/BE shall provide the
maintenance services described in this Contract.
The term "availability" shall mean the period of time the specified piece
of software, hardware or field devices are ready for its intended purposes.
The term "Unavailability" shall mean the period of time during which the
specified software, hardware or field devices cannot be used for their intended
purposes due to problems experienced in the normal wear and tear usage. Factors
such as vandalism, damage due to vehicular accident, terrorist activities,
planned outages, and utility failures are not included in the accounting of
unavailability.
The term "PACS Hardware" or "Hardware" shall mean all items in Exhibit A,
lane equipment, Access Management system, office/central equipment and supplies,
closed circuit television (CACTI) system and any additional items as may be
required, pursuant to the requirement for a complete listing described in the
Maintenance Manual supplied by D/BE under WTC-893.071 and any modifications made
per the appropriate clauses of this Contract.
The term "Monthly Maintenance Cost" or "MMC" shall mean the price for all
services rendered under this Contract, except for those services this Contract
specifically excludes from coverage under the Monthly Maintenance Cost as
described in the Section entitled "Extra Work" elsewhere herein.
The term "Principal Period of Maintenance" or "PPM" shall mean 6:00 a.m. to
10:00 p.m. Monday through Friday excluding New York State legal holidays.
The term "Preventive Maintenance" shall mean regularly scheduled
maintenance services on equipment to prevent equipment failure and maintain
performance required by this Contract.
The term "Engineering Change Services" shall mean services for all items of
equipment covered under this Contract, including parts, labor and travel, to
upgrade the PACS.
- 4 -
<PAGE>
"Materialman" or "subcontractor", however, shall exclude the D/BE or any
subsidiary or parent of the D/BE or any person, firm or corporation which has a
substantial interest in the D/BE or in which the D/BE or the parent or the
subsidiary of the D/BE, or an officer or principal of the D/BE or of the parent
or the subsidiary of the D/BE has a substantial interest, provided, however,
that for the purpose of the clause hereof entitled "Assignments And
Subcontractors" the exclusion in this paragraph shall not apply to anyone but
the D/BE himself.
"Workingman" or "workman" shall mean any employee of the D/BE or of a
subcontractor who performs personal labor or personal services at the
Maintenance site.
"Notice" shall mean a written notice.
"Lump Sum" shall mean the Lump Sum amount quoted in the clause of the Form
of Contract hereof entitled "General Agreement".
"Extra Work" shall mean Work required by the Director, or the Engineer,
within the scope of the authority vested in him and referred to elsewhere
herein, ordered by the Authority personally, which is in addition to that
required by the Contract Drawings and Specifications in their present form.
Whenever they refer to the Work or its performance, "directed", "required",
"permitted", "ordered", "designated", "prescribed" and words of similar import
shall mean directed, permitted, ordered, designated or prescribed by the
Engineer and "approved", "acceptable", "satisfactory" and words of similar
import shall mean approved by or acceptable or satisfactory to the Engineer; and
"necessary", "reasonable", "proper", "correct", and words of similar import
shall mean necessary, reasonable, proper or correct in the judgment of the
Engineer.
Whenever "including", "such as" or words of similar import are used, the
specific things thereafter enumerated shall not limit the generality of the
things preceding such words.
Whenever reference is made to the date of opening of Proposals or receipt
of Proposals, such reference shall be deemed to mean the date of receipt by the
Authority of the D/BE's Proposal(s) in the form bound herewith.
Abbreviations
A list of abbreviations used in this Maintenance Contract.
AVI Automatic Vehicle Identifications
C&PS Consumer and Patron Services
CCTV Closed Circuit Television
CPU Central Processing Unit
EEO Equal Employment Opportunity
MMC Monthly Maintenance Cost
PO Parking Office
PPM Principal Period Of Maintenance
UPS Uninterruptable Power Supply
WTC World Trade Center
-5-
<PAGE>
2. GENERAL AGREEMENT
The Design/Build Entity (D/BE) agrees to provide complete maintenance and repair
services to meet the performance guaranties required by this Contract for the
Parking Access Control System (PACS) for (3) years including computer hardware
and software, communication network, field equipment and peripheral hardware at
the World Trade Center, and to furnish all structures, equipment, plant, labor,
materials and other facilities and to do all other things necessary or proper
therefor or incidental thereto, all in strict accordance with Division I and the
Reference Documents and any future changes therein; and the D/BE further agrees
to assume and perform all other duties and obligations imposed upon him by this
Contract. The furnishing of equipment and plant, however, shall be subject to
the provisions of the Clause of Contract WTC-893.071 entitled "Agency For Rental
Of Maintenance Equipment".
The Authority agrees to pay to the D/BE and the D/BE agrees to accept from
the Authority, in full consideration for the performance by the D/BE of his
duties and obligations under this Contract and the whole thereof, a compensation
of
Five hundred thousand, eighteen thousand five hundred Dollars
- --------------------------------------------------------------
and No Cents ($ 518,500.00 )**
---------------------------------------- --------------
(throughout this Contract called the "Lump Sum"), and such compensation only,
subject only to the express provisions of this Contract specifically setting
forth actual, defined additions to or deductions from such compensation.
The enumeration in this Form of Contract and in the Specifications of
particular things to be furnished or done at the D/BE's expense, or without cost
or expense to the Authority, or without additional compensation to the D/BE
shall not be deemed to imply that only things of a nature similar to those
enumerated shall be so furnished and done; but the D/BE shall perform all Work
as required without other compensation than that specifically provided,
whatsoever changes may be made in the Contract Drawings and Specifications,
whatsoever Work may be required in addition to that required by the Contract
Drawings and Specifications in their present form, and whatsoever obstacles or
unforeseen conditions may arise or be encountered.
________________________________________________________________________________
(*) For sales tax exemptions, see clause entitled "Exemption From New York
State And New York City Sales Taxes".
(**) Insert the amount, using both words and figures that was inserted in
figures in the box entitled, "Grand Total (Lump Sum) Cost for Maintenance"
of Exhibit C herein.
- 6 -
<PAGE>
3. INCORPORATION OF CLAUSES FROM CONTRACT WTC-893.071
The following Clauses from Contract WTC-893.071 are incorporated into, and
are made a part of, this Contract WTC-799.54:
4. Authority Access To Records
5. Advertisement
6. Agency For Rental Of Construction Equipment
7. Exemption From New York State And New York City Sales Taxes
11. Compensation For Emergency Delays
13. Final Payment
14. Withholding Of Payments
17. Idle Salaried Men And Equipment
18. Delays to D/BE
19. Cancellation For Delay
20. Authority Of Director
21. Authority of The Engineer
22. Notice Requirements
23. Equal Employment Opportunity
24. Affirmative Action Requirements - Equal Employment Opportunity
25. Affirmative Action Programs
26. Prevailing Rate Of Wage
27. Title To Materials
28. Assignments And Subcontracts
30. Certificate Of partial Completion
32. No Gifts, Gratuities, Offers Of Employment, Etc.
33. Warranties
34. Risks Assumed By The D/BE
35. No Third Party Rights
36. Insurance Procured By Authority
39. Rights And Remedies Of Authority
40. Patent And Copyright Indemnity
41. Rights And Remedies Of D/BE
42. Performance Of Work As Agency For D/BE
43. No Estoppel Or Waiver
44. Submission To Jurisdiction
45. Provisions Of Law Deemed Inserted
46. Invalid Clauses
47. Non-Liability Of The Authority Representatives
48. Service Of Notice On The D/BE
49. Modification Of Contract
50. Certification Of No Investigation, (Criminal Or Civil Anti-Trust),
Indictment, Conviction, Suspension, Debarment, Disqualification,
Prequalification Denial Or Termination, Etc.; Disclosure Of Other
Required Information
51. Non-Collusive Bidding and Code Of Ethics Certification; Certification
Of No Solicitation Based On Commission, Percentage, Brokerage,
Contingent Fee Or Other Fee
52. D/BE Eligibility For Award Of Contracts-Determinations By An Agency Of
The State Of New Your Or New Jersey Concerning Eligibility To Receive
Public Contracts
- 7 -
<PAGE>
4. PERFORMANCE AND PAYMENT BOND
If the Authority shall in its sole discretion so elect at the time of
accepting the D/BE's Proposal, the D/BE shall furnish a bond for the faithful
performance of all obligations imposed upon him by the Contract, for the base
period and extensions thereof, if any, and also for the payment of all lawful
claims of subcontractors, materialmen and workmen arising out of the performance
of the Contract. Such bond shall be in the form bound herewith entitled
"Performance And Payment Bond", shall be in a penal sum equal to the Lump Sum
and such bond shall be signed by one or more sureties* satisfactory to the
Authority. The bond may be executed on a separate copy of such form not
physically attached to this Contract booklet. In any case, both the form of bond
herewith and any unattached executed copy thereof shall form a part of this Form
of Contract as through herein set forth in full.
At any time after the opening of Proposals, the Authority may give notice
to one or more D/BE's to advise the Authority as to the names of their proposed
sureties. Within forty-eight hours thereafter each D/BE so notified shall so
advise the Authority. The giving of such notice to a D/BE shall not be construed
as an acceptance of his Proposal, and omission to give such notice shall not be
construed as an election by the Authority not to require a bond.
If the Authority elects to require the D/BE to furnish a bond, he deliver
such bond to the Authority of the PACs as required by the Reference Documents
and the sureties thereon shall be as proposed by him, provided, that if the
Authority has theretofore given notice to him that his proposed sureties or any
of them are not satisfactory, the bond shall be executed by other sureties
satisfactory to the Authority.
________________________________________________________________________________
* Sureties must be corporations (commonly known as "surety companies"),
authorized to do business as sureties in the state(s) in which the
construction site is located, whose names appear on the current list of the
Treasury Department of the United States in effect at the time of
submission of the Performance and Payment Bond to the Authority as
acceptable as sureties to the Treasury Department. In addition, the
aggregate underwriting limitations on any one risk as set forth in the
aforementioned list of the Treasury Department of the sureties shall equal
or exceed the penal sum of the Performance and Payment Bond.
-8-
<PAGE>
The Authority shall give notice to the D/BE within ten (10) days after
receipt of the Performance and Payment Bond as to whether or not such bond is
satisfactory.
In the event of a default by the D/BE in his obligation to furnish a
satisfactory bond within seven (7) days after he receives an acceptance of the
PACS, such default shall entitle the Authority in its discretion to terminate
this Contract at any time within forty-five (45) days after the acceptance of
the PACS, without any liability on the part of the Authority. Inasmuch as the
damages to the Authority resulting from a termination by it upon the failure of
the D/BE to furnish a satisfactory bond will include items whose accurate amount
will be difficult or impossible to compute, such damages shall be liquidated in
the sum of the following amounts;
(a) The excess, if any, of the Lump Sum in the Proposal finally accepted
over that in the Proposal of the D/BE; and
(b) The expense of such new advertisement of the Contract, if any, as
may be deemed necessary by the Authority; and
(c) The sum of $500. for each day after the receipt by the D/BE of the
acceptance of his Proposal that the performance of the Contract is
not commenced by reason of the failure of the D/BE to furnish the
required bond.
If the D/BE furnishes a bond in accordance with the requirements of the
Authority under this numbered clause, the Authority shall reimburse the D/BE for
the net amount actually paid by him to the surety or sureties as the premium on
such bond. The D/BE shall deliver to the Engineer receipts from surety or
sureties evidencing such payment and the amount thereof. Within fifteen (15)
days after receipt of such evidence satisfactory to the Engineer, the Authority
shall pay to the D/BE by check the amount provided in this numbered clause.
If at any time the Authority shall be or become dissatisfied with any
surety or sureties then upon any bond furnished in accordance with the
requirements of the Authority, or if for any other reason such bond shall cease
to be adequate security to the Authority, the D/BE shall, within five (5) days
after notice from the Authority so to do, substitute a new bond in such form and
sum and signed by such other sureties as may be necessary in the opinion of the
Authority to constitute adequate security.
-9-
<PAGE>
CHAPTER II
ADJUSTMENTS AND PAYMENTS
5. ADJUSTMENTS OF LUMP SUM
If any Work required by the Contract Drawings and Specifications in their
present form shall be countermanded or reduced, the Engineer shall have full
authority on behalf of both parties to make such reduction in the Lump Sum as he
may in his sole discretion deem equitable and reasonable, and in making such
reduction, no allowance to the D/BE shall be made for anticipated profits.
The Director shall have full authority to agree in writing with the D/BE
for reductions in the Lump Sum in lieu of those for which provision is
heretofore made in this numbered clause.
Prices for the maintenance services charged by the D/BE shall be defined in
terms of a Monthly Maintenance Cost (MMC) for all items listed in Exhibit A. The
MMC shall constitute full compensation to the D/BE for all services rendered
under this Contract, except for those services this Contract specifically
excludes from coverage under the MMC, as described in the Section entitled
"Extra Work" elsewhere herein. The MMC shall be one thirty-sixth of the Lump Sum
agreed upon in the clause of the Contract entitled "General Agreement".
It is the intent of the Authority that the items listed in Exhibit A be as
inclusive as possible of items for which maintenance services may be purchased
under this Contract. However, it is not possible to determine in advance all the
Authority's future needs, nor to define equipment not yet purchased by the
Authority, that may become available, to the Authority during the life of this
Contract. The omission of an item from the listing shall in no way limit the
Authority's ability to order maintenance service for such item from the D/BE,
insofar as maintenance service is available from the D/BE at the time such order
is placed by the Authority. From time to time during the term of this Contract
the Authority may modify the list of items noted in Exhibit A upon thirty (30)
days written notice to the D/BE. Nothing in this provision, shall however,
permit the D/BE to increase the prices charged to the Authority, nor to remove
items from maintenance coverage under the terms of this Contract during the life
of this Contract and its renewal periods except as provided in this Contract.
Items added to coverage under this Contract shall be documented by the D/BE in
lists which shall supplement Exhibit A.
6. COMPENSATION FOR EXTRA WORK
The Director shall have authority to agree in writing with the D/BE on
behalf of the Authority upon lump sum or other compensation for Extra Work in
lieu of the compensation for which provision is hereinafter made in this
numbered clause.
- 10 -
<PAGE>
If such agreement on compensation is not made and Extra Work be performed,
the D/BE's compensation shall be increased by the following amounts and such
amounts only:
(a) In the case of Extra Work performed by the D/BE personally, an
amount equal to the actual net cost in money of the labor and materials required
for such Extra Work, plus fifteen (15) percent of such net cost, plus such
rental for equipment (other than small tools expendables and equipment normally
used for maintenance work) required for such Extra Work as the Engineer deems
reasonable.
(b) In the case of Extra Work performed by a subcontractor, an amount
equal to the actual net cost in money of the labor and materials required for
such Extra work, plus fifteen (15) percent of such net cost plus such rental for
equipment (other than small tools) required for such Extra Work as the Engineer
deems reasonable, plus five (5) percent of the sum of the foregoing cost,
percentage of cost, and rental.
As used in this numbered clause (and in this Clause only):
"Labor" means foremen, surveyors, laborers, mechanics and other employees
below the rank of superintendent, exclusive of timekeepers, directly employed at
the maintenance site whether employed by the D/BE or by the subcontractors,
subject to the Engineer's authority to determine what employees of any category
are "required for Extra Work" and as to the portion of their time allotted to
Extra Work; and "cost of labor" means the wages actually paid to and received by
such employees plus a proper proportion of (a) vacation allowance and union dues
and assessments which the employer actually pays pursuant to contractual
obligations upon the basis of such wages, and (b) taxes actually paid by the
employer pursuant to law upon the basis of such wages. "Employees" as used above
means only the employees of one employer.
"Materials" means temporary and consumable materials as well as permanent
materials: and "cost of materials" means the price (including taxes actually
paid by the D/BE pursuant to law upon the basis of such materials) for which
such materials are sold for cash by the manufacturers or producers thereof, or
by regular dealers therein, whether or not such materials are purchased directly
from the manufacturer, producer or dealer (or if the D/BE is the manufacturer or
producer thereof, the reasonable cost to the D/BE of the manufacture and
production), plus the reasonable cost of delivering such materials to the
maintenance site in the event that the price paid to the manufacturer, producer
or dealer does not include delivery and in case of temporary materials, less
their salvage value, if any.
"Work day" in reference to an item of equipment means a day other than a
Saturday, Sunday or legal holiday except that if the particular item of
equipment is actually utilized at the Maintenance site by the D/BE or
subcontractors under this or any other Contract with the Authority on a
Saturday, Sunday or New York State legal holiday, said day shall be deemed a
work day.
- 11 -
<PAGE>
The rental for equipment, whether owned by the D/BE or subcontractors or
rented from others and notwithstanding the actual price of any rental or actual
costs associated with such equipment, shall be computed by the Engineer on the
basis of the following:
(1) (a) Hourly rental for those items of equipment listed in the "Rental
Rate Blue Book" (published by Dataquest, a company of The Dun and
Bradstreet Corporation, 1290 Ridder Park Drive, San Jose, California
95131-2398), (hereinafter called "The Blue Book") shall be 100% of
the applicable rates as listed in said book, reduced to an hourly
basis (see formula below). The edition of this publication to be
used shall be the one in effect on the date of the actual rental of
the equipment. The "Estimated Operating Cost per Hour" as set forth
for such item of equipment in the Blue Book shall be added to the
hourly rental for each hour that such equipment is actually engaged
in performing Extra Work. No amount for operating cost will be
allowed during periods when such equipment is not actually engaged
in performing Extra Work (i.e. standby rental time). None of the
provisions of the Blue Book shall be deemed referred to or included
in this Contract except as specifically set forth in this Section.
(b) If no listing of rental rate and/or hourly operating cost for the
item of equipment is in the Blue Book, the Engineer shall determine
the reasonable rate of rental and/or hourly operating cost of the
particular item of equipment by such other means as he finds
appropriate.
(2) When utilizing the rental rates appearing in the Blue Book, the
Engineer shall determine the applicable rate and the hourly rental
determined therefrom by applying the following criteria:
(a) The rate to be applied for an item of equipment used on a particular
Extra Work order shall be the daily, weekly or monthly rates from
the foregoing publication based on the total number of work days or
portions thereof that a particular item of equipment or substitute
item of equipment is at the construction site for use by the D/BE or
subcontractors whether under this Contractor or any other contract
with the Authority. Included within this period will be (i) work
days of idleness of the equipment at the construction site whether
such idleness results from acts or omissions of the D/BE, Authority
or third persons, breakdowns in the equipment or any other cause,
(ii) work days on which the equipment is removed from the
construction site solely to enable the performance of repairs
thereon, and (iii) work days intervening between the removal of
equipment from the construction site for repairs and the delivery to
the construction site of the same or substitute equipment. The
number of work days in the period for each rate shall be an
indicated below:
-12-
<PAGE>
Three work days or less - daily rate
More than three work days but
not more than fifteen work days - weekly rate
More than fifteen work days - monthly rate
The pro rata portion which one hour bears to the applicable rate shall be
determined in accordance with the following formula:
Hourly rate based on 1/8 of daily rental
daily rental from Blue Book
Hourly rate based on 1/40 of weekly rental
weekly rental from Blue Book
Hourly rate based on 1/176 of monthly rental
monthly rental from Blue Book
(b) The rental rate shall be multiplied by the applicable regional
adjustment factor shown for such item of equipment in the Blue Book.
The adjustment factor shall not apply to the hourly operating cost.
(c) If the Engineer should determine that the nature or size of the
equipment used by the D/BE in connection with Extra Work is larger or
more elaborate, as the case may be, than the size or nature of the
minimum equipment determined by the Engineer to be suitable for the
Extra Work, the reasonable rental will not be based upon the equipment
used by the D/BE but will be based on the smallest or least elaborate
equipment determined by the Engineer to have been suitable for the
performance of the Extra Work.
(3) In the case of equipment utilized only for Extra Work: (a) in addition
to amounts determined as provided in subparagraphs (1) and (2) above,
there will be added to the rental as computed above the reasonable
cost of transporting such equipment to and from the construction site,
and (b) notwithstanding the number of hours during which such
equipment is utilized, the minimum rental therefor will be for a
period of eight hours.
In computing the D/BE's compensation insofar as it is based upon Extra
Work, and notwithstanding any provision to the contrary appearing in the Blue
Book, no consideration shall be given to any items of cost or expense not
expressly set forth above, it being expressly agreed that the costs and
percentage additions hereinbefore provided cover items of cost and expense to
the D/BE of any type whatsoever, including administration, overhead, taxes
(other than those enumerated above), cleanup, consumables including gas and oil,
drafting (including printing or other reproduction), coordination, field
measurements, maintenance, repairs, insurance, profit to the D/BE and small
tools.
- 13 -
<PAGE>
Whenever any Extra Work is performed (whether by the D/BE directly or
through a subcontractor), the D/BE shall, at the end of each day, submit to the
Engineer (a) daily time slips showing the name and number of each workman
employed on such Work, the number of hours which he is employed thereon, the
character of his duties, and the wages to be paid to him, as indicated in
Exhibit B, (b) a memorandum showing the state and federal taxes based on such
wages, and vacation allowances and union dues and assessments which the employer
actually pays pursuant to contractual obligation upon the basis of such wages
(c) a memorandum showing the amount and character of the materials furnished for
such Work, from whom they were purchased and the amount to be paid therefor, and
(d) a memorandum of equipment used in the performance of such Work, together
with the rental claimed therefor. Such memoranda and time slips are for the
purpose of enabling the Engineer to determine the amounts to be paid by the
Authority under this numbered clause; and accordingly, they shall constitute a
condition precedent to such payment and the failure of the D/BE to furnish them
with respect to any Work shall constitute a conclusive and binding determination
on his part that such Work is not Extra Work and shall constitute a waiver by
the D/BE of claims for payment for such Work. In the event that the Director and
the D/BE shall agree in writing upon a lump sum or other compensation for Extra
Work in lieu of compensation as provided in the second paragraph of this clause,
the daily time slips and memoranda required by this paragraph shall not be
required subsequent to the date on which such agreement has been reached.
7. MONTHLY ADVANCES
On or about the first day of each month, the Engineer shall (upon receipt
from the D/BE of such information as he may require, including a certification
in writing, in such form as may be required pursuant to the clause hereunder
entitled "Prevailing Rate Of Wage", that he has paid and caused his
subcontractors to pay at least the prevailing rate of wage and supplements
required by such clause and a written statement indicating the names and amounts
paid during the preceding month or months to subcontractors and materialmen)
certify to the Authority the approximate amount of Work performed and
compensation earned by the D/BE up to that time showing separately:
(a) The amount of Work (other than Extra Work) performed by the D/BE up to
that time and a sum equal to the MMC. For maintenance and repair services, said
written statement shall include system, model and serial number of equipment
maintained for the Authority.
(b) The increase, if any, in the D/BE's compensation for which provision
is specifically made elsewhere in this Contract.
(c) The amount of Extra Work, the statement shall include a description of
the service performed, the location(s) where the service was performed, the Lump
Sum agreed upon or the total hours per task, the appropriate labor charge
hourly rate (see Exhibit B), the price of materials for the Extra Work, a
listing of equipment on which the service was performed (as listed in Exhibit
A), and the total amount due the D/BE.
- 14 -
<PAGE>
Payment for services rendered shall be made within thirty (30) days after
certification of the amount due by the Engineer or his designee.
Service charges for equipment added to the original list on Exhibit A shall
be billed for the month in which such additions were made. Monthly charges for
servicing such additional equipment shall be prorated for the month in which the
equipment was added, from the installation date of such equipment.
A copy of the signed and verified Extra Work order(s), bearing the
Authority's Contract number, must accompany each invoice, if service credits
were assessed, the amount shall be deducted from the invoice total.
The Engineer or his designee shall have the authority to decide all
questions pertaining to the above-mentioned invoice. No certificate, payment,
acceptance of any work or any other act or omission of any Director or Assistant
Director or the Authority shall operate to release the D/BE from any obligation
under or upon this Contract, or to stop the Authority from showing at any time
that such certificate, payment, acceptance, act or omission was incorrect or to
preclude the Authority from recovering any monies paid in excess of those
lawfully due and any damage sustained by the Authority. Acceptance of Final
Payment under this Contract by the D/BE shall constitute a full and complete
release of the Authority with regard to all matters arising under or in
connection with this Contract.
Any assignment or other transfer of this Contract or any monies due or to
become due hereunder without the written consent of the Authority shall be void
and of no effect as to the Authority, except that Work may be sublet to such
persons as the Director expressly approved in writing. No subcontract shall
create any rights against the Authority or relieve the D/BE of any obligations,
and all subcontractors shall be deemed the D/BE's agents.
It is hereby specifically understood and agreed that this Contract is one
entire indivisible agreement for the performance of all the services required
hereunder and the accomplishment of the results intended and is not separable or
divisible, despite the monthly payment provided for hereunder. The D/BE's full
and complete compensation for such services is the Monthly price quoted on the
Proposal sheet, except where this contract expressly provided for additional
payment.
Within seven days of receipt of any sum attributable to Work performed by a
subcontractor or materialman or within such later period as is provided in the
subcontract or purchase agreement, the D/BE shall advance to the subcontractor
or materialman said sum, less such amount, if any, as the D/BE is authorized to
retain under the subcontract or purchase agreement.
Notwithstanding the above, the Authority shall have the right, at its sole
discretion, to directly pay the subcontractors and material suppliers who
perform Work for or furnish materials to the D/BE in connection with the Work
of this Contract.
- 15 -
<PAGE>
Prior to certifying any amount for payment hereunder, the Engineer may
require that the D/BE submit a certification accurately and fully setting forth
the the total amount due and payable to each subcontractor and supplier for Work
performed or materials provided by such subcontractor or supplier in connection
with the Work of this Contract. Any payment made by the Authority to a
subcontractor or supplier pursuant to the provisions of this numbered clause
shall be made in reliance upon such certification and all such payments shall be
considered as advances to the D/BE of the compensation payable hereunder. No
such payment shall relieve the D/BE of any of its obligations hereunder.
Furthermore, within fifteen (15) days of the D/BE's receipt of the
Authority's acceptance of the D/BE's Proposal, the D/BE shall submit to the
Engineer a listing of all subcontract and material supply agreements entered
into by the D/BE for the performance of Work required by this Contract. Such
listing shall include the names and addresses of each subcontractor and supplier
and the amounts payable under each such agreement. As and when any modifications
are made to such agreements or any additional subcontracts or supply agreements
are entered into, the D/BE shall inform the Engineer of such and shall indicate
the amounts payable hereunder.
Nothing contained herein shall be deemed to create any additional rights in
such subcontractors or suppliers or to alter the rights of the Authority as such
are set forth in the clause hereof entitled "Withholding of Payments".
Orders for equipment maintenance service issued by the Authority shall
identify the items to be place under maintenance; including model number,
quantity, serial number(s), original equipment manufacturer, location
description, unit description and MMC, corresponding to that appearing in
Exhibit A and date service is to commence, any originating Port Authority
Department and Unit, and any other information as required.
8. ESCALATION
Upon each renewal of this Contract by the Authority, and commencing on the
fourth anniversary or seventh anniversary, as the case may be, of the base date,
the maintenance cost per month shall be the amount inserted in the box entitled,
"Total Maintenance Cost per Month for Years 2 & 3" in Exhibit C herein adjusted
as described below:
A. Date of Adjustment
Adjustment of unit prices shall be computed by the D/BE prior to the
third anniversary or sixth anniversary, as the case may be, of the effective
base date, as hereinafter provide, and shall be effective for three years
beginning on such third anniversary or sixth anniversary, as the case may be, of
the effective base date. The D/BE shall submit to the Authority such price
adjustment computations, including the changes in the "Consumer Price Index",
within the time limits indicated in the Clause of the Form Contract, entitled
"Time for Completion and Damages for Delay".
- 16 -
<PAGE>
B. Effective Indices and Dates
The indices and dates for the adjustment of the prices shall be as
follows:
The Consumer Price Index for all Urban Consumers, New York-Northern New
Jersey, Long Island (NY-NJ-Ct) published by the U.S. Department of
Labor Statistics. Hereinafter called "The Consumer Price Index".
"The Consumer Price Index" in effect March 1, 1996 "The Consumer Price
Index" in effect March 1, 1998 "The Consumer Price Index" in effect
March 1, 2001.
C. Formula for adjustment
The prices shall be adjusted as follows:
The original lump sum maintenance cost per month inserted by the D/BE
in the Contract shall be increased or decreased by the percentage of
increase or decrease shown by the "Consumer Price Index" in effect on
March 1, 1998 or March 1, 2001 as the case may be, as compared with the
Index on March 1, 1996.
D. In the event of a change of the basis for computation of the
above-mentioned Index or discontinuance of its publications, such other
appropriate index shall be substituted as may be agreed upon by the
Authority and the D/BE as properly effecting changes in the value of
the cost of maintenance similar to that established in the
above-mentioned index. If the parties cannot agree upon a substitute
index, the amounts applicable to the prior year shall remain in effect.
- 17 -
<PAGE>
CHAPTER III
PROVISIONS RELATING TO TIME
9. TIME FOR COMPLETION AND DAMAGES FOR DELAY
A. This contract shall commence on the base date (said time and date
hereinafter sometimes called "the effective date" or "the commencement
date") and shall continue for a period to three (3) years from that
date, unless sooner terminated or revoked, or renewed, as hereinafter
provided.
The Authority shall have the right to extend this Contract for two
additional three (3) year period from the original expiration date
herein, each three-year extension based upon the same terms and
conditions subject to the following: not later than one hundred twenty
(120) days prior to the expiration date of this Contract, the Authority
shall send a notice of intention to extend the term of the Contract;
after the Authority has sent such notice, and at least ninety (90) days
prior to the expiration of the Contract, the Authority or D/BE
hereunder for the extension period, in accordance with the Clause
herein entitled "Escalation".
B. If a Performance And Payment Bond is required, the D/BE shall not
commence the performance of the Work, until the date of receipt by him
of notice from the Authority that the Performance And Payment Bond
furnished by him is satisfactory.
The time for completion shall not be extended on account of the time
required to furnish the bond referred to above, but the Authority shall
give notice to the D/BE within ten (10) days after receipt of the
Performance And Payment Bond as to whether or not such bond is
satisfactory.
C. The D/BE's shall perform all Extra Work ordered in accordance with the
provisions of this Contract as expeditiously as possible. Such orders
may be issued at any time up to and including 90 days after completion
of all other Work required by the Specifications in their present form.
D. The D/BE's attention is directed to the fact that it may be necessary
to pay overtime wages and/or to employ a larger work force than normal
in order to provide the performance required by this paragraph. In such
event, the D/BE shall not be entitled to any additional compensation by
reason thereof.
- 18 -
<PAGE>
The D/BE guaranties the operational availability of the PACS at the
percentages specified below for each calendar month of the maintenance
period. For the purposes of this Section, operational availability is
defined as "the time the System and Network is available to users to do
useful work". The percentages of Operational Availability are:
<TABLE>
<S> <C>
Center Computer 99.90%
Local Controllers 99.50%
All Other Equipment 99.00%
</TABLE>
In the event the Operational Availability falls below the specified limits,
damages will be liquidated against the D/E in the amounts specified later
in this Section but not to exceed the total monthly charges. Such damages
shall be for each hour or part thereof during which the component is
unavailable and shall be applied to the aggregate monthly performance of
the group of units specified in the above table.
The central computer system shall be considered to be unavailable if at
anytime during the twenty-four (24) hour daily period, the central
processing unit (CPU), the keyboard, the alternate input device, the disk
drive(s), or any of the other computer components fail to function and/or
perform according to specifications, and if the back-up computer, cannot be
brought on-line within fifteen (15) minutes of said failure.
Other elements of the system such as vehicle loop detectors, parking
barrier gate (complete, card/reader sensors, entry and/or exit lane
intercoms are to be considered as unavailable if they do not meet basic
availability factor on a per lane or per lot basis (99.00%). For purposes
of computing time of unavailability, the time shall start thirty (30)
minutes after the arrival of the D/BE on-site but never more than two hours
after notification by the Authority by phone. This will be considered a
grace period. The D/BE will be allowed two grace periods per month.
E. The D/BE's obligations for the performance and completion of the work in
order to provided the performance levels required in this Contract are of
the essence of this Contract. The D/BE guarantees that he can and will
maintain the performance of the PACS within the levels hereinbefore
stipulated.
- 19 -
<PAGE>
Hourly invoice deduction amounts to be credited to the monthly invoice
for failure to meet performance and availability requirements are:
<TABLE>
<S> <C>
Central Computer (PPM) $300
Central Computer (Non-PPM) 150
Local Controller (PPM) 80
Local Controller (Non-PPM) 40
Other (PPM) 40
Other (Non-PPM) 20
</TABLE>
10. EXTENSIONS OF TIME
The time above provided for completion of any part of the Contract shall be
extended (subject, however, to the provisions of this numbered Clause) only if
in the opinion of the Engineer, the D/BE is necessarily delayed in completing
such part by such time solely and directly by a cause which meets all the
following conditions:
1: Such cause is beyond the D/BE's control and arises without his fault;
2. Such cause comes into existence after the opening of Proposals on this
Contract and neither was nor could have been anticipated by
investigation before such opening.
3. In all cases when the D/BE is called for service the following
response times will apply:
a. For service calls placed within the PPM, the D/BE shall provide
an on-site response time not to exceed a maximum of two (2) hours
from the time of telephone notification by the Authority to the
D/BE.
b. For service calls placed outside the PPM, the D/BE shall respond
on-site within twenty-four hours or within the first two (2)
hours of the PPM if the next day falls in the PPM whichever is
less.
Variations in temperature and precipitation shall be conclusively deemed to
have been anticipated before opening of such Proposals on this Contract.
- 20 -
<PAGE>
In any event, even though a cause of delay meets all the above conditions,
an extension shall be granted only to the extent that (i) the performance
of the work is actually and necessarily delayed and (ii) the effect of such
cause cannot be anticipated and avoided or mitigated by the exercise of all
reasonable precautions, efforts and measures (including planning, scheduling and
rescheduling), whether before or after the occurrence of the cause of delay, and
an extension shall not be granted for a cause of delay which would not have
affected the performance of the Contract were it not for the fault of the D/BE
or for other delay for which the D/BE is not entitled to an extension of time.
Any reference herein to the D/BE shall be deemed to include subcontractors
and materialmen, whether or not in privity of contract with the D/BE, and
employees and others performing any part of the Contract and all the foregoing
shall be considered as Agents of the D/BE.
The period of any extension of time shall be that necessary to make up the
time actually lost, subject to the provisions of this numbered clause, and shall
be only for the portion of the Contract actually delayed. The Engineer may defer
all or part of his decision on an extension and any extension of time may be
deferred, rescinded or shortened if it subsequently is found that the delays can
be overcome or reduced by the exercise of reasonable precautions, efforts and
measures.
As a condition precedent to an extension of time, the D/BE shall give
written notice to the Engineer within 48 hours after the time when he knows or
should know of any cause which might under any circumstances result in delay for
which he claims or may claim an extension of time (including those causes which
the Authority is responsible for or has knowledge of), specifically stating that
an extension is or may be claimed, identifying such cause and describing, as
fully as practicable at the time, the nature and expected duration of the delay
and its effect on the various portions of the Contract. Since the possible
necessity for an extension of time may materially alter the scheduling, plans
and other actions of the Authority, and since, with sufficient opportunity, the
Authority might if it so elects attempt to mitigate the effect of a delay for
which an extension of time might be claimed, and since merely oral notice may
cause disputes as to the existence or substance thereof, the giving of written
notice as above required shall be of the essence of the D/BE's obligations and
failure of the D/BE to give written notice as above required shall be a
conclusive waiver of an extension of time.
It shall in all cause be presumed that no extension or further extension of
time is due unless the D/BE shall affirmatively demonstrate to the satisfaction
of the Engineer acting personally that it is. To this end, the D/BE shall
maintain adequate records supporting any claim for an extension of time, and in
the absence of such records, the foregoing presumption shall be deemed
conclusive.
- 21 -
<PAGE>
11. EXTRA WORK ORDERS
No Extra Work shall be performed expect pursuant to written orders of the
Director expressly and unmistakably indicating his intention to treat the Work
described therein as Extra Work; and, exclusive of Extra Work expressly
authorized by or pursuant to a resolution of the Commissioners of the Authority
or its Committee on Maintenance, the Director shall have authority to order any
item of Extra Work, if the cost thereof to the Authority together with the cost
of all other Extra Work previously ordered and not expressly authorized as
aforesaid will not be in the aggregate in excess of the sum specified in the
letter of acceptance of the D/BE's Proposal as the limit on such authority to
order Extra Work; provided, however, that Extra Work in excess of such aggregate
amount may be ordered by the Director as above provided to the extent expressly
authorized in a writing signed by the Executive Director of the Authority
delegating authority vested in him pursuant to a resolution of the Commissioners
of the Authority or its Committee on Maintenance.
In the absence of such an order signed by the Director, if the Engineer
shall direct, order or require any Work, whether orally or in writing, which the
D/BE deems to be Extra Work, the D/BE shall nevertheless comply therewith, but
shall within twenty-four hours give written notice thereof to the Director and
the Engineer, stating why he deems it to be Extra Work, and shall moreover
furnish to the Engineer time slips and memoranda as required by the clause
hereof entitled "Compensation For Extra Work". Said notice, time slips and
memoranda are for the purpose of affording to the Director an opportunity to
verify the D/BE's claim at the time and (if he desires so to do) to cancel
promptly such order, direction or requirement of the Engineer, of affording to
the Engineer an opportunity of keeping an accurate record of the materials,
labor and other items involved, and generally of affording to the Authority an
opportunity to take such action as it may deem desirable in light of the D/BE's
claims. Accordingly, the failure of the D/BE to serve such notice or to furnish
such time slips and memoranda shall be deemed to be a conclusive and binding
determination on his part that the direction order or requirement of the
Engineer does not involve the performance of Extra Work, and shall be deemed to
be a waiver by the D/BE of all claims for additional compensation or damages by
reason thereof, such written notice, time slips and memoranda being a condition
precedent to such claims.
It shall be presumed that all services are covered by the MMC unless the
D/BE demonstrates, to the satisfaction of the Engineer, that the services
performed fall within the definition of Extra Work, as contained herein.
In determining the amount of Extra Work, there shall not be included any
portion of the cost of repairs, replacements, or installation that represents
the routine wear and tear which would in any event require repair or replacement
of equipment as part of the D/BE's maintenance obligations.
- 22 -
<PAGE>
Maintenance services provided by the D/BE which will qualify as Extra Work
include repair of damage resulting from: a) Authority-caused accidents, neglect
or improper use or abuse of the System; b) the improper use of, or faulty,
removable storage media or supplies; c) the Authority's failure to provide an
installation environment including, but not limited to, the failure to provide,
or the failure, of adequate electrical power, air conditioning, or humidity
controls; d) subsequent unauthorized alterations to the System made by Authority
personnel which deviates from the D/BE's original mechanical or electrical
designs; e) subsequent unauthorized attachments to the System or equipment and
devices not originally supplied by the D/BE, and, f) acts of God, fire, flood,
lighting, labor disputes, warfare, vandalism, and terrorism.
Supplies and transmission media supplied by the D/BE, replacement of
removable magnetic tapes, disk packs, and other supplies such as printer ribbons
and toner cartridges, as well as the refinishing and repair of System
furniture if requested by the Authority will be Extra Work.
The D/BE shall provide the following services to aid equipment moves as
Extra Work when requested by the Engineer, for any equipment covered by this
Contract. Such services shall consist of disconnecting the equipment and
providing advice and technical information concerning the proper packing,
movement, and relocation of the equipment. D/BE personnel if requested shall
perform the physical movements and any transport of the equipment as directed by
the Engineer and provide advice and technical information concerning unpacking
and installing the equipment, re-connect the equipment and perform required
diagnostic tests and adjustments to establish and assure full System operation.
Additional site preparation activities for the equipment moved shall be
provided by the D/BE in the same manner and according to the shop drawings
provided by the D/BE and approved by the Authority when the equipment was
originally installed.
12. PERFORMANCE OF EXTRA WORK
The provisions of this Form of Contract relating generally to Work and its
performance shall apply without exception to any Extra Work required and to the
performance thereof. Moreover, the provisions of the Specifications relating
generally to the Work and its performance shall also apply to any Extra Work
required and to the performance thereof, except to the extent that a written
order in connection with any particular item of Extra Work may expressly provide
otherwise.
13. CONFIDENTIALITY
The Confidentiality Agreement must be fully executed in the form appended
herewith (Attachment A) signed by a person authorized to bind your organization.
- 23 -
<PAGE>
PROPOSAL
To The Port Authority of New York and New Jersey:
The undersigned (*) Ensec, Inc. a corporation organized under the laws of
the State of Florida
hereby offers to perform all the obligations and to assume all the duties and
liabilities of the D/BE provided for in the annexed Contract, at the price
inserted by the undersigned in the Clause of the Form of Contract entitled
"General Agreement".
This offer shall be irrevocable for 90 days after the date on which The
Port Authority of New York and New Jersey opens this Proposal.
To induce the acceptance of this Proposal, the undersigned hereby makes
each and every certification, statement, assurance, representation and warranty
made by he D/BE in said Contract. Moreover as a condition to receipt and
consideration by the Authority of the Proposal whether or not it is accepted,
the undersigned agrees that all information of any nature whatsoever, regardless
of the form of the communication, received from the undersigned (including its
officers, agents, or employees) by the Authority, its Commissioners, officers,
agents, or employees, and nothwithstanding any statement therein to the
contrary, has not been given in confidence and may be used or disclosed by or on
behalf of the Authority without liability of any kind except as may arise under
letters patent of the undersigned, if any.
Unless expressly stated otherwise, the Information for D/BE's, all papers
required by it and submitted in connection herewith at any time, said Form of
Contract, and all papers made part of the Contract by the terms of the Form of
Contract are made part of this Proposal.
The undersigned hereby designates the following as his office: (**) 2600
N.Military Trail. Boca Raton, FL 33431
The telephone number of the D/BE is:
Area Code 407- 997-2511
________________________________________________________________________________
(*) (1) Insert D/BE's name. If a corporation, give state of incorporation,
using the phrase, "a corporation organized under the laws of the state
of ".
if a partnership, give full names of partners, using also the phrase,
"copartners doing business under the firm name of ".
if an individual using a trade name, give individual name, using also
the phrase, "an individual doing business under the trade name of
".
(2) if a joint venture, give the information required in (1) above for
each participant in the joint venture.
(**) insert office address.
- 24 -
<PAGE>
SIGNATURE AND CERTIFICATE OF AUTHORITY (*)
Dated, March 20 1995
--------------------------------------
(Signature of individual or name
of corporation or partnership) Ensec, Inc.
-------------------------------
(Signature of agent, partner or
corporate office) By(**)(***)/s/ Charles N. Finkel
---------------------
(Acknowledgment of signature to Charles N. Finkel President CEO
-------------------------------
be taken on proper form on following
page(s)) 7181 Lyons Head Lane, Boca Raton
--------------------------------
FL, 33496
CERTIFICATE OF AUTHORITY, IF D/BE
IS A CORPORATION
I, the undersigned, as Secretary of the corporation submitting the
foregoing Proposal, hereby certify that under and pursuant to the bylaws and
resolutions of said corporation, each officer who has signed said Proposal on
behalf of the corporation is fully and completely authorized so to do.
(Corporate Seal) /s/ Steven L. Siegel
---------------------------------
Steven L. Siegel
________________________________________________________________________________
(*) If D/BE is a joint venture, insert signatures as appropriate for one
participant of the joint venture on this page and attach and complete an
additional signature sheet in the same form as appears on this page for
each other participant as required.
(**) If Proposal is signed by an officer or agent, give title and address.
(***)The foregoing signature shall be deemed to have been provided with full
knowledge that the foregoing Proposal, the accompanying Contract booklet,
as well as any certification, statement, assurance, representation,
warranty, schedule or other document submitted by the D/BE with the
Proposal will become a part of the records of the Authority and that the
Authority will rely in awarding the Contract on the truth and accuracy of
such Proposal and each such certification, statement, assurance,
representation, warranty and schedule made therein by the D/BE. Knowingly
submitting a false statement in connection with any of the foregoing may be
the basis for prosecution for offering a false instrument for filing (see,
e.g., New York Penal Law, Sections 175.30 et seq.).
- 25 -
<PAGE>
ACKNOWLEDGMENT(*)
ACKNOWLEDGMENT OF D/BE, IF A CORPORATION
State of Florida
...........................)
) SS.:###-##-####
County of Palm Beach County )
..........................
On this Twentieth day of March , 1995, before me personally
.................. .................
came and appeared Charles N. Finkel , to me known, who being by me duly
............................
sworn, did depose and say that he resides at 7181 Lyons Head Lane, Boca Raton,
.................................
FL 33496 , that he is the President/CEO of Ensec, Inc.
............... ...............................................,
the corporation described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that one of the seals affixed to said
instrument is such seal; that it was so affixed by order of the directors of
said corporation, and that he signed his name thereto by like order.
(Seal) Shayne D. Kirst /s/ Shayne D. Kirst
.......................................
ACKNOWLEDGMENT OF D/BE, IF A PARTNERSHIP
State of .........................)
) SS.:
County of.........................)
On this.........................day of....................., 19 , before
me personally came and appeared.............................., to me known and
known to me be one of the members of the firm of.............................,
the foregoing instrument and he acknowledged to me that he executed the same as
and for the act and deed of said firm.
(Seal)
.......................................
ACKNOWLEDGMENT OF D/BE, IF AN INDIVIDUAL
State of .........................)
) SS.:
County of.........................)
On this.........................day of....................., 19 , before
me personally came and appeared.............................. to me known and
known to me to be the person described in and who executed the foregoing
instrument and he acknowledged to me that he executed the same.
(Seal) .......................................
________________________________________________________________________________
(*) If D/BE is a joint venture, insert signature as appropriate for one
participant of the joint venture on this page and attach and complete an
additional Acknowledgment sheet in the same form as appears on this page for
each other participant as required.
- 26 -
<PAGE>
Exhibit 10.7
Agreement for Purchase and Sale of the Bank
Automation Division of ENSEC ENGENHARIA E
SISTEMAS DE SEGURANCA S.A. and other
covenants made by and between DE LA RUE
INVESTIMENTOS LTDA. and ENSEC
ENGENHARIA E SISTEMAS DE SEGURANCA S.A.
--------------------------------------------
DE LA RUE INVESTIMENOS LTDA., a company established in the city of Rio de
Janeiro, State of Rio de Janiero at Av. Rio Branco, 99 - 15th floor, Federal Tax
No. 43.647.866/0001-00, herein represented by Its Manager Lourdes Helena Moreira
de Carvalho, hereinafter referred to as "DE LA RUE" and ENSEC ENGENHARIA E
SISTEMAS DE SEGURANCA S.A., herein represented by Its Director President Charles
Nelson Finkel, hereinafter referred to as "ENSEC",; WHEREAS ENSEC engages in
various activities including the manufacture and sale of security equipment and
systems and the exclusive representation in Brazil of the bank automation
equipment sold by De La Rue Sistemas Latin American (DLRSLA), also for providing
technical assistance to customers;
WHEREAS DE LA RUE is the holder of 44.7% of the share capital of ENSEC:
WHEREAS ENSEC is no longer interested in continuing with the activities related
to bank automation;
WHEREAS, DE AL RUE in its turn, is interested in as carrying out such activities
independently of ENSEC, the PARTIES (DE LA RUE and ENSEC) have decided upon the
following:
-1-
<PAGE>
1. OBJECT OF THE AGREEMENT
-----------------------
1.1 DE LA RUE hereby buys from ENSEC and ENSEC sells to DE LA RUE,
all the equipment and business relating to the bank automation activity,
meaning:
(i) the sale of all equipment and equipment parts listed in Exhibit
I, which is incorporated to this Agreement.
(ii) The assignment of ENSEC's rights resulting from the Distribution
Contract signed with DE La Rue Systems Latin America on 1 September,
1994 (Exhibit III).
(iii) The assignment, as specified hereinbelow, of all contracts ENSEC
has with customers established in Brazil, referring to the activity
being negotiated, whether relating to the sale, installation and
maintenance of equipment, or relating to the providing of technical
assistance. Such contracts are listed in Exhibit II to this Agreement
and this clause refers specifically as much to them as to any other
negotiations in progress between ENSEC and any potential customer and
which may be confirmed in the future.
2. PURCHASE AND SALE OF EQUIPMENT AND PARTS
---------------------------------------
2.1 The sale and transfer from ENSEC to DE LA RUE of the equipment
mentioned in Item 1 (i) and listed in Exhibit I, at present part of the
assets of ENSEC, shall be effective as soon
-2-
<PAGE>
as DE LA RUE has established itself in the State of Sao Paulo, ENSEC
undertakes to keep such equipment in its assets and to take care of it as
if it were its owner, until the sale is completed.
2.2 - ENSEC states that it has the full ownership and possession of such
equipment and parts; that such ownership and possession is not subject to
any judicial or nonjudicial claim or lawsuit; that such assets are all that
it actually has in connection with the Bank Automation business and that,
with such assets, De La Rue will be able to continue to operate the said
business, without any break in continuity; that it will carry out the
transfer of the said assets to De La Rue respecting all legal rules
applicable to the transaction, including those of a taxation nature,
undertaking to indemnify De La Rue as explained in Article 5 for any loss
resulting from any claim, lawsuit or proceeding which might arise due to
the nonperformance of any of these representations and warranties.
2.3 The Parties agree that the actual transfer of the equipment and parts
will take place within not more than forty-five (45) days.
3. CONTRACTS
---------
3.1 The assignment of rights of ENSEC under the Distribution Contract
signed with DLRSLA has been effectively
-3-
<PAGE>
completed, as per the instrument in Exhibit IV to this Agreement.
3.2 Similarly, all rights of ENSEC under the contracts listed in Exhibit
II have also been transferred to DE LA RUE. Notwithstanding this,
considering that DE LA RUE will have to take steps of a bureaucratic nature
until it is actually installed in Seo Paulo and that the natural agreements
with the different customers will be necessary until the transfer has been
formally effected, the Parties agree that ENSEC will until then continue
attending such contracts normally under the technical supervision of DE LA
RUE, although it is hereby established that payments made thereto as a
result of such contracts, with effect from the date on which this agreement
is signed, shall be effectively due to DE LA RUE and shall be transferred
to DE LA RUE in full, exclusively deducting contributions to the PIS
(Social Development Plan) and to the COFINS (Social Contribution on
Billings), and ISS (Municipal Service Tax) which transfer shall be made
against payment by ENSEC to DE LA RUE of fees for the technical assistance
services that DE LA RUE will provide to ENSEC.
The parties estimate that the formal transfer of all the contracts
mentioned in Exhibit II will take place within ninety (90) days with effect
from the signing of this Agreement. ENSEC undertakes to make its utmost
effort to see that this time limit is respected.
-4-
<PAGE>
4. PAYMENT
-------
4.1 The price to be paid by DE LA RUE for the acquisition from ENSEC of
the bank automation business, including equipment and parts, the
contract with DLRSLA and all the prevailing and prospective contracts
with Brazilian customers shall be R$ 5.964.959,00 (five million nine
hundred and sixty-four thousand nine hundred fifty nine reals) and shall
be paid as explained hereinbelow:
- R$ 1.762.480,00 (one million seven hundred and sixty-two thousand four
hundred eighty reais) in cash and against signing of this Agreement;
- R$ 3.235.600,00 (three million two hundred and thirty five thousand
six hundred reals) for the accord and satisfaction to ENSEC of the
shareholding interest of DE LA RUE in its share capital, this amount
being considered according to its corresponding figure in the balance
sheet prepared by the purchaser on October 31, 1995, which will also
take place against the signing of this Agreement;
- R$ 968.879,00 (nine hundred sixty-six thousand eight hundred seventy
nine reais) corresponding to an interest held by ENSEC in the share
capital of DE LA RUE, which payment shall be made when the transfer has
been completed by ENSEC to DE LA RUE of all the equipment, parts and
contracts being negotiated.
-5-
<PAGE>
5. GUARANTEES GIVEN BY ENSEC
-------------------------
5.1 ENSEC undertakes, at its own expense, to dismiss, giving them
thirty (30) days prior notice and paying them their labour rights and
the corresponding social security obligations, all its employees
presently working in the bank automation division hereby transferred to
DE LA RUE, to us to enable DE LA RUE to contract them if it wishes, free
of any encumbrance relating to the past.
5.2 ENSEC guarantees to DE LA RUE that no labour liabilities exist with
regard to those employees, and undertakes to answer for any claim which
in the future may be filed against DE LA RUE as successor, consequent on
events which occurred before the actual contracting of those employees
and relating to the time when they had an employment relationship with
ENSEC, directly assuming the payments and, if necessary, compensating DE
LA RUE for any payment which DE LA RUE on such grounds has been obliged
to make, or for any expense, including financial expenses which may be
related thereto. Such compensation shall be made against a communication
in writing from DE LA RUE of the expense or payment made and within a
maximum of ten (10) days from such communication.
5.3 ENSEC represents and warrants to DE LA RUE, undertaking with such
representation and warranty, that it has no fiscal contingencies which
might on any grounds be imposed by the Government on DE LA RUE and
hereby commits itself and undertakes to assume any cost of a
-6-
<PAGE>
taxation or social security nature, or with the Mandatory Fund for
Unemployment Benefit (FGTS) which at any time may be imposed on DE LA RUE,
corresponding to acts or facts that occurred before the actual transfer of
the bank automation division to DE LA RUE, undertaking to Indemnify it for
any loss, including of a financial nature which DE LA RUE may sustain as a
result of such acts or facts. This indemnification or compensation shall be
payable by ENSEC to DE LA RUE within ten (10) days of the written
communication which DE LA RUE shall send to it for this purpose.
5.4 ENSEC represents and warrants to DE LA RUE, undertaking with such
representation and warranty, that no claim or debt exists with customers or
suppliers in connection with the contracts to be transferred to DE LA RUE,
including the contract signed with DLRSLA regarding its development in the
period before its actual transfer to DE LA RUE and, as a consequence of
that warranty, undertakes to answer including judicially, for any claim
sent to DE LA RUE which may arise regarding that period and undertakes to
compensate and indemnify DE LA RUE for any expense or loss, including those
of a financial nature, which for such reasons may be imposed on DE LA RUE.
Such indemnification or compensation shall be paid by ENSEC to DE LA RUE
within ten (10) days of the written communication which DE LA RUE shall
send to it for this purpose.
5.5 - De La Rue represents and warrants that ENSEC shall be notified of any
claim referring to the preceding items; that De La Rue shall make its
utmost efforts to discuss such claims
-7-
<PAGE>
and to win the disputes and lawsuits deriving therefrom; that Ensec shall
be called upon to take part in all negotiations for settling such claims.
5.6 Whenever after being advised as provided in the preceding items, ENSEC
fails to indemnify or compensate DE LA RUE within the stipulated time
limit, it will be subject to a fine of 10%, in addition to 1% interest per
month applied to the amount charged, which will be price-level restated as
provided in law. If DE LA RUE is forced to go to court to collect its
credit, ENSEC will be responsible for paying the fees of DE LA RUE's
attorneys at the rate of 20% of the amount which it is ordered to pay.
6. TRANSITION PERIOD
-----------------
6.1 The parties estimate that between the signing of this Agreement and
the actual transfer to DE LA RUE of the assets and contracts subject to
this Agreement, at least ninety (90) days will elapse and agree that, in
this period, ENSEC shall continue to manage the businesses on behalf of DE
LA RUE, making, in good faith, every effort it would make if it were in
managing its own business.
6.2 In this period no contract will be terminated (except if it expires),
extended or negotiated by ENSEC, with consulting DE LA RUE and receiving
its consent; no debt shall be pardoned, negotiated or split into
installments, without consulting DE LA RUE and receiving its consent; no
obligation
-8-
<PAGE>
shall be assumed, without consulting DE LA RUE and receiving its consent.
7. COMMISSIONS DUE TO ENSEC
------------------------
7.1 During the five (5) years subsequent to the signing of this Agreement,
respecting the limit in Item 7.3, in the sale by DE LA RUE of products
relating to bank automation, ENSEC shall be entitled to the following
commissions:
- 15% in the first year;
- 5% in subsequent years;
7.2 Such commissions shall apply to the net price of the sales made by DE
LA RUE in Brazil (the Territory), other than sales to the Central Bank,
after deducting expenses with freight, commissions and others and all taxes
imposed on the sale, such as Manufacturing Excise Tax (IPI), Sales &
Service Tax (ICMS) and also the Social Development Plan (PIS) and the
Social Security Financing Contribution (COFINS) and any other that may be
imposed and shall be due only after their actual receipt by DE LA RUE.
7.3 Such commissions shall be due up to a maximum equivalent in Reais of
US $2,000,000.00 (two million dollars) converted from dollars to reais at
the day rate on the date the commission is paid. When this limit is
reached, any obligation to pay such commissions on the part of DE LA RUE
shall cease,
-9-
<PAGE>
even if the period of five (5) years established in item 7.1 has not ended.
7.4 After the five (5) year period in item 7.1 has ended, the obligation of
DE LA RUE to pay to ENSEC the commissions established herein shall cease
immediately and lawfully, without the need for any notification, even if
they have not reached the amount of US$ 2,000,000.00 (two million dollars),
which should be considered the maximum amount due to ENSEC on these
grounds, its stipulating not representing any obligation or assurance that
such an amount shall be reached.
7.5 After the end of the five (5) year period, therefor, ENSEC shall be the
exclusive creditor of commissions on net prices which have been paid to DE
LA RUE within this period.
7.6 The right to receive commissions refers exclusively to the sale of bank
automation equipment, without affecting service agreements, even if they
are the result of such sales.
7.7 - In order to be entitled to such commissions, Ensec undertakes as
reasonably requested by De La Rue to:
(i) - to advise De La Rue on developments in the bank automation business
in the Territory:
(ii) - to assist De La R in developing contacts and negotiations with
customers, in the Territory:
-10-
<PAGE>
(iii) - to guide De La Rue with regard to changes in legislation of the
Territory;
(iv) - to send potential customers to De La Rue;
(v) - to maintain good relationships with customers;
(vi) - to guide De La Rue with regard to its sales policy in the
Territory, transferring to it the experience Ensec has acquired in the
sector, in recent years;
(vii) - to actively provide support to the sales efforts of De La Rue,
informing it about prospective customers;
(viii) - to furnish to De La Rue periodical reports giving information on
the market or any information De La Rue Requests of it.
8. LEASE
-----
8.1 This Agreement includes the obligation assumed by ENSEC to lease to DE
LA RUE and by DE LA RUE to receive in lease, part of the real property
belonging to and occupied by ENSEC, at the above-mentioned address, for a
period of twelve (12) months counted as from 1 January, 1996, extendible
for identical periods, if one of the parties does not advise the other
party in writing of its intention not to extend the lease, giving at least
thirty (30) days notice.
-11-
<PAGE>
8.2 ENSEC guarantees that it has the full ownership of the said property
and that it is in a position to lease it to De La Rue and to guarantee to
De La Rue the unquestioned use of the said property, while the lease
persists.
9. EFFECTIVENESS OF THE AGREEMENT
------------------------------
9.1 This Agreement is irrevocable and irreversible and it is considered
that it will produce all its effects as from the date on which it is
signed, regardless of transition periods, for exclusively logistical
reasons, as stipulated above, until the actual transfers of the assets and
rights subject to the Agreement.
9.2 Default of any obligation assumed hereunder shall require the party in
default to indemnify the other party for loss and damages and loss of
profits resulting therefrom, and also to pay a fine of 10% of the value of
the Agreement, if the default prevents it from performing the Agreement, or
of the specific estimated value of the defaulted obligation.
9.3 Any tolerance by either party with regard to the nonperformance of any
of the obligations subject to this Agreement shall not be considered a
waiver of the right to require it at any time, not can it be deemed a
novation or modification of the Agreement.
-12-
<PAGE>
Sao Paulo, December 7, 1995
_____________________________
DE LA RUE INVESTIMENTOS LTDA.
_______________________________________
ENSEC ENGENHARIA E SISTEMAS DE SEGURANCA S.A.
-13-
<PAGE>
WITNESSES:
- --------------------------------
- --------------------------------
-14-
<PAGE>
EXHIBIT 11.1
Ensec International, Inc.
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31
---------------------- --------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) applicable
to common stock $ 234,046 $ (3,817,923) $ (212,408) $ (283,477)
=========== ============= =========== ===========
Weighted average shares
outstanding 3,500,000 3,500,000 3,500,000 3,500,000
Weighted average common
stock equivalents(1) 472,302 472,302 472,302 472,302
---------- ------------- ----------- -----------
Total weighted average common
stock and common stock
equivalents outstanding 3,972,302 3,972,302 3,972,302 3,972,302
=========== ============= =========== ===========
Earnings (loss) per common
share $ .06 $ (.96) $ (.05) $ (.07)
=========== ============= =========== ===========
</TABLE>
(1) In accordance with SAB Topic 4(D), the weighted average common stock
equivalents include options and warrants issued within one year of the
Offering with exercise prices below the Price to Public for all periods
presented as calculated under the treasury stock method.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Company:
1. Ensec Inc., a corporation organized under the laws of the State of Florida.
2. Ensec-Engenharia E Sistemas de Seguranca, S.A., a corporation organized
under the laws of the Republic of Brazil.
3. EnService, Ltda., a limited liability company organized under the laws of
the Republic of Brazil.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 12, 1996, accompanying the consolidated
financial statements of Ensec International, Inc. and Subsidiaries contained in
the Registration Statement and Prospectus which will be signed upon the
consummation of the transaction described in Note L to the financial statements.
We consent to the use of the aforementioned report in the Registration Statement
and Prospectus and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
June 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND THE THREE MONTHS END MARCH 31, 1995 AND 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,906,012
<SECURITIES> 0
<RECEIVABLES> 2,421,000
<ALLOWANCES> 96,000
<INVENTORY> 574,788
<CURRENT-ASSETS> 5,271,574
<PP&E> 6,747,062
<DEPRECIATION> 3,183,804
<TOTAL-ASSETS> 12,122,789
<CURRENT-LIABILITIES> 3,782,538
<BONDS> 2,274,000<F1>
0
0
<COMMON> 35,000
<OTHER-SE> 5,586,251
<TOTAL-LIABILITY-AND-EQUITY> 12,122,789
<SALES> 11,118,633
<TOTAL-REVENUES> 12,732,633
<CGS> 3,632,433
<TOTAL-COSTS> 8,726,619
<OTHER-EXPENSES> 1,100,968<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508,000
<INCOME-PRETAX> 859,046
<INCOME-TAX> 625,000
<INCOME-CONTINUING> 234,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,046
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes all long term debt
<F2>Excludes translation loss of $2,046,000
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND THE THREE MONTHS END MARCH 31, 1995 AND 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,161,806<F1>
<SECURITIES> 0
<RECEIVABLES> 2,082,550
<ALLOWANCES> 115,000
<INVENTORY> 981,882
<CURRENT-ASSETS> 4,509,890
<PP&E> 4,560,688
<DEPRECIATION> 1,905,775
<TOTAL-ASSETS> 11,346,203
<CURRENT-LIABILITIES> 6,014,875
<BONDS> 4,400,000<F2>
0
0
<COMMON> 35,000
<OTHER-SE> 1,768,328
<TOTAL-LIABILITY-AND-EQUITY> 11,346,203
<SALES> 11,456,815
<TOTAL-REVENUES> 13,596,156<F3>
<CGS> 7,663,695
<TOTAL-COSTS> 13,935,233
<OTHER-EXPENSES> 395,329<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,519,517
<INCOME-PRETAX> (4,521,923)
<INCOME-TAX> (704,000)
<INCOME-CONTINUING> (3,817,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,817,923)
<EPS-PRIMARY> (1)
<EPS-DILUTED> 0
<FN>
<F1>Includes a certificate of deposit of $922,775
<F2>Includes all long term debt
<F3>Includes gain on sale of Division (net) of $1,491,000
<F4>Excludes translation loss of $1,268,000
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND THE THREE MONTHS END MARCH 31, 1995 AND 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 3,467,358
<TOTAL-REVENUES> 3,686,558<F1>
<CGS> 2,260,533
<TOTAL-COSTS> 4,153,065
<OTHER-EXPENSES> 144,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,000
<INCOME-PRETAX> (186,408)
<INCOME-TAX> (26,000)
<INCOME-CONTINUING> (160,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,408)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Excludes translation gain of $676,000
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND THE THREE MONTHS END MARCH 31, 1995 AND 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,000,007<F1>
<SECURITIES> 0
<RECEIVABLES> 2,532,566
<ALLOWANCES> 104,000
<INVENTORY> 1,160,683
<CURRENT-ASSETS> 4,983,482
<PP&E> 4,560,688
<DEPRECIATION> 1,962,070
<TOTAL-ASSETS> 12,035,703
<CURRENT-LIABILITIES> 7,530,237
<BONDS> 4,122,615<F2>
0
0
<COMMON> 35,000
<OTHER-SE> 1,484,851
<TOTAL-LIABILITY-AND-EQUITY> 12,035,703
<SALES> 3,390,734
<TOTAL-REVENUES> 3,431,568<F3>
<CGS> 2,349,710
<TOTAL-COSTS> 3,437,940
<OTHER-EXPENSES> 9,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 348,596
<INCOME-PRETAX> (240,477)
<INCOME-TAX> 43,000
<INCOME-CONTINUING> (283,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283,477)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes a certificate of deposit of $922,775
<F2>Includes all Long Term Debt
<F3>Excludes translation gain of $124,000
</FN>
</TABLE>
