PROSPECTUS
591,250 SHARES
ENSEC INTERNATIONAL, INC.
COMMON STOCK
This Prospectus (the "Prospectus") relates to the offer and sale of up
to 591,250 shares of Common Stock, par value $.01 per share (the "Common Stock")
of Ensec International, Inc. (the "Company") by certain selling shareholders
(the "Selling Security Holders"). Of the 591,250 shares of Common Stock offered
hereby (the "Shares"), (i) up to 231,250 Shares are issuable upon the exercise
of Common Stock Warrants held by Selling Security Holders; (ii) 330,000 Shares
are issuable to consultants to the Company, pursuant to written consulting
agreements; and (iii) 30,000 Shares are issuable to legal counsel to the
Company.
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, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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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.
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THE DATE OF THIS PROSPECTUS IS JANUARY 23, 1998
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The Selling Security Holders have advised the Company that they propose
to sell the shares, from time to time, publicly or through broker-dealers as
agents for others, or in private sales. See "Selling Security Holders" and "Plan
of Distribution." The Company will not receive any proceeds from the sale of
Common Stock for the account of the Selling Security Holders except upon
exercise of warrants. The Company has informed the Selling Security Holders that
the anti-manipulative rules under the Exchange Act of 1934, Rule 10b-6 under
Regulation M may apply to their sales in the market and has furnished the
Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of this
Prospectus in connection with any sale of securities registered hereunder.
The Company will pay all offering expenses of this Offering including
the SEC registration fee, legal fees and expenses, blue sky fees, accounting
fees and expenses, printing expenses and miscellaneous expenses estimated to be
$15,000, but will not pay discounts or commissions incurred by the Selling
Security Holders in connection with the sale of these shares.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies
of such material may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission also maintains a web site on the internet
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
This Prospectus, which constitutes part of a Registration Statement
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Act"), omits certain information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and to the exhibits
relating thereto for further information with respect to the Company and the
securities offered hereby.
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION........................................................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................................................... 4
RISK FACTORS.................................................................................................... 5
ACQUISITION OF INTEGRATED SECURITY RESOURCES, INC............................................................... 14
SELLING SECURITY HOLDERS........................................................................................ 15
PLAN OF DISTRIBUTION............................................................................................ 17
DESCRIPTION OF SECURITIES....................................................................................... 18
LEGAL MATTERS................................................................................................... 20
EXPERTS ....................................................................................................... 20
INDEMNIFICATION................................................................................................. 20
INFORMATION NOT REQUIRED IN PROSPECTUS.......................................................................... 22
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The Common Stock of the Company is traded on the Nasdaq SmallCap Market
of the Nasdaq Stock Market under the symbol: ENSC. On January 7, 1998, the last
sale price of the Common Stock, as reported by the Nasdaq SmallCap Market, was
$.375 per share.
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained in this Prospectus, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Selling Security Holders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
The Company will not receive any proceeds from the sale of Common Stock
for the account of the Selling Security Holders except for any fund received
upon conversion of the warrants. The Company has informed the Selling Security
Holder that the anti-manipulative rules under the Securities Exchange Act of
1934, Rule 10b-6 under Regulation M may apply to their sales in the market and
has furnished the Selling Security Holders with a copy of these rules. The
Company has also informed the Selling Security Holders of the need for delivery
of copies of this Prospectus in connection with any sale of securities
registered
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hereunder.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports and
other information with the Securities and Exchange Commission.
The Company has previously and intends to furnish its stockholders with
annual reports containing audited financial statements and may distribute
quarterly reports containing unaudited summary financial information for each of
the first three quarters of each fiscal year.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
(a) Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1996, as amended by Form 10K/A.
(b) The Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1997, June 30, 1997 and September 30, 1997.
(c) The Company's Current Report on Form 8-K dated September 7, 1997.
(d) The description of the Company's Common Stock contained in a
registration statement filed under the Securities Exchange Act of 1934,
as amended, including any amendment or report filed for the purpose of
updating such description.
(e) All reports and documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be
incorporated by reference herein and to be part hereof from the
respective date of filing of such documents.
Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement modified or superseded shall not be
deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of the Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
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reference in this Prospectus, other than exhibits to such documents. Written
requests for such copies should be directed to the Chief Financial Officer,
Ensec International, Inc. at the Company's principal executive office, 751 Park
of Commerce Drive, Suite 104, Boca Raton, Florida 33487, (561) 997-2511.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN
ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS IN EVALUATING AN
INVESTMENT IN THE SECURITIES OFFERED HEREBY.
The Units offered hereby are speculative and involve a high degree of
risk including, but not necessarily limited to, the risk factors described
below. The purchase of Securities is suitable only for persons who can 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 Offering Memorandum. Investment in the Securities offered
hereby is highly speculative. Prospective investors should retain their own
professional advisors to review and evaluate the economic, tax and other
consequences of investment in the Offering and are not to construe the contents
of this Memorandum, or any other information furnished by the Company, as legal
or tax advice.
ACCUMULATED DEFICIT; ANTICIPATED FUTURE LOSSES. For the fiscal years
ended December 31, 1996 and 1995, the Company experienced a net loss from
continuing operations of $6,881,840 and $5,261,426, respectively, and for the
nine months ended September 30, 1997 had net loss of $1,479,786. The Company has
an accumulated deficit as of September 30, 1997 of $10,243,801. The Company
anticipates continued losses for the foreseeable future. The Company's operating
results for future periods are subject to numerous uncertainties including, but
not limited to, the effects of any writedowns, if necessary, of the Company's
capitalized software which had a value of approximately $3.3 Million as of
September 30, 1997. The Company anticipates significant expenses in its
foreseeable future, including research and development expenses, sales and
marketing costs, general administrative expenses and capitalized costs. There
can be no assurance that the Company will achieve sufficient additional revenues
to offset anticipated operating and acquisition costs of its U.S. operations.
Inasmuch as the Company will continue to have high levels of operating expenses
and its sales and marketing infrastructure development, the Company may
experience significant operating losses that could continue until such time, if
ever, that the Company is able to generate sufficient additional 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 December 31, 1996 Form 10-KSB and September
30, 1997 Form 10-QSB - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WORKING CAPITAL DEFICIT; RENEGOTIATION OF LONG TERM DEBT AND CAPITAL
FORMATION. The Company's capital requirements in connection with its development
and sales and marketing activities will continue to be significant. As of
September 30, 1997, the Company had a working capital deficit of $328,928. The
Company has no current arrangements with respect to sources of additional
financing. The Company currently does not have any line of credit or other
short-term credit facilities established with U.S. banks and limited short-term
credit facilities established with Brazilian banks. There can be no assurance
that additional financing will be available to the Company on commercially
reasonable terms, or at all. The Company currently has capital to enable it to
meet its obligations through January 31, 1998.
The Company obtained its long-term debt financing from two Brazilian
banks. These loans bear
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interest at a rate of 12% per annum, plus an inflation adjustment, which in 1996
was 10%. In January 1997, the Company completed a restructuring of $2.9 million
of $3.8 million of these long-term loans. The revised terms of the loan extend
the commencement of the principal amortization to March 1998 and the
amortization period from 35 to 50 months. The interest rate charged on the
outstanding loan balance remains unchanged. As of November 14, 1997 the Company
successfully renegotiated the terms of its $.9 million long term debt
obligation. The loan is to be amortized monthly in various amounts commencing in
November 1997 with interest at 12% plus an inflation adjustment. The loan also
continues to be guaranteed by the chief executive officer of the Company and is
further guaranteed by certain of the Ensec S.A. maintenance contracts, a rental
agreement, and the commission contract between Ensec S.A. and the former
minority shareholder of Ensec S.A. On October 8, 1997 the Company entered into
an Agency Agreement with an investment banker to raise up to $5 million through
the issuance of a minimum of 30 and a maximum of 50 units. Each unit will
consist of a five year, $50,000 10% secured note and between 18,000-22,000 Class
B warrants. The number of Class B warrants to be issued decreases from 22,000
depending on which tranche the unit holder enters into. The Notes will be
secured by the Company's software. The Notes will mature in five years with
interest only being paid on January 1 and July 31 of each year. The Class B
warrants will be exercisable at $1.25 and will be callable by the Company when
certain criteria are met. The units will be sold on a best efforts basis. In
connection with the offering, the Investment Banker will receive a 10%
commission and Class B warrants in the amount equal to 10% of the total amount
of notes to be issued. The aforementioned terms of this offering are subject to
change based on current market conditions and other factors. The Company is
responsible for all expenses of the offering. The initial closing of the first
tranche has not been scheduled and there can be no assurance an offering will be
completed. Should the offering be unsuccessful the Company would have to seek
other sources of capital in order for its U.S. operations to continue to
operate. The Company has commenced negotiations with such other sources,
however, no closings have been scheduled with the other sources. Should the
Company become unable to obtain additional capital and/or additional financing
in the immediate future it will not complete its acquisition plan and would be
required to reduce or eliminate altogether its U.S. operations which would have
a materially adverse impact on the Company's sales and immediate future growth.
See September 30, 1997 - Form 10-QSB "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CURRENT INFRINGEMENT CLAIMS; VALUE OF COLLATERAL. In April 1997, the
Company was notified of its infringement of U.S. Patent No. RE 35,336. The
Company has reviewed the claim, and has proposed a settlement. On September 18,
1997 the Claimant rejected the Company's offer, reaffirmed its infringement
claim, asserted a new claim of infringement of U.S. Patent No. 4,218,690 and
reaffirmed the proposal set forth below. The Claimant's latest proposal, which
expired on November 17, 1997, provides the Company with a non-exclusive,
worldwide license, with the maximum cost of the license being a $75,000 initial
payment with a royalty payment equal to 5% on all future qualifying sales
through February 1998. The Company is reviewing this proposal and had requested
an extension until December 31, 1997 to respond. As of the date of this
Prospectus, no further discussions have taken place between the Claimant and the
Company. However, if the Company is unable to settle these claims or if the
Company is found to infringe on the Claimant's patents, the Company's financial
condition would be materially adversely affected and the value of the Collateral
could be significantly impaired. While these are the only infringement claims
known to the Company, future claims may be brought against the Company and the
value of the Collateral could be significantly impaired. In addition, the cost
of defending or settling them could be significant and have a material adverse
affect on the Company. See September 30, 1997 - Form 10-QSB "Management's
Discussion and Analysis of Financial Condition."
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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. During fiscal 1996, 3 customers accounted for approximately
38% of the Company's total sales while in fiscal 1995, 2 customers accounted for
29% of such years' sales. See December 31, 1996 Form 10-KSB Note A in Notes to
1996 Consolidated Financial Statements. While management expects the Company's
customer base to expand at an accelerating rate, 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 materially 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 materially
adversely affect the Company's ability to deliver and market its products and
services. 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.
LENGTHY SALES CYCLE. The sale of the Company's high-end integrated
security systems 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, 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.
EVOLVING MARKET; NEW PRODUCT DEVELOPMENT; TECHNOLOGICAL OBSOLESCENCE.
The markets for the Company's products 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 offered by the Company. As a result of all of the above, the
ability of the Company to compete will depend on its ability to adapt, enhance
and improve its existing products and technology and, if necessary, to develop
and introduce new products and technology to the marketplace in a timely and
cost-competitive manner. However, 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 will 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 December 31, 1996 Form 10-KSB - "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, new products will be successfully developed.
No assurance can be given that additional technologies and prototypes can be
developed within a reasonable development schedule, if at all. There can be no
assurance that the Company would have sufficient economic or human resources to
complete
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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 be developed in the near
future by the Company or its competitors which would render the Company's
present software obsolete, and thus would negatively impact capitalized software
costs.
PRODUCT PROTECTION. 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/Trademark/ product family. 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 U.S. The Company
intends to seek copyright protection under U.S. 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 EnWorksTM product family, 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.
COMPETITION. The Company's products compete with those of numerous
well-established companies, including Sensormatic, Casi-Rusco, The Pittston
Brinks Group, 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 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 December 31, 1996 - Form 10-KSB "Business--Products and
Services" and "Business--Competition."
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 adversely affect the Company's business.
The Company has obtained term insurance on the life of Mr. Finkel providing for
a death benefit to the Company of $1,000,000. The Company also has entered into
an employment agreement with Mr. Finkel, which includes non-competition
provisions. The employment agreement is for an initial three-year term,
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which commenced in May 1996 and will automatically renew for successive three
(3) year terms unless either party provides written notice to the other party at
least 90 days prior to renewal. The success of the Company is also dependent
upon its ability to hire and retain additional qualified executive, technical
and marketing personnel. However, 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" and "Employment Agreements." On September 21, 1997,
Ensec Inc.'s Chief Operating Officer ("COO") tendered his resignation. The
Company is unable to predict what effect, if any, such resignation will have on
its U.S. operations on a going forward basis. The Company intends to fill the
COO position upon the completion of a proposed acquisition with the CEO of the
acquiree of such acquisition. However, there can be no assurance that an
acquisition will be completed and a new COO will be hired. However, there can be
no assurance that a suitable candidate can be found, and if found, the Company
can come to terms with such candidate.
CHALLENGES OF GROWTH. The Company anticipates a period of rapid growth
that is expected to place a strain on the Company's administrative, financial
and operational resources. The Company's ability to manage any 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. However, 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 future operations. Because of the complexity of its
products, the Company has previously 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 affected substantially 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 provide references could be materially
adversely affected, thereby limiting the Company's growth opportunities. If the
Company's management is unable to manage growth effectively, such as if the
Company's sales and marketing efforts exceed its capacity to install, maintain
and service its products or if new employees are unable to achieve performance
levels, the Company's business, operating results and financial condition could
be materially adversely affected.
SALES AND MARKETING EXPANSION. The Company's intention to develop a
direct sales and marketing sales force in the U.S. and expand its operations
into additional international markets will require significant management
attention and financial resources. However, there can be no assurance that the
Company's efforts to develop a U.S. direct sales force and international sales
and support channels will be successful. The ability to recruit and obtain the
sales and marketing personnel for its U.S. operations is dependent upon the
Company's ability to identify qualified personnel, offering competitive salary
and benefits, overcoming competitive disadvantages of short operating history in
the U.S., limited capital and lack of established sales and marketing efforts.
Alternatively, the Company will resolve some of its personal requirements
through the proposed acquisition. However, there can be no assurance that this
acquisition will be completed. In addition, International sales are subject to a
number of risks, including potentially 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 potential political and economic instability. Additionally, the
protection of intellectual property may be
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more difficult to enforce outside of the U.S.. 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 could materially
affect the Company's business, operating results and financial condition.
CONTROL OF THE COMPANY. Charles N. Finkel beneficially owns the vote of
approximately 60.55% of the outstanding shares of Common Stock (without giving
effect to the possible exercise of any 2,703,333 outstanding options or warrants
and the common stock being registered herein) which, among other things, will
allow Mr. Finkel to elect the entire board of directors. 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.
POLITICAL, ECONOMIC AND SOCIAL CONDITIONS IN BRAZIL. While the Company
intends to continue to shift more of its operations and sales to the U.S., a
significant amount of its business will continue to be based in Brazil for the
foreseeable future. The Brazilian market in which the Company operates has been
characterized by volatile and frequently unfavorable economic, political and
social conditions. See Notes A and B in Notes to December 31, 1996 Consolidated
Financial Statements. High inflation and, with it, high interest rates are
common. Although inflation has declined in Brazil, it nonetheless continues to
be high. As of December 4, 1997 and for fiscal year end 1996, the per annum
inflation rate was approximately 7% and 10%, respectively, 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's contract revenues which are
fixed and rise more slowly than costs or are otherwise not adjusted for
inflation. Further, inflation can erode purchasing power and thereby materially
adversely affect sales. Consequently, 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 depreciation 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. In implementing these measures, the Brazilian
government may in the future decide to effectuate a devaluation of the Brazilian
currency, the real, which could have a material adverse impact on the Company
and its operations in Brazil. In November 1997, the Brazilian Government
introduced a budget cutting plan designed to control Brazil's budget and trade
deficits. The plan, which includes measures ranging from tax increases to public
sector layoffs is designed to save the Brazilian government approximately $20
billion Reals. These proposed changes in addition to future changes in, or the
implementation of, such policies, and increased Brazilian political uncertainty,
could also have a material adverse effect on the Company and its financial
results.
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
10
<PAGE>
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, Subscribers should recognize that the
Company's business, earnings, asset values and prospects may be materially
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 13 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.
CURRENCY FLUCTUATIONS. Because the majority of the Company's
consolidated cash flow from operations is generated in the currency of Brazil,
the real, the Company is subject to the effects of its fluctuations in its
value. Brazil has historically experienced significant currency fluctuations
relative to the U.S. dollar. Although the magnitude of the recent fluctuations
has diminished the exchange rate of the Brazilian real was 1.09, 1.04 and 1.11
reais (plural of real) per U.S. dollar at December 1, 1997 and December 31, 1996
and 1995, respectively. Such fluctuations have generally not materially
adversely affected the profitability of the Company, as Brazilian revenues and
substantially all related costs of sales and expenses are incurred in the real.
However, in certain 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 U.S. 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 and
if dividends are distributed to the Company by Ensec, S.A., the Company's
Brazilian subsidiary, the payments are converted from reais to U.S. dollars, and
any future fluctuations of the real 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 and indexed to the U.S. dollar or other foreign currencies place the
risk of depreciation on the borrower. In periods of fluctuation, U.S.
dollar-indexed borrowings can generate income statement losses or charges
against stockholders' equity. The Company could be materially adversely affected
by a depreciation in the real if it becomes necessary to increase dollar-indexed
indebtedness in order to provide working capital, 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
11
<PAGE>
exposure and spreads. However, 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 1996 December 31, 1996 Form 10-KSB - "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
NO ANTICIPATED DIVIDENDS; RELIANCE ON SUBSIDIARIES. Payment of
dividends on the Common Stock is within the discretion of the Board of Directors
of the Company 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 December 31, 1996 Form 10-KSB - "Dividend Policy."
As a holding company, the Company's ability to pay operating expenses,
debt 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 will not be imposed in the future. The
enacting of such restrictive exchange controls would materially adversely affect
the ability of Ensec, S.A. to pay dividends to the Company. The payment of
dividends by Ensec, S.A. is also subject to statutory restrictions or
restrictive covenants in debt instruments in certain instances and is contingent
upon the earnings and cash flow of and permitted borrowings by Ensec, S.A.
POSSIBLE VOLATILITY OF STOCK PRICE. While the Company's Common Stock is
currently listed on the Nasdaq-SmallCap Market ("Nasdaq SCM") Nasdaq SCM
currently requires, among others, (i) either Net Tangible Assets of $2,000,000,
Market Capitalization of $35,000,000 or Net Income (in last fiscal year or 2 of
last 3 fiscal years) of $500,000, and (ii) $1.00 minimum bid price. However, no
assurance can be made that the Company will continue to be able to satisfy such
listing maintenance criteria in the future, as such, the Common Stock may be
delisted from quotation on the Nasdaq-SCM and will have to be quoted on the
over-the-counter electronic bulletin board. 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. This stock market generally, and the
technology sector in particular, has experienced and is likely to experience in
the future 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.
SHARES ELIGIBLE FOR FUTURE SALE. The Company has 5,656,250 shares of
Common Stock outstanding, (without giving effect to shares of Common Stock
issuable upon the exercise of 2,703,333 options and warrants) of which 3,425,000
are not registered and are held by "affiliates" of the Company within the
meaning of the Act and are subject to the resale limitations of Rule 144
promulgated under the Act.
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 under to the Act and may be publicly sold only if
registered under the Act or held by the holder thereof for a prescribed amount
of time. As of the date of this Offering,
12
<PAGE>
all of the Restricted Shares will have been held for more than one year and are
eligible for public sale in accordance with the requirements of Rule 144. Mr.
Charles N. Finkel, President and Chief Executive Officer of the Company and
beneficial owner of all 3,425,000 shares of Common Stock has agreed with the
Underwriter of the Company's initial public offering not to offer, sell,
contract to sell or otherwise dispose of 3,425,000 shares of Common Stock until
after September 24, 1998 without the representative'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 until September 24, 2006, without the representative'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 $4,000,000
for fiscal 1997 and with respect to the remaining 300,000 shares if the Company
reports income before income taxes in excess of $7,000,000 for fiscal 1998.
IT IS NOT POSSIBLE TO FORESEE ALL RISK FACTORS WHICH MAY AFFECT THE
COMPANY. MOREOVER, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL EFFECTUATE
SUCCESSFULLY ITS CURRENT BUSINESS PLAN. EACH SUBSCRIBER IS ENCOURAGED TO ANALYZE
CAREFULLY THE RISKS AND MERITS OF AN INVESTMENT IN THE UNITS AND SHOULD TAKE
INTO CONSIDERATION WHEN MAKING SUCH ANALYSIS, AMONG OTHERS, THE RISK FACTORS
DISCUSSED ABOVE.
THE COMPANY
GENERAL
The Company, through its operating companies Ensec Inc., a U.S.
subsidiary incorporated in Florida, and Ensec EngenharIa e Sistemas de
Seguranca, S.A. (Ensec, S.A.), a Brazilian subsidiary, designs, develops,
assembles, sells, installs and services security systems for large commercial or
governmental facilities, ranging from single function installations to high-end
integrated security systems. The Company's high-end integrated systems are based
on its proprietary software and related hardware which permit multiple devices
or systems to be combined into a unified system covering multiple sites. Since
its inception , the Company has installed approximately 400 systems. nearly all
of which have been in Brazil, for large corporations (such as Bosch,
Caterpillar, Eastman Kodak, General Motors, IBM, Microsoft and Texaco) and
government agencies (such as the Brazilian Bureau of Mint & Engraving and the
Central Bank of Brazil).
In 1995, the Company completed the development of its second-generation
state-of-the-art, integrated security system; the EnWorks/Trademark/ product
family using object oriented design methodology and real time operating system.
The Company dedicated four years and over $5 million to the development of the
flagship product in the EnWorks/Trademark/ product family, the En2000/Trademark/
system, and continues to expand the capabilities of this system by adding
features. The Company's high-end integrated security systems are based on
distributive intelligence architecture and proprietary software that permit the
integration of various security devices or systems into a unified system
operating through the use of graphical user interfaces. Distributive
intelligence architecture permits individual components of the Company's
integrated security system to process information independently so that such
components may continue to operate even when the central processor or another
component in the system malfunctions or is rendered inoperative. In addition, an
integrated security system that uses distributive intelligence architecture can
operate more efficiently because individual components are able to complete
independent tasks simultaneously.
The Company began marketing its En2000/Trademark/ system in 1995 at
which time the Company was
13
<PAGE>
selected by the Port Authority of New York and New Jersey through a competitive
bid process to provide the new integrated access control system for the parking
facilities located in the World Trade Center. Other significant customer
contracts awarded to the Company's U.S. operations for its En2000/Trademark/
System include the EDS headquarters in Texas and its other facilities located in
Sacramento, California and Middlesex, United Kingdom; A.D.T. Securities Systems,
Inc. ("ADT") headquarters in Boca Raton, Florida and its facility in Denver,
Colorado and Lockheed Martin facility in Orlando, Florida. In 1996, the Company
entered into contracts to install 16 additional En2000/Trademark/ systems.
During the first nine months of 1997, the Company entered into contracts to
install [10] En2000/Trademark/ systems. In addition, the Company currently has
[44] service and maintenance contracts with customers who have purchased the
Company's products, covering [50] installations. Other examples of the Company's
completed projects involving prior versions of the Company's systems 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 15,500 employees; and (iii) a postal tracking and
tracing system for the Brazilian Postal Service.
The Company's systems have the capability of being integrated thereby
enabling communication between otherwise disparate subsystems and include the
following functions based on a customer's tailored needs:
<TABLE>
<CAPTION>
<S> <C> <C>
/bullet/ Access Control /bullet/ Time and Attendance /bullet/ Facilities Management
/bullet/ Alarm Monitoring /bullet/ Guard Tours /bullet/ Parking Facility Control
/bullet/ Data Security /bullet/ Restaurant Revenue Reporting /bullet/ CCTV
/bullet/ Vehicle Tracking /bullet/ Elevator Control /bullet/ Video Badging
</TABLE>
The Company recognizes its revenue 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 costs after giving effect to the most recent estimates of total cost.
Revenue received under maintenance contracts is recognized over the term of the
related agreements.
In Brazil, normal product sales are due fifteen days from shipment for
maintenance contracts fifteen days from the beginning of the monthly contract
period of the contract and for the turnkey projects (i) twenty percent of the
contract value is generally required upon signing, (ii) payments for product
portion of the project are due fifteen days from shipment and (iii) payments for
installation and development revenue are received as negotiated but generally at
specific milestones within the project (including final acceptance). Turnkey
projects generally last approximately four months and down payments reduce
amounts to be received upon final acceptance.
In the United States, normal product sales are due thirty days from
shipment, for its maintenance contract thirty-five days from the beginning of
the monthly contract period of the contract and for the turnkey projects
generally one-third of the portion of the contract that relates to development
and installation is due upon signing, one-third at some agreed upon milestone
and one-third upon acceptance. For the product portion of the turnkey contract,
payments are due thirty days from shipment. Turnkey projects generally last
approximately twelve to twenty-four months. To date turnkey projects have
accounted for a material portion of the revenue generated in the U.S.
14
<PAGE>
The Company was incorporated in April 1996 under the laws of the State
of Florida. Its principal executive offices are located at 751 Park of Commerce
Drive, Suite 104, Boca Raton, Florida 33487, and its telephone number is (561)
997-2511. Ensec, S.A. was incorporated in 1983 under the laws of Brazil.
ACQUISITION OF INTEGRATED SECURITY RESOURCES, INC.
On November 13, 1997 the Company signed a letter of intent ("Letter")
to acquire all of the outstanding capital stock of Integrated Security
Resources, Inc. ("ISR"). ISR is a security system integration and engineering
company headquartered in the Washington D.C. area with offices in Dallas and San
Antonio, Texas. Simultaneous with the acquisition, ISR is intended to be merged
into Ensec Inc. Under the terms of the Letter the Company will issue up to
2,000,000 of its common stock and issue warrants to purchase up to 1,000,000
shares of its common stock. The consideration to be issued is based on certain
amount of revenues and earnings before interest, taxes, depreciation and
amortization being realized during the year ended June 30, 1998 as defined in
the Letter. The controlling shareholders of ISR also have the ability to earn
options to purchase up to 3,000,000 shares of the Company's common stock during
the fiscal years 1998-2000 based on total revenue and net income before
interest, taxes, depreciation and amortization of Ensec Inc. The Acquisition is
subject to among other conditions the completion of due diligence, a signed
definitive acquisition agreement by December 31, 1997 and the completion of a
minimum of $1.5 million of financing. As of January 6, 1998 ISR and the Company
have not entered into a signed definitive acquisition agreement. The Company and
ISR have verbally agreed to extend the Letter of Intent until it is determined
whether or not the Company will be successful in completing the proposed
acquisition.
SELLING SECURITY HOLDERS
STOCK OWNERSHIP
The following table sets forth the name of the Selling Security Holder,
the amount of shares of Stock held directly or indirectly underlying the
Warrants owned by the Selling Security Holder at the date thereof. The amount of
shares of Common Stock being offered by the Selling Security Holder and the
amount to be owned by the Selling Security Holder following the sale of such
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF SELLING SHARES SHARES TO SHARES TO BE OWNED
SECURITY HOLDER OWNED(1) BE OFFERED AFTER OFFERING
- --------------- --------- ---------- ------------------
<S> <C> <C> <C>
Albanese & Anna M. Albanese,
JTWROS 2,500 2,500 -0-
Raymond J. Anton 2,500 2,500 -0-
Atlas Partners 15,000 15,000 -0-
Atlas Pearlman Trop & Borkson, P.A. 15,000 15,000 -0-
Jessica R. Baron 2,500 2,500 -0-
Dale A. Bearden 5,000 5,000 -0-
Marc H. Bell 2,500 2,500 -0-
Benson Shore Capital, LLC 165,000 165,000 -0-
Morris Bickoff & Delores Bickoff,
15
<PAGE>
NUMBER OF
NAME OF SELLING SHARES SHARES TO SHARES TO BE OWNED
SECURITY HOLDER OWNED(1) BE OFFERED AFTER OFFERING
- --------------- --------- ---------- ------------------
<S> <C> <C> <C>
JTWROS 2,500 2,500 -0-
Glenn Bierman 2,500 2,500 -0-
Howard J. Blatt, Trustee, under the
Bampart Brokerage Corporation
Pension Plan dated January 1, 1981 2,500 2,500 -0-
Helen R. Burgess 10,000 10,000 -0-
Manfred Calmanowitz 50,000 50,000 -0-
Andrew P. Carter, Jr., & Susan B. Carter,
JTWROS 2,500 2,500 -0-
Paul T. Cohen 2,500 2,500 -0-
Priscilla M. Cooney 2,500 2,500 -0-
Keith H. Cooper 2,500 2,500 -0-
David Cornsteini 5,000 5,000 -0-
Credito Milano (Asia) Limited 165,000 165,000 -0-
Roger Davidoff & Patrina Davidoff,
JTWROS 2,500 2,500 -0-
Stuart Eisenberger 2,500 2,500 -0-
Brian Ellis 2,500 2,500 -0-
Bruce C. Flaim 2,500 2,500 -0-
Robert A. Foisie 5,000 5,000 -0-
John H. Francisco & Mildred J. Francisco,
JTWROS 2,500 2,500 -0-
Eugene J. Friedman 1,250 1,250 -0-
Richard Friedman 2,500 2,500 -0-
Theodore H. Friedman & Eva Friedman,
JTWROS 5,000 5,000 -0-
Lawrence S. Goldman 2,500 2,500 -0-
HST Partners 2,500 2,500 -0-
Richard Hofmann & Birte Hofmann,
JTWROS 1,250 1,250 -0-
Ann Hu 2,500 2,500 -0-
Inter Swiss Trading Co., Ltd. 2,500 2,500 -0-
Martin C. Kass & Elaine R. Kass,
JTWROS 1,250 1,250 -0-
Mitchell Knapp 2,500 2,500 -0-
Ray Kralovic 1,250 1,250 -0-
Lawrence Kupferberg 2,500 2,500 -0-
Howard M. Lefkowitz 2,500 2,500 -0-
Harvey R. Manes 2,500 2,500 -0-
William A. Marconi 1,250 1,250 -0-
Jeffrey Markowitz 2,500 2,500 -0-
Michael Matwey, Jr. 2,500 2,500 -0-
16
<PAGE>
NUMBER OF
NAME OF SELLING SHARES SHARES TO SHARES TO BE OWNED
SECURITY HOLDER OWNED(1) BE OFFERED AFTER OFFERING
- --------------- --------- ---------- ------------------
<S> <C> <C> <C>
Michael Miller 5,000 5,000 -0-
Azriel Nagar 2,500 2,500 -0-
David Z. Nisnewitz 2,500 2,500 -0-
Richard A. Pizitz 2,500 2,500 -0-
Renstone Limited 2,500 2,500 -0-
Renwick Special Situations, L.P. 2,500 2,500 -0-
Jayne E. Ricciardelli & Victor A.
Ricciardelli, JTWROS 2,500 2,500 -0-
Ralph L. Rossi, Jr. & Maria L. Rossi,
JTWROS 2,500 2,500 -0-
Richard Sage & Carol Sage 2,500 2,500 -0-
Mahendra K. Sanghavi & Rita M. Sanghavi,
JTWROS 1,250 1,250 -0-
Burton Satzberg & Judy Satzberg,
JTWROS 1,250 1,250 -0-
Joseph Scibetta & Carmen Scibetta 2,500 2,500 -0-
Steven A. Seiden 2,500 2,500 -0-
David R. Semmel 2,500 2,500 -0-
Jeffrey Silverman 5,000 5,000 -0-
Mark I. Silverman 7,500 7,500 -0-
H. Diehl Sluss 2,500 2,500 -0-
Alison Snow 7,500 7,500 -0-
Vincent Sperduto & Angela Sperduto 2,500 2,500 -0-
Joseph L. Stanley 2,500 2,500 -0-
Barry Sun & Janet Sun, JTWROS 1,250 1,250 -0-
Anne C. Thurman 2,500 2,500 -0-
Terry S. Trabich 1,250 1,250 -0-
John Ventura 1,250 1,250 -0-
Steve M. Wallitt 1,250 1,250 -0-
Harold L. Warren 2,500 2,500 -0-
Michael J. Weiss 2,500 2,500 -0-
Yetev Lev D'Jerusalem, B.F. 2,500 2,500 -0-
</TABLE>
(1) Represents shares of Common Stock and shares of Common Stock issuable
upon the exercise of Common Stock Warrants.
The Company has agreed to pay full costs and expenses, incentives to
the issuance, offer, sale and delivery of the Shares, including but not limited
to, all fees and expenses in preparing, filing and printing the Registration
Statement and Prospectus and related exhibits, amendments and supplements
thereto and mailing of such items. The Company will not pay selling commissions
and expenses associated with any sale by the Selling Security Holders.
17
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Security Holders may be sold
from time to time by the Selling Security Holders, or by pledgees, donees,
transferees or other successors in interest. Such sales may be made on one or
more exchanges or in the over-the-counter market (including the Nasdaq SmallCap
Market of The Nasdaq Stock Market), or otherwise at prices and at terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. The Shares may be sold by one or more of the following
methods, including, without limitation: (a) a block trade in which the
broker-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 or other direct transactions between the Selling Security
Holders and purchasers without a broker-dealer or other intermediary. Such
broker-dealers and agents and any other participating broker-dealers, or agents
may be deemed to be "underwriters" within the meaning of the Act, in connection
with such sales. In addition, any securities covered by this Prospectus that
qualify for sale pursuant to Rule 144 may have or might be sold under Rule 144
rather than pursuant to this Prospectus.
DESCRIPTION OF SECURITIES
GENERAL
The following description of the material terms of the Common Stock is
subject to the Florida Business Corporation Act (the "FBCA") and to the
provisions contained in the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), and By-laws, as amended, copies of which have been
filed with the Securities and Exchange Commission. See "Available Information."
The Company's authorized capital stock consists of 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 (the "Preferred Stock"). As of December 4, 1997, there
were outstanding 5,656,250 shares of Common Stock and no shares of Preferred
Stock.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock,
no par value per share, of which as of the date of this Prospectus, 5,656,250
shares of Common Stock are outstanding. All outstanding shares of Common Stock
are, and all shares of Common Stock to be outstanding upon completion of this
offering will be, validly authorized and issued, fully paid, and non-assessable.
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
18
<PAGE>
Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the repayment 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 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. Except pursuant to the terms of a proposed private offering, the
Company has no present plans to issue any shares of Preferred Stock.
PUBLIC WARRANTS
The Public Warrants were issued in registered form pursuant to an
agreement dated September 25, 1996 and as amended October 4, 1996 (the "Warrant
Agreement"), between the Company, Rickel & Associates, Inc. (the
"Representative") and Janssen-Meyers Associates, L.P., (collectively the
"Underwriters") and American Stock Transfer & Trust Company (the "Warrant
Agent"). The following discussion of certain terms and provision of the Public
Warrants is qualified in its entirety by reference to the detailed provisions of
the Statement of Rights, Terms and Conditions for each Public Warrant which
forms a part of the Warrant Agreement.
One Public 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 Public Warrants will be
entitled to the benefits 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 Public Warrants may be
exercised commencing September 25, 1997 until the close of business on September
25, 2001 (the "Expiration Date"). On or after the Expiration Date, the Public
Warrants automatically become wholly void and of no value. The Company may at
any time extend the Expiration Date of all outstanding Public Warrants, for such
increased periods of time as it may determine. The Public Warrants may be
exercised at the office of the Warrant Agent.
The Company has the right at any time beginning September 25, 1997, or
such earlier date as the
19
<PAGE>
Representative may determine, to repurchase the Public Warrants at a price of
$.10 each, by written notice mailed 30 days prior to the repurchase date to each
Public 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 Public Warrants are called
for repurchase, they must be exercised prior to the close of business son the
date immediately preceding the date of any such repurchase or the right to
purchase the applicable shares of Common Stock is forfeited.
No Public 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 Public 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 Public
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 Public
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 so
do.
No holder, as such, of Public 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 Public Warrants have been duly exercised and the
Purchase Price has been paid in full.
NASDAQ NATIONAL MARKET/Registered Trademark/
The Common Stock is traded on the Nasdaq Small Cap Market of the Nasdaq
Stock Market under the symbol: ENSC.
TRANSFER AND WARRANT AGENT AND REGISTER
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson P.A., Fort
Lauderdale, Florida. Atlas, Pearlman, Trop & Borkson own 30,000 shares of Common
Stock.
EXPERTS
The audited consolidated financial statements of Ensec International,
Inc. as of December 31, 1996 and December 31, 1995, and for each of two fiscal
years in the period ended December 31, 1996, incorporated by reference into this
Prospectus, have been audited by GrantThornton, LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
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INDEMNIFICATION
The Articles of Incorporation of the Company provide that every
director and every officer of the corporation, every former director and former
officer of the corporation, and every person who may have served at the request
of the corporation as a director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, and the
heirs, executors, administrators, and assignors of all of the above persons
shall be indemnified by the corporation for expenses actually and necessarily
incurred by him in connection with the defense of any action, suit, or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the corporation or of such other corporation regardless
of whether or not he continues to be a director or officer at the time of
incurring such expenses, except with respect to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duty. The rights of indemnification set
forth in the Articles of Incorporation shall not be exclusive of any other
rights to which such person may be entitled by law or otherwise.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of the director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for: (a) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for, or
assenting to, an unlawful distribution; and (d) willful misconduct or conscious
disregard for the best interests of the Company in a proceeding by, or in the
right of, the Company to procure a judgment in its favor or in a proceeding by,
or in the right of, a shareholder. The statute does not effect the director's
responsibilities under any other law.
Insofar as indemnification for liabilities arising under the 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 Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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.
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