<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1999
Registration Statement No. 333-
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
GLOBAL SECURITY TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1731 13-4032391
(State or other (Primary Standard (IRS Employer I.D. No.)
jurisdiction of Industrial Classification
incorporation or Code Number)
organization)
352 Seventh Avenue, Suite 1040
New York, New York 10001
(212) 524-0600
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------
Mr. Charles Finkel
Chief Executive Officer
GLOBAL SECURITY TECHNOLOGIES, INC.
352 Seventh Avenue, Suite 1040
New York, New York 10001
(212) 524-0600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-----------
Copies to:
Jay M. Kaplowitz, Esq. Joel D. Mayersohn, Esq.
Gersten, Savage & Kaplowitz, LLP Matthew W. Miller, Esq.
101 East 52nd Street, 9th Floor Atlas, Pearlman, Trop & Borkson, P.A.
New York, New York 10022 200 East Las Olas Blvd., Suite 1900
(212) 752-9700 Fort Lauderdale, Florida 33301
(954) 766-7864
-----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger of one subsidiary of Global Security Technologies,
Inc. ("Global ") with and into Ensec International, Inc. ("Ensec") and the
merger of another subsidiary of Global with and into SenTech EAS Corporation
("SenTech"), all as described in the Agreement and Plan of Merger dated as of
October 28, 1998, as amended December 2, 1998.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Number of Proposed Maximum Amount of
Title of Each Class of Securities Shares to be Maximum Offering Aggregate Registration
Being Registered Registered Price Per Share(1) Offering Price(1) Fee
- ---------------------------------------- ------------ ------------------ ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock ........................... 2,144,463 $0.21 $450,338 $125.20
Warrants ............................... 476,363 $0.001 $476 $0.14
Common Stock Underlying Warrants(2) .... 476,363 $0.21 $100,037 $27.81
--------- ------ -------- ------
Total Registration Fee.................. $550,851 $153.15
</TABLE>
- ------------
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low bid prices of Ensec's Common
Stock on National Association of Securities Dealers Over-The-Counter
Bulletin Board ("OTCBB") Market on April 28, 1999.
(2) This Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of anti-dilutive provisions of
the Warrants. No additional registration fee is required
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
[ENSEC CHAIRMAN'S LETTER]
, 1999
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of Ensec International, Inc. ("Ensec") on , 1999 (the "Ensec
Special Meeting"), at which shareholders of Ensec will be asked to approve the
combination of the businesses of Ensec and SenTech EAS Corporation ("SenTech").
Upon the consummation of this business combination, Ensec and SenTech will
become wholly owned subsidiaries of a newly formed holding company, Global
Security Technology, Inc. ("Global").
Upon the completion of the business combination:
- each outstanding share of Ensec common stock will be converted
into 0.2180149 shares of Global common stock; and
- each outstanding share of SenTech common stock will be
converted into 0.4965541 shares of Global common stock.
Immediately following the business combination, the former holders of
Ensec common stock will collectively hold approximately 62% of the issued and
outstanding shares of Global common stock and the former holders of SenTech
common stock will collectively hold approximately 38% of the issued and
outstanding shares of Global common stock.
The accompanying Joint Proxy Statement/Prospectus provides you with
detailed information concerning the Ensec Special Meeting, the proposed business
combination and the Global common stock to be issued in connection with the
transaction.
Your Board of Directors (the "Board") has carefully reviewed and
considered the terms and conditions of the proposed business combination and
believes that the proposed business combination will provide opportunities to
achieve substantial benefits for Ensec shareholders and customers through the
more efficient utilization of the combined assets, management and personnel of
Ensec and SenTech. Your Board further believes that Global will be better able
to capitalize on growth opportunities in the securities systems and surveillance
industry, both domestically and internationally, and be better positioned to
compete effectively in the rapidly changing security systems and surveillance
industry.
Emerson Bennett & Associates, the Board's financial advisor in
connection with this transaction, has delivered a written opinion to the Board,
a copy of which is attached to the accompanying Joint Proxy
Statement/Prospectus, to the effect that, as of the date of such opinion and
based on and subject to the assumptions, limitations and qualifications set
forth therein, from a financial point of view, the relative exchange ratio of
Global common stock to Ensec common stock and the consideration to be received
by the shareholders of Ensec are fair to the shareholders of Ensec.
Your Board, by unanimous vote, has determined that the terms and
provisions of the proposed business combination are fair to, and in the best
interests of, Ensec, and the shareholders of Ensec, and recommends that you vote
FOR the proposal to approve the business combination.
<PAGE>
Please complete, sign and date the enclosed proxy card and return it in
the enclosed prepaid envelope as soon as possible. This action will not limit
your right to revoke your proxy, including by attending the Ensec Special
Meeting and voting in person.
Sincerely yours,
/s/ Charles N. Finkel
Charles N. Finkel
Chief Executive Officer and Chairman
of the Board
<PAGE>
ENSEC INTERNATIONAL, INC.
352 Seventh Avenue, Suite 1040
New York, New York 10001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
New York, New York
Notice is hereby given that a special meeting of the
shareholders (the "Ensec Special Meeting") of Ensec International, Inc.
("Ensec") will be held on , 1999 at 10:00 a.m. local time, at 352 Seventh
Avenue, Suite 1040, New York, New York for the following purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger dated as of October 28, 1998 as amended December 2,
1998 (the "Merger Agreement"), among Global Security Technologies, Inc., a
Delaware corporation ("Global "), Ensec Acquisition Corporation, a Florida
corporation ("E-Sub"), Ensec International, Inc., a Florida corporation
("Ensec"), SenTech Acquisition Corporation, a Florida corporation ("S-Sub") and
SenTech EAS Corporation, a Florida corporation ("SenTech"), pursuant to which
(i) E-Sub, a newly formed subsidiary of Global, will be merged with and into
Ensec, and (ii) S-Sub, a newly formed subsidiary of Global, will be merged with
and into SenTech (collectively referred to herein as the "Mergers"). As a result
of the Mergers, Ensec and SenTech will become wholly-owned subsidiaries of
Global. Upon the consummation of the Mergers, each outstanding share of Ensec
common stock will be converted into 0.2180149 shares of Global common stock and
each outstanding share of SenTech common stock will be converted into 0.4965541
shares of Global common stock. Immediately following the Mergers, the former
holders of Ensec common stock will collectively hold approximately 62% of the
issued and outstanding shares of Global common stock and the former holders of
SenTech common stock will collectively hold approximately 38% of the issued and
outstanding shares of Global common stock.
2. To transact such other business as may properly come before
the Ensec Special Meeting.
Shareholders of record at the close of business on , 1999 will
be entitled to receive notice of, and to vote at, the Ensec Special Meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Ensec common stock entitled to vote at the Ensec Special Meeting is
necessary to constitute a quorum at the Ensec Special Meeting. Under the Florida
Business Corporation Act and pursuant to Ensec's Articles of Incorporation, as
amended, the affirmative vote, in person or by proxy, of the holders of a
majority of the shares of Ensec common stock outstanding and entitled to vote
thereon is required to approve and adopt the Merger Agreement.
Please note that attendance at the Ensec Special Meeting will
be limited to shareholders of Ensec as of the record date (or their authorized
representatives). If your shares are held by a bank or broker, please bring to
the Ensec Special Meeting evidence from your bank or broker of your beneficial
ownership of Ensec common stock.
Please advise Ensec's transfer agent, American Stock Transfer
& Trust, Inc., 40 Wall Street, New York, New York 10005, of any changes in your
address.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ENSEC SPECIAL
<PAGE>
MEETING, PLEASE PROMPTLY MARK, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND
RETURN IT IN THE ENCLOSED PREPAID ENVELOPE. SHAREHOLDERS WHO DECIDE TO ATTEND
THE ENSEC SPECIAL MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO THE ENSEC
SPECIAL MEETING AND VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY RETURNED A
PROXY.
By Order of the Board of Directors,
/s/ Charles N. Finkel
Charles N. Finkel
Chief Executive Officer and Chairman
of the Board
<PAGE>
[SenTech CHAIRMAN'S LETTER]
, 1999
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of SenTech EAS Corporation ("SenTech") on , 1999 (the
"SenTech Special Meeting"), at which the shareholders of SenTech will be asked
to approve the combination of the businesses of SenTech and Ensec International,
Inc. ("Ensec"). Upon the consummation of this business combination, SenTech and
Ensec will become wholly owned subsidiaries of a newly formed holding company,
Global Security Technologies, Inc. ("Global").
Upon the completion of the business combination:
- each outstanding share of SenTech common stock will
be converted into 0.4965541 shares of Global common
stock;
- each outstanding share of Ensec common stock will be
converted into 0.2180149 shares of Global common
stock.
Immediately following the business combination, the former
holders of Ensec common stock will collectively hold approximately 62% of the
issued and outstanding shares of Global common stock and the former holders of
SenTech common stock will collectively hold approximately 38% of the issued and
outstanding shares of Global common stock.
The accompanying Joint Proxy Statement/Prospectus provides you
with detailed information concerning the SenTech Special Meeting, the proposed
business combination and the Global common stock to be issued in connection with
the transaction. Please read the accompanying Joint Proxy Statement/Prospectus
carefully and give this information your careful attention.
Your Board of Directors (the "Board") has carefully reviewed
and considered the terms and conditions of the proposed business combination and
believes that the proposed business combination will provide opportunities to
achieve substantial benefits for SenTech shareholders and customers through the
more efficient utilization of the combined assets, management and personnel of
SenTech and Ensec. Your Board further believes that Global will be better able
to capitalize on growth opportunities in the security systems and surveillance
industry, both domestically and internationally, and be better positioned to
compete effectively in the rapidly changing security systems and surveillance
industry.
Willamette Management Associates, the Board's financial
advisor in connection with this transaction, has delivered a written opinion to
the Board, a copy of which is attached to the accompanying Joint Proxy
Statement/Prospectus, to the effect that, as of the date of such opinion and
based on and subject to the assumptions, limitations and qualifications set
forth therein, from a financial point of view, the relative exchange ratio of
Global common stock to SenTech common stock and the consideration to be received
by the shareholders of SenTech are fair to the shareholders of SenTech.
Your Board, by unanimous vote, has determined that the terms
and provisions of the proposed business combination are fair to, and in the best
interests of, SenTech and the shareholders of SenTech and recommends that you
vote FOR the proposal to approve the business combination.
<PAGE>
Please complete, sign and date the enclosed proxy card and
return it in the enclosed prepaid envelope as soon as possible. This action will
not limit your right to revoke your proxy, including by attending the SenTech
Special Meeting and voting in person.
Sincerely yours,
Edward A. Mulhare
Chairman of the Board
<PAGE>
SenTech EAS CORPORATION
484 S.W. 12TH AVENUE
DEERFIELD BEACH, FLORIDA 33442
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1999
New York, New York
Notice is hereby given that a special meeting of the
shareholders (the "SenTech Special Meeting") of SenTech EAS Corporation
("SenTech") will be held on , 1999 at 10:00 a.m. local time, at Gersten, Savage
& Kaplowitz, LLP, 101 East 52nd Street, New York, New York, for the following
purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger dated as of October 28, 1998, as amended December
2, 1998 (the "Merger Agreement"), among Global Security Technologies, Inc., a
Delaware corporation ("Global"), Ensec Acquisition Corporation, a Florida
corporation ("E-Sub"), Ensec International, Inc., a Florida corporation
("Ensec"), SenTech Acquisition Corporation, a Florida corporation ("S-Sub") and
SenTech EAS Corporation, a Florida corporation ("SenTech"), pursuant to which
(i) E-Sub, a newly formed subsidiary of Global, will be merged with and into
Ensec, and (ii) S-Sub, a newly formed subsidiary of Global, will be merged with
and into SenTech (collectively referred to herein as the "Mergers"). As a result
of the Mergers, Ensec and SenTech will become wholly-owned subsidiaries of
Global. Upon the consummation of the Mergers, each outstanding share of Ensec
common stock will be converted into 0.2180149 shares of Global common stock and
each outstanding share of SenTech common stock will be converted into 0.4965541
shares of Global common stock. Immediately following the Mergers, the former
holders of Ensec common stock will collectively hold approximately 62% of the
issued and outstanding shares of Global common stock and the former holders of
SenTech common stock will collectively hold approximately 38% of the issued and
outstanding shares of Global common stock.
2. To transact such other business as may properly come before
the SenTech Special Meeting.
Shareholders of record at the close of business on , 1999 will
be entitled to receive notice of, and to vote at, the SenTech Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of SenTech common stock entitled to vote at the SenTech
Special Meeting is necessary to constitute a quorum at the SenTech Special
Meeting. Under the Florida Business Corporation Act, the affirmative vote, in
person or by proxy, of the holders of at least a majority of the shares of
SenTech common stock outstanding and entitled to vote thereon is required to
approve and adopt the Merger Agreement.
Please note that attendance at the SenTech Special Meeting
will be limited to shareholders of SenTech as of the record date (or their
authorized representatives). If your shares are held by a bank or broker, please
bring to the SenTech Special Meeting evidence from your bank or broker of your
beneficial ownership of SenTech common stock.
Please advise SenTech's transfer agent North American Stock
Transfer & Transfer Co., 147 West Merrick Road, Freeport, New York 11520, of any
changes in your address.
<PAGE>
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SenTech SPECIAL
MEETING, PLEASE PROMPTLY MARK, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND
RETURN IT IN THE ENCLOSED PREPAID ENVELOPE. SHAREHOLDERS WHO DECIDE TO ATTEND
THE SenTech SPECIAL MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO THE SenTech
SPECIAL MEETING AND VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY RETURNED A
PROXY.
By Order of the Board of Directors,
Edward A. Mulhare
Chairman of the Board
<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. Theses 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.
JOINT PROXY STATEMENT/PROSPECTUS
FOR SPECIAL MEETINGS OF SHAREHOLDERS
OF
ENSEC INTERNATIONAL, INC.
AND
SenTech EAS CORPORATION
TO BE HELD ON , 1999
-------------------------
GLOBAL SECURITY TECHNOLOGIES, INC.
This Joint Proxy Statement/Prospectus is being furnished to
common shareholders of Ensec International, Inc., a Florida corporation
("Ensec"), and common shareholders of SenTech EAS Corporation, a Florida
corporation ("SenTech") in connection with the solicitation of proxies by Ensec
and SenTech for use at their respective special meetings of shareholders to
consider and vote upon a proposal to approve the acquisition of each of Ensec
and SenTech by Global Security Technologies, Inc., a Delaware corporation
("Global"). Global is a holding company recently formed for the purpose of
combining the businesses of Ensec and SenTech. If the business combination is
approved, the Ensec common shares and the SenTech common shares will be
converted into shares of Global common stock, and the holders of such shares
will become shareholders of Global, on the terms described in this Joint Proxy
Statement/Prospectus.
You are encouraged to read this Joint Proxy
Statement/Prospectus in its entirety, including the Agreement and Plan of Merger
("Merger Agreement") included as Appendix I. You are also encouraged to read the
section "Risk Factors" beginning on page 7 of this Joint Proxy
Statement/Prospectus for a discussion of certain matters which you should
carefully consider in determining how to vote on the proposed business
combination.
Global shall use its best efforts to obtain the approval for
listing on the Nasdaq SmallCap Market ("Nasdaq") of Global common stock. It is
not a condition to the closing of the business combination that such approval be
obtained.
This Joint Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed to Ensec common shareholders and SenTech
common shareholders on or about , 1999.
The securities to be issued pursuant to this Joint Proxy
Statement/Prospectus 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
Joint Proxy Statement/Prospectus. Any representation to the contrary is a
criminal offense.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY....................................................................... 1
RISK FACTORS.................................................................. 6
THE TRANSACTION............................................................... 18
DIRECTORS AND EXECUTIVE OFFICERS OF GLOBAL.................................... 30
OWNERSHIP OF GLOBAL........................................................... 32
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION................... 33
COMPARATIVE PER SHARE INFORMATION............................................. 34
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS............... 35
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.......................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ENSEC................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SenTech................................. 49
INFORMATION REGARDING ENSEC................................................... 53
INFORMATION REGARDING SenTech................................................. 65
THE SPECIAL MEETINGS.......................................................... 77
THE MERGER AGREEMENT.......................................................... 80
COMPARISON OF SHAREHOLDER RIGHTS.............................................. 85
DESCRIPTION OF SECURITIES..................................................... 89
LEGAL MATTERS................................................................. 92
EXPERTS....................................................................... 92
FUTURE STOCKHOLDER PROPOSALS.................................................. 92
AVAILABLE INFORMATION......................................................... 92
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Consolidated Balance Sheet as of March 31, 1999................................. F-2
Consolidated Statements of Operations for the three months ended March 31,
1999 and 1998................................................................. F-3
Consolidated Statements of Stockholders' Equity for the three months March
31, 1999 and 1998............................................................. F-2
Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998................................................................. F-4
Notes to Consolidated Financial Statements...................................... F-5
Independent Auditors' Report of Rothstein, Kass & Co., P.C...................... F-9
Independent Auditors' Report of Grant Thornton, LLP............................. F-10
Consolidated Balance Sheet as of December 31, 1998.............................. F-11
Consolidated Statements of Operations for the years ended December 31,
1998 and 1997 ................................................................ F-12
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1997.................................................... F-13
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997................................................................. F-14
Notes to Consolidated Financial Statements...................................... F-15
SenTech EAS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet as of March 31, 1999................................. F-26
Consolidated Statements of Operations for the three months ended March
31, 1999 and 1998............................................................. F-27
Consolidated Statements of Shareholders' Equity for the three months
ended March 31, 1999 and 1998................................................. F-28
Consolidated Statements of Cash Flows for the years three months ended
March 31, 1999 and 1998....................................................... F-29
Notes to Consolidated Financial Statements...................................... F-30
Independent Auditors' Report of Spear Safer Harmon & Co......................... F-35
Consolidated Balance Sheet as of December 31, 1998.............................. F-36
Consolidated Statements of Operations for the years ended December 31,
1997 and 1998................................................................. F-37
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1998.................................................... F-38
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1998................................................................. F-39
Notes to Consolidated Financial Statements...................................... F-40
Appendix I - Merger Agreement, as amended
Appendix II - Opinion of Emerson Bennett & Associates
Appendix III - Opinion of Willamette Management Associates
</TABLE>
ii
<PAGE>
SUMMARY
This summary highlights selected information from this Joint
Proxy Statement/Prospectus and may not contain all of the information that is
important to you. To understand the transaction fully and for a more complete
description of the legal terms of the transaction, you should carefully read
this entire document and the documents we have referred you to. See "Additional
Information."
THE COMPANIES
Ensec Intenational, Inc. ("Ensec")
Ensec was founded in 1983 in Brazil and 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. Ensec's high-end integrated systems are based on
its proprietary software and related hardware and software which permit Ensec to
be a leading security systems integrator in Brazil and deliver security
solutions for their clients.
Since its inception, Ensec has installed approximately 400
systems, nearly all of which have been in Brazil, including systems for large
corporations, such as Bosch, Caterpillar, Eastman Kodak, General Motors, IBM,
Microsoft and Texaco, and governmental agencies, such as the Brazilian Bureau of
Mint & Engraving, the Central Bank of Brazil and the New York and New Jersey
Port Authority.
SenTech EAS Corporation ("SenTech")
SenTech and its wholly owned subsidiary, SenTech EAS
International, Inc., manufactures, distributes, and services electronic article
surveillance systems and accessories worldwide. Electronic article surveillance
equipment is composed of (i) a detachable or disposable security circuit, label
or other material (often referred to as "tag" or "target"), which is attached to
or placed on the article to be protected, and is either removed upon sale of the
article or, if not removed, activates a detection system if the article is
transported beyond the protected area, and (ii) a detection system which is
usually located in the exit path of the protected area and is activated when an
article, to which a tag or target is attached, is transported beyond the
protected area. Electronic article surveillance equipment has developed over the
last thirty years in response to problems associated with theft and inventory
control in the retail industry. SenTech's products are used primarily by
retailers to prevent financial losses attributed to theft of merchandise.
Our Business Strategy and Goals
We were formed as a Delaware corporation on November 4, 1998
to be a holding company for Ensec and SenTech and their respective subsidiaries
following the consummation of the business combination of the two companies.
Prior to the consummation of the business combination, we have had and will have
no operations and nominal or no assets and liabilities.
The business combination between Ensec and SenTech is intended
to create a synergy between the two companies. We believe that combining the two
companies will enable us to:
- expand SenTech's international sales, especially throughout
Latin America;
- assemble a strong management team thereby creating effective
opportunities for sales growth in the United States, focusing
on the strategy of penetrating the electronic article
surveillance market and helping to attract new technologies
and roll-out programs; and
1
<PAGE>
- create a vehicle for Ensec systems sales and distribution in
the United States, through SenTech's existing infrastructure.
Our principal executive offices are located at 352 Seventh
Avenue, Suite 1040, New York, New York 10001 and our telephone number is (212)
524-0600. See "Information Regarding Ensec" and "Information Regarding SenTech."
THE SPECIAL MEETINGS
Ensec
The special meeting of Ensec's shareholders ("Ensec Special
Meeting") will be held at 352 Seventh Avenue, Suite 1040, New York, New York
10001, on , 1999, starting at 10:00 a.m., local time. At the Ensec Special
Meeting, Ensec shareholders will be asked to approve and adopt the Merger
Agreement.
See "The Transaction" and "The Merger Agreement."
If you are an Ensec common shareholder at the close of
business on , 1999 (the "Ensec Record Date"), then you have the right to receive
notice of, and to vote at, the Ensec Special Meeting. On the Ensec Record Date,
there were approximately 6,016,250 shares of Ensec common stock issued and
outstanding and entitled to vote. Each share of Ensec common stock outstanding
on the Ensec Record Date is entitled to one vote. The affirmative vote, in
person or by proxy, of the holders of a majority of the outstanding shares of
Ensec common stock is required to approve and adopt the Merger Agreement. The
Merger Agreement is also subject to approval by the holders of SenTech common
stock as described herein. Your proxy may be revoked by notice of revocation or
a later signed and dated proxy or by attending the Ensec Special Meeting and
voting in person. Attendance at the Ensec Special Meeting will not in itself
constitute the revocation of a proxy. See "The Special Meetings."
As of the Ensec Record Date, Charles N. Finkel, the Chief
Executive Officer and Chairman of the Board of Ensec, beneficially owned
approximately 3,500,000 shares of Ensec, which represented approximately 58% of
the outstanding shares of Ensec common stock as of such date.
SenTech
The special meeting of SenTech's shareholders ("SenTech
Special Meeting") will be held at Gersten, Savage & Kaplowitz, LLP, 101 East
52nd Street, 9th Floor, New York, New York, on , 1999, starting at a.m., local
time. At the SenTech Special Meeting, SenTech shareholders will be asked to
approve and adopt the Merger Agreement. See "The Transaction" and "The Merger
Agreement."
If you are a SenTech shareholder at the close of business on ,
1999 (the "SenTech Record Date"), then you have the right to receive notice of,
and to vote at, the SenTech Special Meeting. On the SenTech Record Date, there
were approximately 1,677,219 shares of SenTech common stock outstanding. Each
share of SenTech common stock outstanding on the SenTech Record Date is entitled
to one vote. The affirmative vote, in person or by proxy, of the holders of at
least a majority of the outstanding shares of SenTech common stock is required
to approve and adopt the Merger Agreement. The Merger Agreement is also subject
to approval by the Ensec shareholder. Your proxy may be revoked by notice of
revocation or a later signed and dated proxy or by attending the SenTech Special
Meeting and voting in person. Attendance at the SenTech Special Meeting will not
in itself constitute the revocation of a proxy. See "The Special Meetings."
2
<PAGE>
THE TRANSACTION
The Merger Agreement is attached as Exhibit 2.1 to this Joint
Proxy Statement/Prospectus. We encourage you to read the Merger Agreement as it
is the legal document that governs this transaction.
What Ensec Shareholders Will Receive in the Transaction
If the transaction is approved, Ensec shareholders will
receive 0.2180149 shares of Global common stock for each share of Ensec common
stock they own. The former holders of Ensec common stock will collectively hold
approximately 62% of the issued and outstanding shares of Global common stock
and, on a diluted basis, the former holders of common stock, options and
warrants of Ensec will own approximately 60% of the equity interests in Global.
See "The Transaction."
What SenTech Shareholders Will Receive in the Transaction
If the transaction is approved, SenTech Shareholders will
receive 0.4965541 shares of Global common stock for each share of SenTech Common
Stock they own. The former holders of SenTech common stock will collectively
hold approximately 38% of the issued and outstanding shares of Global common
stock and, on a diluted basis, the former holders of common stock, options and
warrants of SenTech will own approximately 40% of the equity interests in
Global. See "The Transaction."
You should not send in your stock certificates with your proxy
cards. A letter of transmittal with instructions regarding the exchange of
shares of common stock will be sent to you as soon as practicable following the
closing date.
Relative Exchange Ratios and Consideration
The following table sets forth the market value of the shares
of Global common stock (assuming an equivalent per share value of Global common
stock and Ensec common stock) to be received upon the mergers calculated based
on (i) the last sale price of shares of Ensec common stock of $.125 per share as
reported on the OTCBB on October 28, 1998, the date prior to the date the Merger
Agreement was announced, and (ii) the closing price of shares of Ensec common
stock of $__ per share as reported on the OTCBB on May __, 1999, the most recent
practicable date prior to the mailing of this Joint Proxy Statement/Prospectus,
using the exchange ratios for Ensec of 0.2180149:1 and for SenTech of
0.4965541:1.
MARKET VALUE MARKET VALUE
(CLOSING PRICE (CLOSING PRICE
ON OCTOBER 28, ON MAY 28, 1999)
1998)
Ensec................................. $0.125 $0.1875
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SenTech............................... 0.00 0.00
Total ............................. $0.125 $0.1875
-------
- ------------
These values are shown for illustrative purposes only. Actual
values received will be dependent upon the market value of Global common stock.
There can be no assurance that the values reflected in this table will be
achieved or that the value of Ensec common stock before the mergers will be
indicative of the value of Global common stock after the mergers. See "The
Transaction."
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Amendment of Merger Agreement
The Merger Agreement has been amended once and the amendment
is included in Appendix I hereto. The original Merger Agreement provided for an
exchange ratio of 0.4792299 shares of Global common stock for each share of
SenTech common stock. The amendment to the Merger Agreement was made on December
2, 1998 to make minor adjustments to the SenTech exchange ratio in order to
address calculation errors in the number of shares of SenTech common stock that
were outstanding. Such amendment did not change the Ensec exchange ratio or
change the total number of shares that had been approved for issuance by Global.
Recommendation of Ensec and SenTech Boards of Directors
The Ensec Board of Directors, by unanimous vote, has
determined that the terms and provisions of the Merger Agreement are fair to,
and in the best interests of, Ensec and the holders of Ensec common stock and
recommends that holders of Ensec common stock vote in favor of approval of the
Merger Agreement. See "The Transaction--Recommendation of Ensec Board" and
"--Fairness Opinion of Ensec Financial Advisor."
The SenTech Board of Directors, by unanimous vote, has
determined that the terms and provisions of the Merger Agreement are fair to,
and in the best interests of, SenTech and the holders of SenTech common stock
and recommends that holders of SenTech common stock vote in favor of approval of
the Merger Agreement. See "The Transaction--Recommendation of SenTech Board" and
"--Fairness Opinion of SenTech Financial Advisor."
The combination of Ensec and SenTech will create an integrated
security and surveillance systems company with extensive assets and customers in
the United States and abroad. The Ensec Board and SenTech Board believe that the
business combination will provide opportunities to achieve substantial benefits
for the respective shareholders of the two companies. The Boards further believe
that the combined entities will be better and more quickly able to capitalize on
opportunities in the security and surveillance systems industry, both
domestically and internationally, and be better positioned to compete
effectively in the rapidly changing industry than either of the entities on a
stand-alone basis. For a more complete discussion of Ensec's and SenTech's
reasons for the Transaction, see "The Transaction--Reasons for the Transaction."
Opinion of Financial Advisor to Ensec
Emerson Bennett & Associates has delivered its written opinion
to the Ensec Board to the effect that, from a financial point of view, the
relative exchange ratios and the consideration to be received by the Ensec
shareholders in the Ensec Merger are fair to the shareholders of Ensec. A copy
of the opinion, is attached as Appendix II to this Joint Proxy
Statement/Prospectus. Holders of Ensec common stock are urged to read such
opinion in its entirety. See "The Transaction--Fairness Opinion of Ensec
Financial Advisor."
Opinion of Financial Advisor to SenTech
Willamette Management Associates has delivered its written
opinion to the SenTech Board to the effect that, from a financial point of view,
the relative exchange ratios and the consideration to be received by the SenTech
shareholders in the SenTech Merger are fair to the shareholders of Ensec. A copy
of the opinion, is attached as Appendix III to this Joint Proxy
Statement/Prospectus. Holders of SenTech common stock are urged to read such
opinion in its entirety. See "The Transaction--Fairness Opinion of SenTech
Financial Advisor."
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Board of Directors And Management of Global
It is expected that, following the consummation of the
Transaction, the Board of Directors of Global (the "Global Board") will consist
of Edward A. Mulhare, Chairman, Charles N. Finkel, Theodore Olson Pemberton,
Milan Resanovich, and Thomas A. Nicolette.
Following the consummation of the Transaction, Mr. Finkel will
be Chief Executive Officer of Global, Mr. Nicollette will be Chief Financial
Officer and Secretary of Global.
Global has entered into a new employment agreement with
Charles Finkel. See "The Transaction--Interests of Certain Persons in the
Transaction--Employment Agreement."
Accounting Treatment
We expect that the mergers will be accounted for using the
purchase method of accounting. The purchase method of accounting allocates the
consideration paid by Ensec to the assets and liabilities of SenTech. See "The
Transaction--Accounting Treatment." The unaudited pro forma consolidated
condensed financial information contained in this Joint Proxy
Statement/Prospectus has been prepared using the purchase accounting method to
account for the acquuisition. See "Unaudited Pro Forma Consolidated Condensed
Financial Statements."
Termination of the Merger Agreement
The Merger Agreement may be terminated prior to the Closing
Date under certain circumstances. See "The Merger Agreement--Termination" and
"--Effect of Termination."
Certain United States Federal Income Tax Consequences
The transaction has been structured to qualify as a nontaxable
transaction under federal income tax laws. Ensec has received an opinion from
Atlas, Pearlman, Trop & Borkson, P.A., counsel to Ensec, that no gain or loss
will be recognized by Ensec or Ensec common shareholders in connection with the
mergers. SenTech has received an opinion from Gersten, Savage & Kaplowitz, LLP,
counsel to SenTech, that no gain or loss will be recognized by SenTech or
SenTech common shareholders in connection with the mergers. See "The
Transaction--Certain United States Federal Income Tax Consequences of the
Mergers."
Appraisal Rights
If you do not desire to participate in the merger and not
received Global common stock, you are entitled to exercise appraisal rights. See
"The Transaction--Appraisal Rights."
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MARKET PRICE INFORMATION
Ensec common stock is listed on the OTCBB under the trading
symbol "ENSC" On October 28, 1998, the last full trading day prior to the public
announcement of the proposed business combination, the closing price of Ensec
common stock on the OTCBB was $.125 per share. On May __, 1999, the most recent
practicable date prior to the mailing of this Joint Proxy Statement/Prospectus,
the closing price of Ensec common stock on the OTCBB was $__ per share. You are
urged to obtain current market quotations of the Ensec common stock prior to
making any decision with respect to the Mergers. There has previously been no
trading activity for the shares of SenTech common stock. See "Comparative Per
Share Market Price and Dividend Information."
LISTING OF GLOBAL COMMON STOCK
We intend to apply for listing of the Global common stock and
common stock purchase warrants on the Nasdaq Small Cap Market and anticipate
that its shares and warrants will trade on the Nasdaq, under the symbols "____"
and "____", respectively. There has previously been no public market for the
shares of Global common stock. See "The Transaction--Nasdaq Listing."
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RISK FACTORS
This section describes certain risk factors that you should
considered in evaluating whether to vote in favor of the business combination.
Ensec and SenTech shareholders will receive shares of our common stock based on
a fixed ratio.
The exchange ratios are expressed as fixed ratios in the
Merger Agreement. The Merger Agreement does not contain any provisions for
adjustment of the exchange ratios based upon fluctuations in the market price of
Ensec common stock or SenTech common stock. Accordingly, the value of the stock
consideration you will receive upon the consummation of the business combination
is not presently ascertainable and will depend upon the market price of our
common stock, which in turn will be affected by, among other factors, the market
price of Ensec common stock and SenTech common stock immediately prior to the
Closing and the value of the businesses of Ensec and SenTech. The exchange
ratios were initially determined on October 28, 1998, which is also the date
prior to the date the proposed business combination was announced. On October
28, 1998, the most recent day in which trading occurred in Ensec common stock
prior to the date the transaction was announced on October 29, 1998, the last
sale price of Ensec common stock on the OTCBB was $0.03 per share. The exchange
ratios were recalculated on December 2, 1998 to reflect corrections in the
number of outstanding shares of SenTech common stock. From October 29, 1998
until December 2, 1998, the date prior to the date the exchange ratios were
recalculated, the highest and lowest sale prices of Ensec common stock were
$.425 per share and $.03 per share, respectively. On December 2, 1998, the
closing price was $.40 per share. From December 2, 1998, through May 28, 1999,
the highest and lowest sale prices of Ensec common stock were $.45 per share and
$.18 per share, respectively, and the closing price on May __, 1999, the most
recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, was $__ per share. These variations may result from
changes in the business, operations or prospects of Ensec and SenTech, market
assessment of the business combination, general economic conditions or other
factors. The Ensec common stock is the only publicly traded security of the
parties to the business combination with any trading activity. As the market
value of the shares of Ensec common stock increases or decreases, the market
value (and not the number of such shares of stock) will also increase or
decrease (assuming an equivalent per share value of our common stock and Ensec
common stock). We urge you to obtain current market quotations prior to making
any decision with respect to the mergers. There has previously been no public
market for the shares of our common stock and/or no trading activity for the
shares of SenTech common stock.
Our ability to manage rapid expansion and the integration of the businesses of
SenTech and Ensec has not been tested and may not be successful.
Ensec and SenTech each have experienced a recent period of
growth and expansion that has placed, and if sustained would continue to place,
a significant strain on their respective administrative, operational and
financial resources. This growth has resulted in an increase in the level of
responsibility for management personnel. The proposed business combination is
intended in part to help fuel additional growth and expansion, which, after the
mergers, could add additional strain on our resources and increase demands on
our systems and controls. Our ability to manage our growth successfully will
require us to enhance our operational, management, financial and information
systems and controls and to hire and retain qualified sales, marketing,
administrative, operating and technical personnel. We may not be successful in
managing such growth which could have a material adverse effect on our business.
The proposed business combination involves the integration of
two companies, which will impose many risks on us, including risks associated
with assimilating the operations, services, products and personnel of the two
companies. We can not be sure that we will not encounter significant
difficulties in integrating the respective operations of Ensec and SenTech or
that the benefits and revenue growth expected
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from such integration will be realized. The achievement of the benefits and
revenue growth expected from such integration will require us to, among other
things, access significant amounts of growth capital, to expand rapidly our
sales force and customer service department, to introduce new products as they
become available and to incur significant costs in connection with the
integration of Ensec's and SenTech's operations, financial reporting and
accounting systems, as well as other costs relating to transitional planning and
implementation. The incurrence of any such costs, as well as any unexpected
costs or delays in connection with such integration, could have a material
adverse effect on our financial condition, results of operations and cash flow.
The growth of our company will require substantial capital.
Following the merger, funding our growth will require
substantial capital and operating funds. We currently estimate that our
aggregate capital expenditure requirements will total approximately $9,000,000.
The actual amount and timing of our future capital requirements may differ
materially from our estimates, depending on the demand for our services and as a
result of regulatory, technological and competitive developments, including new
market developments and new opportunities, in our industry. We may also require
additional capital in the future, or sooner than currently anticipated, for new
business activities related to our current and planned businesses or in the
event that we decide to make additional acquisitions or enter into joint
ventures and strategic alliances. Sources of additional capital may include cash
flow from operations and public and private equity and debt financings. We can
not be sure that we will be successful in producing sufficient cash flow or
raising sufficient debt or capital to meet our strategic objectives or that such
funds, if available, will be available on a timely basis on terms that are
acceptable to us. Our failure to generate or raise sufficient funds, may require
us to delay or abandon some or all of our future expansion plans or
expenditures, which could materially adversely effect our financial condition,
results of operations and cash flow.
The merger between Ensec and SenTech may not be completed if all of the closing
conditions are not met.
Consummation of the merger is subject to certain closing conditions,
including the approval of the respective mergers by the shareholders of Ensec
and SenTech. The failure to satisfy such conditions would permit the parties to
refuse to consummate the merger. Therefore, we can not be sure that the business
combination will be completed.
We could lose revenue or incur significant costs if our computer systems, or the
computer systems of our material third party vendors are not year 2000
compliant.
Ensec and SenTech each utilizes a significant number of
computer software programs and operating systems in its operations, including
applications used in product development, financial business systems, and
various administrative functions. To the extent that their software applications
contain source code that is unable to appropriately interpret the upcoming
calendar year "2000," some level of modification or even possibly replacement of
such applications will be necessary. Ensec and SenTech are each currently in the
process of completing its identification of applications that are not "Year
2000" compliant. Given information known at this time about their systems having
such issues, coupled with their on-going, normal course-of-business efforts to
upgrade or replace business critical systems, as necessary, we do not currently
anticipate that these "Year 2000" costs will have any material adverse impact on
our financial condition or our results of operations or cash flow after the
merger. To the extent that either our systems or the systems of the entities
with which we contract are not fully Year 2000 compliant, potential systems
interruptions or the cost necessary to update software by Ensec and SenTech or
one of their major vendors or customers could materially adversely effect our
financial condition, results of operations and cash flow.
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We have an accumulated deficit, a working capital deficit and anticipate
continuing losses.
For the three months ended March 31, 1999 and the year ended December
31, 1998, we experienced, on a pro forma basis, a net loss of $182,910 and
$116,318 respectively. For the three months ended March 31, 1999 and the year
ending December 31, 1998, Ensec had a net loss of $160,248 and, $248,379,
respectively. For the three months ended March 31, 1999 SenTech had a net loss
of $50,628. For the fiscal year ended December 31, 1998 SenTech had net income
of $14,327. We have an accumulated deficit, on a pro forma basis, as of March
31, 1999 of $15,042,509. We anticipate continued losses for the foreseeable
future. We anticipate significant expenses in the foreseeable future, including
research and development expenses, sales and marketing costs, general
administrative expenses and capitalized costs. We can not be sure that we will
achieve sufficient additional revenues to offset anticipated operating and
acquisition costs of our U.S. operations. Inasmuch as we will continue to have
high levels of operating expenses, we may experience significant operating
losses that could continue until such time, if ever, that we are able to
generate sufficient additional revenues to support our operations. We can not be
sure whether our technology and products will be able to compete successfully in
the marketplace and/or generate significant revenue.
Our capital requirements in connection with our development
and sales and marketing activities will be significant after completion of the
merger. As of March 31, 1999, we had a working capital deficit, on a pro forma
basis, of $1,104,248. Ensec has limited short-term credit facilities established
with Brazilian banks. Neither we nor Ensec nor SenTech currently have a line of
credit or short-term credit financier. We may not be able to obtain additional
financing after the merger on commercially reasonable terms, or at all.
Dependence on Significant Customers and Suppliers
Although the composition of Ensec's largest customers has
changed from year to year, historically Ensec's revenues have been materially
dependent on a limited number of customers. Following the merger, we expect our
customer base to expand at an accelerating rate, however, a limited number of
large orders may continue to account for a significant portion of our sales
during any given period for the foreseeable future. As such, our financial
condition and results of operations may be materially adversely affected by a
delay, reduction or cancellation of orders from one or more of our significant
customers or the loss of one or more of such customers.
Although Ensec currently relies on a limited number of
suppliers of components and other parts for its security systems, we believe
that failure or delay by these suppliers in fulfilling our anticipated needs
after the merger would not materially adversely affect our ability to deliver
and market our products and services. We believe that there are alternative
sources of supply available for us to purchase necessary supplies and that we
would be able to obtain alternative contractual agreements with the suppliers of
such materials in a timely fashion.
Our sales cycle is typically lengthy and involves risks beyond our control.
The sale of Ensec's high-end integrated security systems has
historically involved 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 Ensec's products is typically lengthy
and subject to a number of significant risks, including customers'
9
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budgetary constraints and internal acceptance reviews, that are beyond Ensec'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, our operating results for that quarter could
be materially adversely affected.
Rapid changes in the development of new technologies may cause our products and
technology to be rendered obsolete or less marketable than other products
available in the marketplace.
The markets for Ensec's and SenTech'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 which may be functionally similar, or superior, to some
or all of those offered by Ensec and SenTech. As a result of all of the above,
our ability after the business combination, to effectively compete will depend
on our ability to adapt, enhance and improve our products and technology and, if
necessary, to develop and introduce new products and technology to the
marketplace in a timely and cost-competitive manner. We can not be sure that we
will be able to compete successfully, that our competitors or future competitors
will not develop technologies or products that will render our products and
technology obsolete or less marketable or that we will be able to successfully
enhance our products or technology or adapt them satisfactorily.
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). We can not be
sure as to when, or whether, new products will be successfully developed. We can
not give any assurance that additional technologies and prototypes can be
developed within a reasonable development schedule, if at all. We can not be
sure that we would have sufficient economic or human resources to complete such
development in a timely manner, or at all, or that we could enter into
economically reasonable arrangements for the completion of such products by
third parties.
Following the completion of additional products, we must
successfully complete a testing program for the products before they can be
marketed. Although we believe that our testing program is highly sophisticated,
unforeseen technical problems arising out of such testing could significantly
and adversely affect our ability to manufacture and market a commercially
acceptable version. Our success will depend upon our current and proposed
technologies and products meeting acceptable cost and performance criteria in
the marketplace. We can not be sure that 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.
We may not be able to protect our intellectual property.
Ensec and SenTech rely on a combination of patent, trade
secret, copyright and trademark laws, together with non-disclosure agreements,
to establish and protect their proprietary rights. These measures afford limited
protection, and there can be no assurance that the steps taken after the
business combination by us to protect these proprietary rights will be adequate
to prevent misappropriation of our technology or the independent development by
others of similar technology. In addition, the laws of Brazil, where Ensec
maintains its patents and copyrights, and has pending patent applications, do
not protect Ensec's proprietary rights to the same extent as do the laws of the
U.S. After the business combination, we intend to seek copyright protection
under U.S. law with respect to some of the existing technology. While we believe
that it would be impractical and not cost-effective for anyone to attempt to
copy complex software and controlling hardware, unauthorized parties,
nevertheless, might attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Our cost of enforcement of our
information rights could be significant, regardless of the outcome of such
enforcement proceedings.
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After the business combination, we intend to rely to a large
extent on non patented proprietary information and technological know-how. We
can not be sure that others will not develop such information and know-how
independently or otherwise gain access to our technology. Also, it is not
certain that our proprietary technology will not infringe patents or other
rights owned by others. In the event that patent infringement claims are brought
against us, we may be forced to obtain a license for such technology, and there
can be no assurance that it will be successful in obtaining such licenses. In
the event that we contest an infringement claim, we may divert our resources
from other purposes.
We may not be able to compete effectively in our industry.
In the security systems industry, Ensec's products compete in
Brazil with those of numerous well established companies, such as Sensormatic,
CasiRusco, 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
greater financial, technical, personnel and other resources than us 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, sales of many of Ensec's products are anticipated
to be through the competitive bid process. We can not be sure that Ensec will be
awarded contracts or purchase orders as a result of such bid process.
In the United States, SenTech competes in the electronic
article surveillance industry, with several companies including Sensormatic
Electronics Corporation, Checkpoint Systems, Inc. and Sentry Technology
Corporation. Many of these companies are larger and better known and have
significantly greater financial, technological, manufacturing and marketing
resources than we have. Although we believe SenTech has strived to compete
effectively in the past by offering innovative products and competitive prices,
no assurance can be given that we will be capable of effectively competing
successfully in the future, or that we will be successful in maintaining or
expanding our share of the market for these products. We can not be sure that
the products or technologies that may be developed or introduced by competitors
will not render our products less competitive or obsolete.
We depend upon our President and Chief Executive Officer and his loss or
unavailability could put us at a competitive disatvantage.
After the business combination, we will depend upon the
efforts and abilities of Charles N. Finkel, our President and Chief Executive
Officer. The loss or unavailability of the services of Mr. Finkel could have a
material adverse affect on our business. We have entered into an employment
agreement with Mr. Finkel, which includes non-competition provisions. Our
success is also dependent upon our ability to hire and retain additional
management, technical and marketing personnel. We can not be sure that we will
retain such personnel or that we will successfully attract and retain qualified
management, technical and marketing personnel in the future.
We may be liable for losses caused by errors or defects in our products.
Ensec's and SenTech's products contain software that may
contain software errors or defects, especially when it is first introduced or
when new versions or enhancements are released. Although to date such defects
and errors have not materially adversely affected Ensec's and SenTech's
operating results, we can not be sure that despite testing, defects and errors
will not be found in new products or in new versions or enhancements of existing
products. The discovery could result in adverse customer reaction, negative
publicity regarding our Company and/or our products or delay in or failure to
achieve market acceptance, any of which could materially adversely effect upon
our business, operating results and financial condition.
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Our resources may not be sufficient to manage our expected growth.
We anticipate a period of rapid growth which we expect to
place a strain on our administrative, financial and operational resources. Our
ability to manage any staff and facilities growth effectively will require us to
continue to improve our operational, financial and management controls,
reporting systems and procedures, to install new management information and
control systems and to train, motivate and manage our employees. However, we can
not be sure that we will install such management information and control systems
in an efficient and timely manner or that the new systems will be adequate to
support our future operations. Because of the complexity of our products, Ensec
and SenTech have previously experienced and expect 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 our
post-sales implementation process and, in many cases, its maintenance and
service capabilities. If we are unable to hire, train and retain qualified
systems engineers and consultants to implement these services or are unable to
manage the post-sales process effectively, our ability to attract repeat sales
or provide references could be materially adversely affected, thereby limiting
our growth opportunities. If we are unable to manage growth effectively, such as
if our sales and marketing efforts exceed our capacity to install, maintain and
service our products or if new employees are unable to achieve performance
levels, our business, operating results and financial condition could be
materially adversely affected.
Our expected sales and marketing expansion will require significant personnel
and financial resources.
We intend to develop a direct sales and marketing sales force
in the U.S. and expand our operations into additional international markets
which will require significant management attention and financial resources. We
can not be sure that our 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 our U.S. operations is
dependent upon our 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. We anticipate that some of these personal requirements will be resolved
through the business combination. 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 more difficult to enforce outside of
the U.S. In the event that we are successful in expanding its international
operations, the imposition of exchange or price controls or other restrictions
on foreign currencies could materially affect our business, operating results
and financial condition.
Our president will retain substantial influence over our business affairs
following the business combination.
Upon completion of the business combination, our president
will beneficially own approximately 34.2% of the outstanding shares of our
common stock (without giving effect to the possible exercise of any outstanding
options or warrants) which, among other things, will allow Mr. Finkel
significant influence over the direction of our company. Mr. Finkel's
concentration of ownership could limit the price that certain investors might be
willing to pay in the future for shares of our 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 our company.
Legal Proceedings
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Ensec and SenTech are involved in various claims and legal
actions arising in the ordinary course of business. Although we are unable to
predict the ultimate disposition of these matters, we do not believe the
resolution of such matters would have a material adverse effect on Global's
consolidated financial position, results of operations, or cash flows.
As of March 31, 1999, Ensec had thirteen outstanding labor
claims, all originating in Brazil in the aggregate amount of $1,300,000. Ensec
has accrued $200,000 to cover future losses from such claims and although there
can be no assurance as to the outcome of such claims, we believe the ultimate
resolution of these claims will not materially adversely affect Ensec.
The Brazilian Postal Service (ETC) has a claim for $300,000
against Ensec's subsidiary in Brazil. This claim is related to non
nationalization of certain material contents. We intend to vigorously defend
this suit.
Political, economic and social conditions in Brazil may affect our revenues.
A significant amount of our business will continue to be based
in Brazil for the foreseeable future. The Brazilian market in which Ensec
currently operates has been characterized by volatile and frequently unfavorable
economic, political and social conditions. High inflation and, with it, high
interest rates are common. Although inflation has declined in Brazil, it
nonetheless continues to be high. Brazil has also experienced significant
currency fluctuations.
Inflation would adversely impact Ensec'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
Ensec 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 we expect 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.
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 us
and our 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 us and our 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
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.
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We are 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 us. In addition, although
the inflation rate in Brazil has declined significantly since the adoption of
the Real Plan, there can be no assurance that our operations in Brazil will not
be adversely affected by renewed hyperinflation.
In view of the foregoing, our 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 Ensec 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
materially adversely affect our operations, financial condition or liquidity.
Currency fluctuations may adversely affect our revenues.
Because the majority of our historical cash flow from
operations on a pro forma basis is generated in the currency of Brazil, the
real, our company, after the business combination, will be 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 and 1.04 reals per U.S. dollar at December 31, 1997,
1996 and 1995, respectively. Such fluctuations have generally not materially
adversely affected the profitability of Ensec, 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, could adversely affect sales as well as income to us and our
stockholders. Because our financial statements will be 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 us by Ensec, S.A.,
Ensec's Brazilian subsidiary, the payments are converted from reals 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 Global and ultimately to our
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. We
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 our results of
operations. Ensec has engaged in currency hedging transactions on a limited
basis and we may in the future may undertake currency hedging to reduce currency
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 our results of operations.
We have not, and do not intend to pay cash dividends in the foreseeable future.
Payment of dividends on our common stock is within the
discretion of our Board of Directors and will depend upon our earnings, its
capital requirements and financial condition, and other relevant factors. We do
not currently intend to declare any dividends on our common stock in the
foreseeable future.
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As a holding company, our ability to pay operating expenses,
debt obligations and dividends materially depends upon receipt of sufficient
funds from our subsidiaries. Brazil does not currently restrict the remittance
of dividends paid by Ensec, S.A. to us, 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 Global. 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.
We may not be able to use our tax loss carryforwards.
At March 31, 1999, Ensec had available unused net operating
loss carryforwards ("NOLs') aggregating approximately $10,711,000 to offset
future taxable income under U.S. tax laws. Under Section 382 of the federal
income tax laws , utilization of prior NOLs is limited after an ownership
change, 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 consummation of the business combination, we may be
subject to limitations on the use of our NOLs. Accordingly, we can not be sure
that a significant amount of our existing NOLs will be available to us following
the business combination. In the event that we become profitable, which we can
not be sure of, such limitation would have the effect of increasing our tax
liability and reducing our net income and available cash resources in the
future.
The liability of the members of our board of directors is limited pursuant to
Delaware law and our certificate of incorporation.
Pursuant to Delaware law and our Certificate of Incorporation,
our directors are not liable for monetary damages for breach of fiduciary duty,
except in connection with the following: (i) a breach of duty of loyalty, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) dividend payment or stock repurchases illegal
under Delaware law or (iv) any transaction from which a director has derived an
improper personal benefit. In addition, our by-laws require us to indemnify our
officers, directors, and employees under certain circumstances, including those
under which indemnification would otherwise be discretionary, and to advance
expenses in proceedings in which they could be indemnified.
Our Board of Directors may issue preferred stock which could adversely affect
your rights.
Our Certificate of Incorporation allows us to issue up to
1,000,000 shares of "blank check" preferred stock, par value $.001 with such
designations, rights and preferences as may be determined from time to time by
our Board of Directors. Accordingly, our Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of your common stock. In the event
of issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying or preventing a change in control of our
company. Although we do not have any present intent to issue any shares of
preferred stock, we can not be sure that we will not do so in the future.
The issuance of our common stock upon the exercise of warrants and options and
the issuance of additional common stock and options may have a depressive effect
on the market price of our common stock.
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Immediately after the closing of the merger, we will have an
aggregate of 17,625,000 shares of common stock authorized but unissued and not
reserved for specific purposes and an additional 230,537 shares of common stock
unissued but reserved for issuance pursuant to outstanding options and warrants.
All of such shares may be issued without any action or approval of our
stockholders. Although there are no present plans, agreements, commitments or
undertakings with respect to the issuance of additional shares or securities
convertible into any such shares by us, any shares issued would further dilute
the percentage ownership of us held by the public stockholders.
The exercise of warrants or options 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 our
securities.Moreover, the terms upon which we will be able to obtain additional
equity capital may be adversely affected since the holders of outstanding
warrants and options can be expected to exercise them, to the extent they are
able, at a time when we would, in all likelihood, be able to obtain any needed
capital on terms more favorable to us than those provided in the warrants and
options.
No liquid trading market for your common stock.
Our common stock currently has no trading market and we cannot
be certain that a regular public trading for our common stock will develop, or
if developed, be sustained. As a result, you may not be able to resell any
shares of our common stock that you receive as a result of the merger between
the two companies.
Potential effects of failure to list common stock on the Nasdaq SmallCap Market
("Nasdaq") and penny stock regulations.
In the event that we are unable in the future to satify the
Nasdaq listing requirements, trading would be conducted in the pink sheets or on
the OTC Bulletin Board. In the absence of the common stock being quoted on
Nasdaq, trading of the common stock would be covered by Rule 15g-9 promulgated
under the Securities Exchange Act of 1934 for non-Nasdaq and non-exchange listed
securities. Under this rule, broker-dealers that recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to a sale. Securities are
exempt from this rule if the market price is at least $5.00 per share. If the
common stock were subject to the regulations applicable to penny stocks, the
market liquidity for the securities would likely be reduced by limiting the
ability of the broker-dealers to sell the securities and the ability of
stockholders to sell their securities in the marketplace. There is no assurance
that trading in our common stock will not be subject to these or other
regulations that would adversely affect the market price for such securities.
The price of our common stock may fluctuate which may affect the value of your
shares.
From time to time, there may be significant volatility in the
market price of our common stock. Our quarterly operating results, changes in
earnings estimated by analysts, if any, changes in the general conditions of the
economy of financial markets, or other developments affecting our business could
cause the market price of our common stock to fluctuate substantially. In
addition, in recent years the stock market has experienced significant price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
Cautionary Statement Concerning Forward-Looking Statements
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This Joint Proxy Statement/Prospectus contains certain
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995), including, without limitation, the information concerning
possible, assumed or projected future results of operations of our company set
forth under "The Transaction-- Recommendation of Ensec Board," "--Recommendation
of SenTech Board," "--Reasons for the Transaction," "--Fairness Opinion of Ensec
Financial Advisor," "--Fairness Opinion of SenTech Financial Advisor,"
"Unaudited Pro Forma Combined Condensed Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Ensec," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of SenTech," statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "may," "will," "could," "should," or "continue" or the negative
thereof or other variations thereof and other similar expressions and all other
statements that are not historical facts. All forward-looking statements in this
Joint Proxy Statement/Prospectus are based on our current expectations of the
near term results of our company based on certain assumptions and current
information available pertaining to us. All forward-looking statements involve
risks and uncertainties and do not purport to be predictions of future events or
circumstances and actual results could differ materially. You are cautioned that
the factors, in addition to those discussed elsewhere in this Joint Proxy
Statement/Prospectus, discussed under "Risk Factors", could affect the future
results of our company and cause those results to differ materially from those
expressed in such forward-looking statements.
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THE TRANSACTION
General
This Joint Proxy Statement/Prospectus is being furnished to
holders of common stock, par value $.01 per share ("Ensec Common Stock"), of
Ensec International, Inc., a Florida corporation ("Ensec"), and holders of
common stock, $.00024 par value per share ("SenTech Common Stock"), of SenTech
EAS Corporation, a Florida corporation ("SenTech"), in connection with the
solicitation of proxies by the respective Boards of Directors of Ensec and
SenTech for use at their respective special meetings of shareholders, and at any
adjournment or postponement thereof (the "Ensec Special Meeting" and the
"SenTech Special Meeting," respectively, and, collectively, the "Special
Meetings"), called to consider and vote upon (i) a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of October 28, 1998, as amended
December 2, 1998 (the "Merger Agreement"), among Ensec, SenTech and Global
International Inc., a Delaware corporation ("Global"), Ensec Acquisition Corp.,
a Florida corporation ("E- Sub") and SenTech Acquisition Corp., a Florida
corporation ("S-Sub"). The combination of the businesses of Ensec and SenTech
contemplated by the Merger Agreement is referred to herein as the "Transaction."
The Merger Agreement provides, among other things, for (a) the
merger of E-Sub with and into Ensec (the "Ensec Merger"), with Ensec surviving
the Ensec Merger as a wholly owned subsidiary of Global and (b) the merger of
S-Sub with and into SenTech (the "SenTech Merger" and, together with the Ensec
Merger, the "Mergers"), with SenTech surviving the SenTech Merger, the shares of
Ensec Common Stock and the shares of SenTech Common Stock will be converted into
shares of Global Common Stock, and the holders of such shares will become
shareholders of Global, on the terms described in the Merger Agreement. The
Mergers are expected to become effective after the receipt of the shareholder
approvals (the time at which the Ensec Merger becomes effective being called the
"Ensec Merger Effective Time," the time at which the SenTech Merger becomes
effective being called the "SenTech Merger Effective Time" and each being called
an "Effective Time"). Holders of Ensec Common Stock and SenTech Common Stock
will be entitled to appraisal rights.
Upon the Ensec Merger Effective Time and the SenTech Merger
Effective Time, respectively, the holders of Ensec Common Stock and the holders
of SenTech Common Stock will become shareholders of Global, with each
outstanding share of Ensec Common Stock being converted into 0.2180149 shares of
Global Common Stock and each outstanding share of SenTech Common Stock being
converted into 0.4965541 shares of Global Common Stock. As a result of the
Mergers, the former holders of Ensec Common Stock will hold 62% of the equity
interests in Global, and the former holders of SenTech Common Stock will hold
approximately 38% of the equity interests in Global.
Prior to the date on which the Mergers are consummated (the
"Closing Date"), Global shall use its best efforts to obtain the approval for
listing on the Nasdaq SmallCap Market ("Nasdaq"), subject to official notice of
issuance, of the Global Common Stock registered under the Registration
Statement. It is not a condition to the closing of the Transaction that such
approval be obtained.
Recommendation of Ensec Board
THE ENSEC BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, ENSEC
AND THE HOLDERS OF ENSEC COMMON STOCK AND RECOMMENDS THAT HOLDERS OF ENSEC
COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
In reaching its determination to approve the Merger Agreement
and the transactions contemplated thereby, the Ensec Board consulted with Ensec
management and financial and legal advisors
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and considered the proposed terms of the Merger Agreement and the related
agreements. In reaching its conclusions, the Ensec Board also considered the
strategic advantages of the Transaction described below under "--Reasons for the
Transaction," as well as, among other things the following: (i) information
concerning the financial performance and condition, business operations, capital
levels, asset quality and prospects of SenTech and the projected future
financial performance of Ensec as a separate entity and of Ensec and SenTech on
a combined basis; (ii) current industry, economic and market conditions and
trends, including the likelihood of continuing consolidation and increasing
competition in SenTech's industry; (iii) the opinion of Emerson Bennett &
Associates described below as to the fairness, from a financial point of view,
to the shareholders of Ensec of the relative exchange ratios (which were
determined through arm's-length negotiations among Ensec and SenTech) and the
consideration to be received by the Ensec shareholders in the Transaction; (iv)
presentations by Ensec management and its financial and legal advisors regarding
SenTech; (v) the risks and benefits of completing the Transaction with the
Exchange Ratios; (vi) the existing cash position of Ensec and the recognition of
the need for capital for Ensec; (vii) expectations for revenue growth of the
combined businesses and expectations for cost savings from termination of
redundant operations; (viii) the synergies among the combined and complementary
management teams; and (ix) the risks associated with the Transaction which,
among other things, included the ability of the two businesses to manage change
and to maintain operations during the merger process, the ability to integrate
the business, the impact upon employees and customers, the need for capital to
achieve the business plan of the combined organizations and competition.
Recommendation of SenTech Board
THE SenTech BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, SenTech
AND THE HOLDERS OF SenTech COMMON STOCK AND RECOMMENDS THAT THE HOLDERS OF
SenTech COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
In reaching its determination to approve the Merger Agreement
and the transactions contemplated thereby, the SenTech Board consulted with
SenTech management and financial and legal advisors and considered the proposed
Merger Agreement and related agreements. In reaching its conclusions, the
SenTech Board also considered the strategic advantages of the Transaction
described below under "--Reasons for the Transaction," as well as, among other
things, the following: (i) the terms of the Merger Agreement and the ability of
the holders of SenTech Common Stock to receive Global Common Stock, which upon
consummation of the Transaction it is anticipated, subject to applicable
securities laws, be publicly traded, in exchange for their SenTech Common Stock;
(ii) its knowledge of the business, operations, properties, assets, financial
condition, operating results and prospects of SenTech and Ensec, including the
synergies between Ensec and SenTech; (iii) current industry, economic and market
conditions; (iv) presentations by SenTech management and its financial and legal
advisors regarding Ensec; (v) the compatibility of the respective business
philosophies of SenTech and Ensec; (vi) the opportunity for the holders of
SenTech Common Stock to participate in a larger, stronger and more competitive
security and surveillance systems company; (vii) the benefits of being able to
access the public capital markets to help grow its business and finance its
operations; (viii) the potential benefit of completing the Transaction with the
Exchange Ratios; and (ix) the risks associated with the Transaction which, among
other things, included the ability of each of the two businesses to manage
change and to maintain operations during the merger process, the ability to
integrate the business, the impact upon customers, the need for capital to
achieve the business plan of the combined organizations, and competition.
Reasons For The Transaction
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The Ensec Board and the SenTech Board believe that the
combination of businesses of Ensec and SenTech will create the platform for
Global to become a leading security and surveillance systems provider in the
United States and abroad. The Ensec Board and the SenTech Board believe that the
Transaction will provide opportunities to achieve substantial benefits for the
respective shareholders of each company by combining their respective assets,
management, personnel and customers. The Boards further believe that the
combined entities will be better and more quickly able to capitalize on
opportunities in the rapidly changing security and surveillance systems
industry, both domestically and internationally, than any of the entities on a
stand-alone basis.
There can be no assurance that any of the potential
advantages, efficiencies or opportunities described herein will be achieved
through the consummation of the Transaction. See "Risk Factors--Cautionary
Statement Concerning Forward-Looking Statements."
The foregoing discussion of the information and factors
considered by the Boards is not intended to be exhaustive, but is intended to
include the material factors considered by each Board. In view of the wide
variety of factors considered by each of the Boards, the directors of each Board
did not find it practical to, and did not, quantify or otherwise assign relative
weight to the specific factors considered and individual directors may have
ascribed different weights to different factors.
Fairness Opinion of Ensec Financial Advisor
The Board of Directors of Ensec has requested Emerson Bennett
& Associates ("Emerson") for its opinion as investment bankers as to whether the
consideration to be received by the shareholders from a financial point of view
is fair to the Ensec shareholders.
In connection with its opinion, Emerson has, among other
things: (i) reviewed certain publicly available financial and other data with
respect to Ensec and SenTech, including the consolidated financial statements
for recent years and interim periods to September 30, 1998, and December 31,
1997, respectively, and certain other relevant financial and operating data
relating to Ensec and SenTech made available to Emerson from published sources
and from the internal records of both Ensec and SenTech; (ii) reviewed the
financial terms and conditions of the Merger Agreement; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, Ensec stock and SenTech stock; (iv) compared Ensec and SenTech from a
financial point of view with certain other companies in the integrated security
systems solutions markets and the institutional electronic article surveillance
market which Emerson deemed to be relevant; (v) considered the financial terms,
to the extent publicly available, of selected recent business combinations of
companies in the integrated security systems solutions market and the
institutional electronic article surveillance market, which Emerson deemed
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Ensec and SenTech certain information of a
business and financial nature regarding Ensec and SenTech, furnished to us by
them, including financial forecasts and related assumptions of Ensec and
SenTech; (vii) made inquiries regarding and discussing the Merger and the Merger
Agreement and other matters related thereto with members of Ensec's counsel;
and, (viii) performed such other analyses and examinations as Emerson deemed
appropriate.
Emerson compared the value of the consideration to be received
by the shareholders of Ensec in the Merger with SenTech to certain financial and
stock market information of two publicly-traded companies engaged in the
electronic article surveillance systems business that Emerson believed were
comparable in certain respects to SenTech. The comparable companies were chosen
as companies that, based on publicly available data, possess general business
and operating characteristics and, though on a larger scale, financial
characteristics representative of companies in the industry. In Emerson's
fairness opinion analysis, the last twelve months revenues would be quantified
and qualified in terms relative to the
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comparable companies.
Emerson did not assume any obligation independently to verify
the foregoing information and relied on its being accurate and complete in all
material respects. With respect to the financial forecasts provided to Emerson
by management of both Ensec and SenTech, Emerson assumed that the forecasts,
including the assumptions regarding synergies, have been reasonably prepared on
bases reflecting the best available estimates and judgments of the management of
Ensec at the time of preparation as to the future financial performance of
Global and that they provide a reasonable basis upon which Emerson can form its
opinion. Emerson also assumed that no material changes have occurred in Ensec's
or SenTech's assets, financial conditions, results of operations, business or
prospects since the respective dates of their last financial statements made
available to Emerson.
The full text of Emerson's written opinion is attached as
Appendix II to this Joint Proxy Statement/Prospectus and is incorporated herein
by reference. Global shareholders should read Emerson's opinion in its entirety
for assumptions made, procedures followed and other matters considered.
As compensation for its services in connection with this
opinion, Ensec has agreed to pay Emerson a fee of $25,000 for rendering its
opinion. This fee, which was determined by Ensec and Emerson, includes (i) a
$10,000 retainer which was paid upon signing of the engagement letter between
Ensec and Emerson, and which is to be credited against the remainder of the fee.
In addition, Ensec has agreed to indemnify Emerson and certain related persons
for certain liabilities that may arise out of its engagement by Ensec and the
rendering of its services.
Fairness Opinion of SenTech Financial Advisor
The SenTech Board has engaged Willamette Management Associates
("Willamette"), a professional financial advisory services firm, to render their
opinion regarding the fairness, from a financial point of view, of the
Transaction to the SenTech shareholders. Its opinion is solely for the
information and assistance of the SenTech Board in connection with its
consideration of the Merger. Its opinion does not constitute a recommendation as
to how any holder of SenTech Common Stock should vote with respect to such
Transaction.
In the course of their due diligence, Willamette reviewed and
analyzed: (i) Merger Agreement dated October 28, 1998; (ii) SenTech's audited
financial statements for the fiscal years ended December 31, 1993 through 1997
and audited financial statements for the nine month periods ended September 30,1
997 and September 30, 1998; (iii) Ensec's audited financial statements for the
fiscal years ended December 31, 1994 through 1997 and audited financial
statements for the six month periods ended June 30, 1997 and June 30, 1998; (iv)
SenTech's Annual Report for the fiscal years ended December 31, 1995 through
1997; (v) SenTech's U.S. Corporation Income Tax Return for the year ended
December 31, 1997; (vi) the Letter of Intent for the proposed public offering,
signed by both Ensec and SenTech; (vii) Ensec's Prospectus, dated September 25,
1996; (viii) SenTech's 1998 and 1999 forecasted balance sheets, statement of
operations, and cash flows; (ix) Global's business plan of the merger between
Ensec and SenTech; (x) list of current SenTech and Ensec common stock
shareholders, preferred stockholders, and warrant and/or option holders; (xi)
reported prices and trading activity of Ensec common stock; (xii) certain
publicly available information and financial data on publicly traded companies
similar to SenTech; and (xiii) conducted additional studies, analyses, and
investigations, as were deemed appropriate.
In the course of their analysis, Willamette considered two
valuation approaches to estimating the fairness of the transaction to holders of
SenTech Common Stock: the market approach and the income approach, specifically
the guideline publicly traded company method under the market approach and the
direct capitalization method under the income approach.
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The guideline publicly traded company method is a market-based
approach that estimates the value of the company, in this case SenTech, by
comparison to similar companies. A group of similar publicly traded "guideline"
companies will be selected and analyzed and market multiples will be calculated
and applied to the financial fundamentals of the company. Financial fundamentals
can include various measures of operating revenue, income, underlying asset
values, or unit volume of production. This method yields a marketable minority
interest conclusion because the value is determined with the reference to the
publicly marketable minority interests of companies which have registered
securities that are traded daily.
In the income approach, specifically the direct capitalization
method, Willamette relied on projections provided by SenTech management to
estimate the appropriate measure of economic income for one period (i.e., one
period future to the valuation date) and divide that measure by an appropriate
investment rate of return. The appropriate investment rate of return is called
the capitalization rate. The measure of economic income is capitalized by a rate
commensurate with the risk of investment and consistent with the measurement of
economic income.
Willamette has assumed and relied upon the accuracy and
completeness of the financial and other information used by them in arriving at
their opinion without independent verification and have further relied upon the
assurances of management that they are not aware of any facts that would make
such information inaccurate or misleading. The fairness opinion is necessarily
based upon market, economic, and other conditions as they exist on, and can be
evaluated as of the date of this letter.
The full text of Willamette's written opinion is attached as
Appendix III to this Joint Proxy Statement/Prospectus and is incorporated herein
by reference. SenTech shareholders should read Willamette's opinion in its
entirety for assumptions made, procedures followed and other matters considered.
As compensation for its services in connection with the
Transaction, SenTech has agreed to pay Williamette a fee of $30,000 for
rendering its opinion. This fee, which was determined by SenTech and Willamette,
includes (i) a $15,000 retainer which was payable upon signing of the engagement
letter between SenTech and Willamette, and which is to be credited against the
remainder of the fee. In addition, Ensec has agreed to indemnify Willamette and
certain related persons for certain liabilities that may arise out of its
engagement by Ensec and the rendering of its services.
Interests of Certain Persons in the Transaction
In considering the respective recommendations of the Ensec
Board and the SenTech Board with respect to the Transaction, the holders of
Ensec Common Stock and the holders of SenTech Common Stock should be aware that
certain members of the management of Ensec and SenTech have interests in the
Transaction that are different from, or in addition to, the interests of the
holders of Ensec Common Stock and the holders of SenTech Common Stock generally.
Employment Agreement
Pursuant to the terms of the Merger Agreement, upon execution
thereof, Global entered into an employment agreement with Charles Finkel, which
becomes effective upon consummation of the Transaction ("Employment Agreement").
The following is a summary of the principal terms of the Employment Agreement.
The Employment Agreement is for an initial term of three
years, subject to the right of either party to terminate such agreement upon 30
days' advance written notice at any time.
Pursuant to their Employment Agreement, Mr. Finkel has agreed
to serve as Chief Executive
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Officer of Global. Mr. Finkel will receive an annual base salary of $150,000,
respectively, subject to increase upon review annually by the Board of Directors
of Global.
The Employment Agreement provides that, at the discretion of
the Global Board, Mr. Finkel may be paid bonus compensation and/or may be
allowed to participate in a management incentive bonus plan should one be
adopted by Global. The Employment Agreement also provides for certain insurance
benefits and provides that Mr. Finkel is eligible to participate in all
retirement and other benefit plans generally available to employees of Global
and any equity or other employee benefit plan of Global that is generally
available to senior executive officers of such company. In addition, the
Employment Agreement provides for certain payments and benefits in the event Mr.
Finkel is terminated without cause or due to death or permanent disability.
The Employment Agreement generally provides that Mr. Finkel
will keep confidential certain non-public information regarding Global and
further provides that, during the period specified therein (generally during the
term of employment and for two years thereafter), the employee will not, subject
to certain exceptions, own, manage, control, or participate in the ownership,
management or control of, or be employed by or otherwise associated with, or
receive compensation from or otherwise engage in, any business in which Global
is engaged during such restricted period, including the provision of local and
long distance SenTech services. The restricted territory under each Employment
Agreement is generally the entire United States but in certain cases is limited
to certain southern states. Each employee further agrees that during the
restricted period he will not (i) solicit or engage the business of any clients
of Global or its affiliates or (ii) solicit any employee of Global or its
affiliates to terminate any relationship that person may have with Global or its
affiliates or engage, employ or compensate any employee of Global or its
affiliates.
Accounting Treatment
Ensec and SenTech expect that the Mergers will be accounted
for using the purchase method of accounting. The purchase method of accounting
allocates the consideration paid by Ensec to the assets and liabilities of
SenTech. The unaudited pro forma consolidated condensed financial information
contained in this Joint Proxy Statement/Prospectus has been prepared using the
purchase accounting method to account for the acquisition of SenTech. See
"Unaudited Pro Forma Consolidated Condensed Financial Statements."
Certain United States Federal Income Tax Consequences of the Mergers
In connection with the preparation of this Joint Proxy
Statement/Prospectus, Atlas, Perlman, Trop and Borkson, P.A. ("Atlas Pearlman")
has delivered to Ensec an opinion, and Gersten, Savage & Kaplowitz, LLP
("Gersten Savage") has delivered to SenTech an opinion, regarding the material
federal income tax consequences of the Transaction. Copies of these opinions are
filed as exhibits to the Registration Statement. The following discussion is a
summary of the opinion of Atlas Pearlman as to the material United States
federal income tax consequences of the Ensec Merger and a summary of the opinion
of Gersten Savage as to the material United States federal income tax
consequences of the SenTech Merger. The following discussion is based on the
Internal Revenue Code of 1986 as amended (the "Code"), the final, proposed and
temporary Treasury regulations promulgated thereunder, administrative rulings
and interpretations, and judicial decisions, in each case as in effect as of the
date hereof. All of the foregoing are subject to change at any time, possibly
with retroactive effect. The discussion set forth below does not address all
aspects of federal income taxation that may be relevant to a shareholder in
light of such shareholder's particular circumstances or to shareholders subject
to special rules under the federal income tax laws, such as
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non-United States persons, financial institutions, tax-exempt organizations,
insurance companies, dealers in securities or shareholders who acquired their
Ensec or SenTech shares pursuant to the exercise of employee stock options or
otherwise as compensation, nor any consequences arising under the laws of any
state, locality or foreign jurisdiction. This discussion assumes that holders of
Ensec Common Stock and holders of SenTech Common Stock hold their respective
shares of stock as capital assets within the meaning of Section 1221 of the
Code.
None of Ensec, SenTech or Global intends to secure a ruling
from the Internal Revenue Service with respect to the tax consequences of the
Transaction. It is a condition to the obligation of Ensec to consummate the
Transaction that Ensec shall have received an updated opinion from Atlas Perlman
as of the Closing Date that no gain or loss will be recognized by Global, Ensec
or E-Sub as a result of the Merger of E-Sub with and into Ensec in the Ensec
Merger and that no gain or loss will be recognized by holders of Ensec Common
Stock as a result of the Ensec Merger. It is a condition to the obligation of
SenTech to consummate the Transaction that SenTech shall have received an
updated opinion from Gersten Savage as of the Closing Date that no gain or loss
will be recognized by Global, SenTech or S-Sub as a result of the Merger of
S-Sub with and into SenTech in the SenTech Merger and that no gain or loss will
be recognized by holders of SenTech Common Stock as a result of the SenTech
Merger. The updated tax opinions from Atlas Pearlman and Gersten Savage as of
the Closing Date will update the tax opinions filed with the Registration
Statement. Receipt of such updated tax opinions are waivable conditions of the
Merger Agreement although such waivers are not anticipated to be granted. The
opinions of Atlas Pearlman and Gersten Savage referred to in this section will
be based on facts existing at the date hereof and at the Closing Date. In
rendering the opinions of counsel referred to in this section, Atlas Pearlman
and Gersten Savage assume the absence of changes in existing facts and will rely
on representations and covenants made by Global, Ensec, SenTech and others.
Tax Implications to Ensec Shareholders, Global, Ensec and
E-Sub. The opinion of Atlas Pearlman states that the material federal income tax
consequences of the Transaction to holders of Ensec Common Stock, Global, Ensec,
and E-Sub are as follows: (i) no gain or loss will be recognized for federal
income tax purposes by holders of Ensec Common Stock as a result of the Ensec
Merger, (ii) the aggregate tax basis of Global Common Stock received as a result
of the Ensec Merger will be the same as the shareholder's aggregate tax basis in
the Ensec Common Stock surrendered in the exchange, (iii) the holding period of
the Global Common Stock held by former holders of Ensec Common Stock as a result
of the exchange will include the period during which such shareholders held the
Ensec Common Stock exchanged, and (iv) no gain or loss will be recognized for
federal income tax purposes by Global, Ensec or E-Sub as a result of the
formation of Global or E-Sub or as a result of the Ensec Merger.
Tax Implications to SenTech Shareholders, Global, SenTech, and
S-Sub. The opinion of Gersten Savage states that the material federal income tax
consequences of the Transaction to holders of SenTech Common Stock, Global,
SenTech, and S-Sub are as follows: (i) no gain or loss will be recognized for
federal income tax purposes by holders of SenTech Common Stock as a result of
the SenTech Merger, (ii) the aggregate tax basis of Global Common Stock received
as a result of the SenTech Merger will be the same as the shareholder's
aggregate tax basis in the SenTech Common Stock surrendered in the exchange,
(iii) the holding period of the Global Common Stock held by former holders of
SenTech Common Stock as a result of the exchange will include the period during
which such shareholder held the SenTech Common Stock exchanged, and (iv) no gain
or loss will be recognized for federal income tax purposes by Global, SenTech or
S-Sub as a result of the formation of Global, or S-Sub or as a research of the
Merger.
Shareholders should consult their own tax advisors as to the
particular tax consequences to them of the transaction, including the
applicability and effect of foreign, state, local and other tax laws and the
effect of any proposed changes in the tax laws.
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Regulatory Approvals
The Transaction is not subject to any state or federal
regulatory approvals.
NASDAQ Listing
Global intends to apply for the listing of Global Common Stock
and Warrants on the Nasdaq SmallCap Market and anticipates that its shares and
warrants will trade on the Nasdaq, upon official notice of issuance, under the
symbols "_______" and "________", respectively. It is not a condition to the
Mergers that the shares of Global Common Stock issuable in the Mergers be
approved for listing on the Nasdaq.
Delisting And Deregistration of Ensec Common Stock And SenTech Common Stock;
Cessation of Periodic Reporting
If the Transaction is consummated, Ensec Common Stock and
SenTech Common Stock will cease to be listed on the OTC Bulletin Board. In such
event, each of Ensec and SenTech intends to apply to the Commission for the
deregistration of such securities under the 1934 Act.
Federal Securities Laws Consequences
All shares of Global Common Stock received by holders of Ensec
Common Stock and holders of SenTech Common Stock in the Mergers will be freely
transferable, except that shares of Global Common Stock received by persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of Ensec and SenTech prior to the Transaction may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act (or Rule 144 in the case of such persons who become
affiliates of Global) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of Ensec, SenTech or Global generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal shareholders of such party. Each affiliate of
Ensec and SenTech has agreed that such person will not offer or sell or
otherwise dispose of any of the shares of Global Common Stock issued to such
person in the Transaction in violation of the Securities Act or the rules and
regulations promulgated thereunder.
Appraisal Rights - General
Section 607.1302 of the FBCA provides for appraisal rights in
the case of a plan of merger or exchange or a sale of all or substantially all
of the corporation's assets where shareholder approval is required. No appraisal
rights are available for a plan of merger or plan of exchange if the shares of
the corporation held by the shareholder are listed on a national securities
exchange or on the Nasdaq National Market or are held of record by not less than
2,000 holders. Accordingly, holders of SenTech Common Stock will be entitled to
appraisal rights in the SenTech Merger, and holders of Ensec Common Stock will
be entitled to appraisal rights in the Ensec Merger.
Set forth below is a summary of the procedures relating to the
exercise of the right to dissent as provided in the FBCA. The summary does not
purport to be complete and is qualified in its entirety by reference to Sections
607.1301, 607.1302, and 607.1320 of the FBCA, copies of which are attached
hereto as Appendix V. FAILURE TO COMPLY WITH ANY OF THE REQUIRED STEPS MAY
RESULT IN TERMINATION OF A SHAREHOLDER'S RIGHT TO DISSENT.
Appraisal Rights - Ensec
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Each Ensec shareholder has a right to dissent which can be
exercised only by complying with the following procedures: (i) with respect to
the proposal to approve the Merger Agreement that is being submitted to a vote
of the Ensec shareholders at the Ensec Special Meeting, the shareholder must
file with Ensec, prior to the Ensec Special Meeting, a written notice of his
intent to demand payment for his shares if the Ensec Merger is effected and
giving the shareholder's address to which notice thereof shall be delivered or
mailed in the event that the Ensec Merger is effected; and (ii) if the Ensec
Merger is effected and the shareholder shall not have voted in favor of the
Merger Agreement, Global shall, within ten days after the Ensec Merger is
effective, deliver or mail to the shareholder written notice that the Ensec
Merger has been effected, and the shareholder may, within twenty days from the
delivery or mailing of the notice, make written demand on Ensec for payment of
the fair value of the shareholder's shares of Ensec Common Stock.
A shareholder who votes in favor of the Merger Agreement will
be deemed to have waived the right to dissent. However, as described above, a
vote against the Merger Agreement alone will not satisfy the requirements of the
FBCA to give written demand notice of intent to payment.
The fair value of the Ensec Common Stock shall be the value
thereof as of the day immediately preceding the Ensec Special Meeting, excluding
any appreciation or depreciation in anticipation of the Ensec Merger. The demand
shall state the number of shares of Ensec Common Stock owned by the shareholder.
Any shareholder failing to make demand within the twenty-day period shall be
bound by the Merger Agreement and the Ensec Merger. Simultaneous with filing the
demand for payment, each holder of certificates formerly representing shares of
Ensec Common Stock so demanding payment shall submit such certificates to Ensec
for notation thereon that such demand has been made. The failure of a holder of
such certificates to do so shall, at the option of Ensec, terminate such
shareholder's rights to dissent, unless a court of competent jurisdiction for
good and sufficient cause shown shall otherwise direct.
Any shareholder who has demanded payment for shares in
accordance with the FBCA shall not thereafter be entitled to vote or exercise
any other rights of a shareholder except the right to receive payment for such
holder's shares of Ensec Common Stock in accordance with the FBCA. The
respective shares of Ensec Common Stock for which payment has been properly
demanded shall not thereafter be considered outstanding for the purposes of any
subsequent vote of Ensec shareholders.
Within 10 days the expiration of the period in which Ensec
shareholders may file their notices of election to dissent, or within 10 days
after the Ensec Special Meeting, whichever is later, Ensec shall deliver or mail
to the dissenting shareholder a written notice which contains an estimate by
Ensec of the fair value of the shares of Ensec Common Stock, together with an
offer to pay the amount of that estimate within 90 days after the date on which
the Ensec Merger was effected or upon receipt of notice within 30 days after
that date from the shareholder that the shareholder agrees to accept that
amount, whichever is later.
If, within 30 days after the date on which Ensec Merger was
affected, the value of the shares of Ensec Common Stock is agreed upon between
the shareholder and Ensec, payment for the shares shall be made within 90 days
after the date on which the Ensec Merger was effected and, in the case of shares
represented by certificates, upon surrender of the share certificates duly
endorsed.
If, within the period of 30 days after the date on which Ensec
made the offer to the dissenting shareholder, the dissenting shareholder and
Global do not so agree, then the shareholder or Global may, within 30 days after
the expiration of such 60 day period, file a petition in any court of competent
jurisdiction in Broward County, Florida asking for a finding and determination
of the fair value of the shareholder's shares of Ensec Common Stock. Ensec and
all Ensec shareholders so notified shall be bound by the final judgment of such
court.
After the hearing on the petition, the court shall determine
the shareholders who have
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complied with the provisions of Section 607.1320 of the FBCA and have become
entitled to the valuation of and payment for their shares and may appoint one or
more appraisers to determine that value. The appraisers shall have such power
and authority as is specified int he order of their appointment.
The court shall by its judgment determine the fair value of
the shares of the shareholders entitled to payment for their shares and shall
direct the payment of that value by Ensec. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
Ensec. The court shall allow the appraisers a reasonable fee as court costs, and
all costs shall be allocated between the parties in the manner that the court
determines to be fair and equitable.
Any Ensec Common Stock held by a Ensec shareholder who
ultimately receives payment for such Ensec Common Stock pursuant to Sections
607.1301, 607.1302 and 607.1320 of the FBCA will not be converted into Global
Common Stock pursuant to the Merger Agreement, and the holder thereof will only
be entitled to such rights as are granted by the FBCA.
Any shareholder who has demanded payment for shares of Ensec
Common Stock in accordance with the FBCA may withdraw such demand at any time
before payment for such holder's shares or before any petition has been filed
pursuant to the FBCA asking for a finding and determination of the fair value of
such shares, but no such demand may be withdrawn after such payment has been
made or, unless Global shall consent thereto, after any such petition has been
filed.
If after the Ensec Merger Effective Time a dissenter loses the
right to receive payment pursuant to the FBCA, then upon the occurrence of such
event, such holder's shares will automatically be converted into Global Common
Stock effective as of the Ensec Merger Effective Time, without prejudice to any
corporate proceedings which may have been taken during the interim period
between the Ensec Merger Effective Time and the occurrence of such event, and
such shareholder will be entitled to receive any dividends or other
distributions made to Global shareholders during such interim period.
Exercise of the right to dissent under the FBCA, if such right
is available, may result in a judicial determination that the "fair value" of a
dissenting shareholder's shares of Ensec Common Stock is higher or lower than
the value of the consideration to be received pursuant to the Merger Agreement.
In general, a dissenting shareholder receiving cash for Ensec
shares pursuant to the exercise of appraisal rights will recognize gain or loss
for federal income tax purposes upon receipt of the payment of the cash. See
"--Certain United States Federal Income Tax Consequences of the Mergers."
Appraisal Rights - SenTech
Each SenTech shareholder has a right to dissent which can be
exercised only by complying with the following procedures: (i) with respect to
the proposal to approve the Merger Agreement that is being submitted to a vote
of the SenTech shareholders at the SenTech Special Meeting, the shareholder must
file with SenTech, prior to the SenTech Special Meeting, a written notice of his
intent to demand payment for his shares if the SenTech Merger is effected and
giving the shareholder's address to which notice thereof shall be delivered or
mailed in the event that the SenTech Merger is effected; and (ii) if the SenTech
Merger is effected and the shareholder shall not have voted in favor of the
Merger Agreement, Global shall, within ten days after the SenTech Merger is
effective, deliver or mail to the shareholder written notice that the SenTech
Merger has been effected, and the shareholder may, within twenty days from the
delivery or mailing of the notice, make written demand on SenTech for payment of
the fair value of the shareholder's shares of SenTech Common Stock.
A shareholder who votes in favor of the Merger Agreement will
be deemed to have waived
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the right to dissent. However, as described above, a vote against the Merger
Agreement alone will not satisfy the requirements of the FBCA to give written
demand notice of intent to payment.
The fair value of the SenTech Common Stock shall be the value
thereof as of the day immediately preceding the SenTech Special Meeting,
excluding any appreciation or depreciation in anticipation of the SenTech
Merger. The demand shall state the number of shares of SenTech Common Stock
owned by the shareholder. Any shareholder failing to make demand within the
twenty-day period shall be bound by the Merger Agreement and the SenTech Merger.
Simultaneous with filing the demand for payment, each holder of certificates
formerly representing shares of SenTech Common Stock so demanding payment shall
submit such certificates to SenTech for notation thereon that such demand has
been made. The failure of a holder of such certificates to do so shall, at the
option of SenTech, terminate such shareholder's rights to dissent, unless a
court of competent jurisdiction for good and sufficient cause shown shall
otherwise direct.
Any shareholder who has demanded payment for shares in
accordance with the FBCA shall not thereafter be entitled to vote or exercise
any other rights of a shareholder except the right to receive payment for such
holder's shares of SenTech Common Stock in accordance with the FBCA. The
respective shares of SenTech Common Stock for which payment has been properly
demanded shall not thereafter be considered outstanding for the purposes of any
subsequent vote of SenTech shareholders.
Within 10 days the expiration of the period in which SenTech
shareholders may file their notices of election to dissent, or within 10 days
after the SenTech Special Meeting, whichever is later, SenTech shall deliver or
mail to the dissenting shareholder a written notice which contains an estimate
by SenTech of the fair value of the shares of SenTech Common Stock, together
with an offer to pay the amount of that estimate within 90 days after the date
on which the SenTech Merger was effected or upon receipt of notice within 30
days after that date from the shareholder that the shareholder agrees to accept
that amount, whichever is later.
If, within 30 days after the date on which SenTech Merger was
affected, the value of the shares of SenTech Common Stock is agreed upon between
the shareholder and SenTech, payment for the shares shall be made within 90 days
after the date on which the SenTech Merger was effected and, in the case of
shares represented by certificates, upon surrender of the share certificates
duly endorsed.
If, within the period of 30 days after the date on which
SenTech and the offer to the dissenting shareholder, the dissenting shareholder
and Global do not so agree, then the shareholder or Global may, within 30 days
after the expiration of such 60 day period, file a petition in any court of
competent jurisdiction in Broward County, Florida asking for a finding and
determination of the fair value of the shareholder's shares of SenTech Common
Stock. SenTech and all SenTech shareholders so notified shall be bound by the
final judgment of such court.
After the hearing on the petition, the court shall determine
the shareholders who have complied with the provisions of Section 607.1320 of
the FBCA and have become entitled to the valuation of and payment for their
shares and may appoint one or more appraisers to determine that value. The
appraisers shall have such power and authority as is specified in the order of
their appointment.
The court shall by its judgment determine the fair value of
the shares of the shareholders entitled to payment for their shares and shall
direct the payment of that value by SenTech. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
SenTech. The court shall allow the appraisers a reasonable fee as court costs,
and all costs shall be allocated between the parties in the manner that the
court determines to be fair and equitable.
Any SenTech Common Stock held by a SenTech shareholder who
ultimately receives
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payment for such SenTech Common Stock pursuant to Sections 607.1301, 607.1302
and 607.1320 of the FBCA will not be converted into Global Common Stock pursuant
to the Merger Agreement, and the holder thereof will only be entitled to such
rights as are granted by the FBCA.
Any shareholder who has demanded payment for shares of SenTech
Common Stock in accordance with the FBCA may withdraw such demand at any time
before payment for such holder's shares or before any petition has been filed
pursuant to the FBCA asking for a finding and determination of the fair value of
such shares, but no such demand may be withdrawn after such payment has been
made or, unless Global shall consent thereto, after any such petition has been
filed.
If after the SenTech Merger Effective Time a dissenter loses
the right to receive payment pursuant to the FBCA, then upon the occurrence of
such event, such holder's shares will automatically be converted into Global
Common Stock effective as of the SenTech Merger Effective Time, without
prejudice to any corporate proceedings which may have been taken during the
interim period between the SenTech Merger Effective Time and the occurrence of
such event, and such shareholder will be entitled to receive any dividends or
other distributions made to Global shareholders during such interim period.
Exercise of the right to dissent under the FBCA, if such right
is available, may result in a judicial determination that the "fair value" of a
dissenting shareholder's shares of SenTech Common Stock is higher or lower than
the value of the consideration to be received pursuant to the Merger Agreement.
In general, a dissenting shareholder receiving cash for
SenTech shares pursuant to the exercise of appraisal rights will recognize gain
or loss for federal income tax purposes upon receipt of the payment of the cash.
See "--Certain United States Federal Income Tax Consequences of the Mergers."
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DIRECTORS AND EXECUTIVE OFFICERS OF GLOBAL
Directors and Officers
It is expected that, following the consummation of the
Transaction, the Board of Directors of Global will consist of Edward A. Mulhare,
Charles N. Finkel, Theodore Olson Pemberton, Milan Resanovich and Thomas A.
Nicolette.
It is expected that, following the consummation of the
Transaction, the Global Board will establish a Compensation Committee ("Global
Compensation Committee") a majority of the members of which will be
"Non-Employee Directors" within the meaning of Rule 16b-3 of the Exchange Act
and "outside directors" within the meaning of Section 162(m) of the Code. The
Global Compensation Committee will be responsible for establishing salaries,
bonuses, and other compensation for Global's executive officers and for
administering the Equity Incentive Plan (including granting options and other
awards and setting the terms thereof pursuant to such plan) and Global's other
executive compensation plans and programs. In the event that at any time any
member of the Global Compensation Committee fails to qualify as a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act, the entire
Global Board will also approve stock option grants and other awards.
It is expected that, following the consummation of the
Transaction, the Global Board will establish an audit committee responsible for
reviewing Global's annual audit and meeting with Sense's independent accountants
to review Global's internal controls and financial management practices.
Directors who are employees of Global or its subsidiaries will
not receive any compensation for service on the Global Board, but will be
reimbursed by Global for expenses incurred in attending meetings of the Global
Board or any committees thereof. In order to more closely align the interests of
directors and shareholders, non-employee directors of Global shall be entitled
to receive an aggregate of twenty thousand ($20,000) dollars per annum, in a
combination of cash and stock in such proportion as is determined by the Board
of Directors, for the services provided to the Company as a Director.
The directors and the senior management team of Global is
expected to be comprised of the following individuals, upon consummation of the
Transaction, many of whom are currently officers and/or directors of Ensec or
SenTech:
NAME AGE POSITION
---- --- --------
Edward A. Mulhare 72 Chairman of the Board
Charles N. Finkel 49 President, CEO and Director
Thomas Nicolette 49 Chief Financial Officer and Director
Milan Resanovich 68 Director
Theodore Olson Pemberton 48 Director
Edward A. Mulhare. Mr. Mulhare has served as Chairman of the
Board of the Company since its inception. Mr. Mulhare has served as the Chairman
of the Board of SenTech since May 1994. From 1982 to 1992, he served as the
Chairman of the Board and Chief Executive Officer of Merrill Lynch Interfunding,
Inc., a wholly-owned subsidiary of Merrill Lynch, engaged in the management of a
$1.6 billion leverage acquisition portfolio. From 1980 to 1982, he served as
Executive Vice President of Republic
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National Bank of New York. For the prior twelve years, he was a Vice President
of Prudential Insurance Company of America where he managed a $4 billion
portfolio of long term commercial loans and was Prudential's specialist for
rebuilding troubled companies. Mr. Mulhare currently serves as a director of
Advance Publishers, L.C., Akers Laboratories, Inc., and Realtec, Inc. Over the
past ten years, Mr. Mulhare has served as a director of fifteen companies
including Aldila Inc., Truck Components, Inc., PanAmerica Diamond Co., McGraw
Industries, Inc. and American Silver Co. Mr. Mulhare received a B.S. in
Accounting from Boston University (1950) and an M.B.A. from Farleigh Dikenson
(1978).
Charles N. Finkel. Mr. Finkel has served as President, Chief
Executive Officer and Director of the Company since its inception. Mr. Finkel
founded Ensec, S.A. in 1983 and has been Chairman of the Board, Chief Executive
Officer, President and a director of Ensec since its inception in April 1996.
Mr. Finkel has 18 years of experience in the security industry commencing with
Engesa, S.A., an armaments company based in Sao Paulo, Brazil, where Mr. Finkel
was director of export sales. 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.
Thomas A. Nicolette. Mr. Nicolette has served as Chief
Financial Officer and Director of the Company since its inception. Mr. Nicolette
has been President, Chief Executive Officer and a director of Sentry Technology
Corporation since January 1997 and of Knogo North America Inc. since its
inception in August 1994. Prior thereto, Mr. Nicolette served in various
capacities at Knogo Corporation where he was Chief Executive Officer from May
1994 to December 1994; President and Chief Operating Officer from 1990 to May
1994; President of the North America Division from 1989 to 1990; Vice President
from 1986 to 1990; and a Director from 1987 to December 1994. Mr. Nicolette is
Vice Chairman of the Board of Trustees of WLIW, the Long Island-based affiliate
of the Public Broadcasting System. Mr. Nicolette received a B.S. from Michigan
State University in 1972.
Theodore Olson Pemberton. Mr. Pemberton has served as a
Director of the Company since April 1999. Mr. Pemberton joined Ensec in July
1998, as Chief Financial Officer of Ensec International and also holding the
position of Finance Administration Director of Ensec S.A. Prior to joining the
Company, Mr. Pemberton was a Business Consultant from February 1997 through July
1998, with JAS Airfreight, an international freight forwarder, where he was
responsible for the reorganization of the administration and financial
departments in Brazil and Mercosul countries. He was also a Business Development
Advisor for Seaco Development International S/A, of Luxembourg - Latin American
Division, a group of international investors interested in real estate, hotels,
and theme parks. From September 1993 through February 1997, Mr. Pemberton was
the CFO for Willett Ltda, a multi-national manufacturer of industrial printers
and labelers. Mr. Pemberton is a graduate of FEAO, Sao Paulo, Brazil majoring in
Economics and is a registered economist in the Brazilian Association of
Professional Economists.
Milan Resanovich. Mr. Resanovich has served as a Director of
the Company since its inception. Mr. Resanovich has served as a Director of
SenTech since October of 1994 and has been a financial consultant since 1992.
From 1986 to 1992, he served as a Senior Vice President, and then President at
Merrill Lynch Interfunding, Inc. At Merrill Lynch Interfunding, Inc. he aided in
the management of a leveraged-buyout investment fund. Prior to such time, Mr.
Resanovich served as a Vice President at Prudential Insurance Company of America
where he was employed in investment management from 1956 to 1986. Mr. Resanovich
serves as a director of Advance Publishers, L.C., SPD Technologies, Inc. and
Lancaster Composites Inc. and has served as a director of more than ten
companies, including IMCO Recycling, a company traded on the New York Stock
Exchange from 1986 through 1995. Mr. Resanovich received a B.A. from Gettysburg
College (1952) and an M.B.A. from the University of Pennsylvania (1956).
Executive Compensation
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For information regarding compensation paid to executive
officers of Ensec and SenTech in 1998, including the individuals named above,
see "Information Regarding Ensec --Executive Compensation" and "Information
Regarding SenTech --Executive Compensation," respectively. The Global Board will
rely on the Global Compensation Committee, a majority of which will be composed
of Non-Employee Directors, to recommend the form and amount of compensation to
be paid to executive officers of Global who do not have an employment agreement
with Global. For information regarding the employment agreement with Charles N.
Finkel, Global's Chief Executive Officer. See "The Transaction--Employment
Agreement."
Ownership of Global
It is anticipated that, after giving effect to the
Transaction, approximately 2,198,122 shares of Global Common Stock will be
issued and outstanding, approximately 176,878 additional shares will be reserved
for issuance upon the exercise of options and warrants to acquire Ensec Common
Stock and SenTech Common Stock assumed by Global.
The following table sets forth information, concerning the
beneficial ownership of Global Common Stock as of April 30, 1999 after giving
effect to the Mergers, by (i) each person or group of persons known to Ensec and
SenTech expected to beneficially own more than five percent (5%) of the
outstanding shares of Global Common Stock, (ii) each person who is (or, upon
consummation of the Mergers, will be) an executive officer, director or director
nominee of Global and (iii) all such executive officers and directors of Global
as a group. The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under the
Exchange Act, which means generally any person who, directly or indirectly, has
or shares voting power or investment power with respect to a security. Shares of
Global Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual or group to acquire such shares within 60 days after
April 30, 1999 are treated as outstanding only when determining the amount and
percentage of Global Common Stock owned by such individual or group. All
information with respect to the beneficial ownership of any principal
shareholder was furnished by such principal shareholder and Global believes
that, except as otherwise noted or pursuant to community property laws, each
shareholder has sole voting and investment power with respect to shares shown.
Number Percentage
------ ----------
Charles N. Finkel 811,240 36.9%
Edward A. Mulhare 141,913 6.5%
Theodore Olson Pemberton -0- -0-
Milan Resanovich 20,351 9.2%
Thomas A. Nicolette 16,641 7.6%
All Officers and Directors as a Group (5 persons) 990,145 45.0%
- ---------------
* Less than 1% of the outstanding shares of the class.
32
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Ensec consummated the initial public offering of its common
stock in September 1996. From September 25, 1996 through May 12, 1998, Ensec's
Common Stock traded on the Nasdaq SmallCap Market under the symbol "ENSC". Since
May 12, 1998, the Ensec Common Stock has been listed on the OTCBB under the
symbol "ENSC." There is currently no public market for the Global Common Stock.
The following table sets forth the high and low per share and
per warrant closing prices for Ensec's securities traded on the Nasdaq SmallCap
Market through May 12, 1998 and on the OTCBB since May 12, 1998 for each quarter
in which such securities were traded since January 1, 1997.
Closing Price
High Low
1997
First Quarter 6.24 4.56
Second Quarter 5.16 1.60
Third Quarter 2.24 0.26
Fourth Quarter 1.40 0.18
1998
First Quarter 1.10 0.20
Second Quarter 0.50 0.08
Third Quarter 0.12 0.02
Fourth Quarter 0.20 0.02
1999
First Quarter 0.28 0.20
These quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not represent actual transactions.
As of April 30, 1999, Ensec's Common Stock was held of record
by approximately 84 persons.
During the calendar quarters indicated above, no dividends or
distributions were declared or made by Ensec, SenTech or Global.
On October 28, 1998, the last full trading day prior to the
public announcement of the proposed Transaction, the closing price of Ensec
Common Stock on the OTCBB was $.125 per share. On June __, 1999, the most recent
practicable date prior to the mailing of this Joint Proxy Statement/Prospectus,
the closing price of Ensec Common Stock on the OTCBB was $___ per share. Holders
of Ensec Common Stock and SenTech Common Stock are urged to obtain current
market quotations prior to making any decision with respect to the Mergers. See
"Summary--Comparative Per Share Information."
33
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table sets forth, for the periods indicated,
selected unaudited consolidated pro forma per share amounts for Global Common
Stock, and the corresponding historical per share data for Ensec Common Stock
and SenTech Common Stock. Income (loss) per share data is computed using diluted
share information. The information presented is based upon, and is qualified in
its entirety by, the Consolidated Financial Statements and the related notes
thereto of Ensec and SenTech starting on page F-1. These data are not
necessarily indicative of the results of the future operations of Global or the
actual results that would have occurred if the Transaction had been consummated
prior to the periods indicated. See "Unaudited Pro Forma Consolidated Condensed
Financial Statements."
<TABLE>
<CAPTION>
Income (loss) Cash
per share Dividends*
-------------- ----------
<S> <C> <C>
The Three Months Ended March 31, 1999
Global Pro Forma Consolidated........................ (0.09) ---
Ensec Historical..................................... (0.03) ---
SenTec Historical.................................... (0.03) ---
The Year Ended December 31, 1998
Global Pro Forma Consolidated........................ (0.05) ---
Ensec Historical..................................... (0.04) ---
SenTech Historical................................... 0.01 ---
</TABLE>
* None of the companies listed above have paid dividends on their common stock
in the past and do not intend to declare any dividends on their common stock
in the foreseeable future.
34
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed
financial statements give effect of the Transaction under the purchase method of
accounting. The unaudited pro forma consolidated condensed financial statements
are based upon the respective historical financial statements of Ensec and
SenTech and should be read in conjunction with such historical financial
statements and the notes thereto, which are included elsewhere in this Joint
Proxy Statement/Prospectus. The unaudited proforma consolidated condensed
balance sheet as of March 31, 1999 combines Ensec's March 31, 1999 balance sheet
with SenTech's March 31, 1999 balance sheet. The unaudited proforma consolidated
condensed statements of operations for the three months ended March 31, 1999
combine Ensec's statements of operations for the three months ended March 31,
1999 with the SenTech statements of operations for the three months ended March
31, 1999. The unaudited pro forma consolidated condensed statement of
operations for the year ended December 31, 1998 combines Ensec's statement of
operations for the year ended December 31, 1998 with the SenTech statement of
operations for the year ended December 31, 1998.
The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Transaction had been
consummated as presented in the accompanying unaudited pro forma combined
financial information, nor is it necessarily indicative of future operating
results or financial position.
35
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31,
1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND THE YEAR ENDED
DECEMBER 31, 1998
36
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Pro-Forma Condensed Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------------
SenTech EAS Ensec
Corporation International, Inc.
ASSETS and Subsidiary and Subsidiaries Pro-Forma
(As Reported) (As Reported) Adjustments
--------------------- --------------------- -------------------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 240,787 $ 10,193 $ -
Accounts receivable, net of allowance for
doubtful accounts 149,266 518,659
Inventories 467,436 348,898
Other current assets 65,639 121,754
--------------------- ---------------------
Total current assets 923,128 999,504
Property, plant, and equipment, net 29,716 1,630,636
Investment in subsidiary - - 41,642 (a)
Other assets 160,857 1,055,098
--------------------- ---------------------
Total assets
$ 1,113,701 $ 3,685,238
===================== =====================
Global Security
Technologies, Inc.
and Subsidiaries
ASSETS Pro-Forma Pro-Forma
Adjustements Consolidated
----------------- ----------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ - $ 250,980
Accounts receivable, net of allowance for
doubtful accounts 667,925
Inventories 816,334
Other current assets (31,000) (c) 156,393
----------------------
Total current assets 1,891,632
Property, plant, and equipment, net (29,716) (c) 1,630,636
Investment in subsidiary (41,642) (c)
Other assets (152,365) (c) 1,063,590
----------------------
Total assets
$ 4,585,858
======================
</TABLE>
See accompanying notes to pro-forma condensed consolidated financial statements
(unaudited).
37
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Pro-Forma Condensed Consolidated Balance Sheet (Unaudited) (Continued)
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------------------------------------------------
SenTech EAS Ensec
Corporation International, Inc.
and Subsidiary and Subsidiaries Pro-Forma
(As Reported) (As Reported) Adjustments
--------------------- --------------------- -------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term loans $ - $ 183,623
Accounts payable 137,905 1,281,000
Accrued liabilities 47,692 678,289
Current maturities of long-term debt - 667,371
--------------------- ---------------------
Total current liabilities 185,597 2,810,283
--------------------- ---------------------
Long-term debt less current maturities 203,000 1,266,186
--------------------- ---------------------
Negative goodwill - -
--------------------- ---------------------
Shareholders' equity/(deficiency)
Common stock 403 60,163 (58,852) (b)
(403) (c)
Additional capital 2,463,182 13,896,108 (2,463,182) (c)
Accumulated deficit (1,738,481) (15,042,509)
Accumulated other comprehensive income - 695,007
--------------------- ---------------------
Total shareholders' equity/(deficiency) 725,104 (391,231)
--------------------- ---------------------
Total liabilities and shareholders' equity/(deficiency) $ 1,113,701 $ 3,685,238
===================== =====================
Global Security
Technologies, Inc.
and Subsidiaries
Pro-Forma Pro-Forma
Adjustments Consolidated
------------------------------------------ ----------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term loans $ 183,623
Accounts payable 1,418,905
Accrued liabilities 725,981
Current maturities of long-term debt 667,371
---------------------
Total current liabilities 2,995,880
---------------------
Long-term debt less current maturities 1,469,186
---------------------
Negative goodwill 470,381 (c) 470,381
---------------------
Shareholders' equity/(deficiency)
Common stock 833 (a) 2,144
Additional capital 40,809 (a) 13,995,769
58,852 (b)
Accumulated deficit 1,738,481 (c) (15,042,509)
Accumulated other comprehensive income 695,007
---------------------
Total shareholders' equity/(deficiency) (349,589)
---------------------
Total liabilities and shareholders' equity/(deficiency) $ 4,585,858
=====================
</TABLE>
See accompanying notes to pro-forma condensed consolidated financial statements
(unaudited).
38
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Pro-Forma Condensed Consolidated Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1999
---------------------------------------------------------------------------
SenTech EAS Ensec
Corporation International, Inc.
and Subsidiary and Subsidiaries Pro-Forma
(As Reported) (As Reported) Adjustments
--------------------- --------------------- -------------------------
<S> <C> <C> <C>
Revenues $ 288,692 $ 580,591 $ - $
Cost of revenues (180,198) (355,581)
--------------------- ---------------------
Gross profit 108,494 225,010
Selling, general, and administrative expenses (158,076) (545,581)
--------------------- ---------------------
Operating loss (49,582) (320,571)
Other income/(expenses)
Commission income - -
Interest income - 8,109
Interest expense (1,046) (128,123)
Tax recovery - -
Other - 280,337
--------------------- ---------------------
Net loss $ (50,628) $ (160,248)
===================== =====================
Loss per common share-basic $ (0.03) $ (0.03)
===================== =====================
Weighted average number of common shares $ 1,677,219 $ 6,016,250
===================== =====================
Global Security
Technologies, Inc.
and Subsidiaries
Pro-Forma
Consolidated
----------------------
<S> <C>
Revenues $ 869,283
Cost of revenues (535,066)
----------------------
Gross profit 334,217
Selling, general, and administrative expenses (676,404)
----------------------
Operating loss (342,187)
Other income/(expenses)
Commission income -
Interest income 8,109
Interest expense (129,169)
Tax recovery -
Other 280,337
---------------------
Net loss $ (182,910)
=====================
Loss per common share-basic $ (0.09)
=====================
Weighted average number of common shares $ 2,144,462
=====================
See accompanying notes to pro-forma condensed consolidated financial statements
(unaudited).
39
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Pro-Forma Condensed Consolidated Statement of Operations (Unaudited)
Year ended December 31, 1998
---------------------------------------------------------------------------
SenTech EAS Ensec
Corporation International, Inc.
and Subsidiary and Subsidiaries Pro-Forma
(As Reported) (As Reported) Adjustments
--------------------- --------------------- -------------------------
<S> <C> <C> <C>
Revenues $ 2,049,856 $ 5,446,879
Cost of revenues (1,227,780) (3,357,968) 2,922 (d)
--------------------- ---------------------
Gross profit 822,076 2,088,911
Selling, general, and administrative expenses (810,967) (3,255,997) 20,736 (d)
94,076 (e)
--------------------- ---------------------
Operating income/(loss) 11,109 (1,167,086)
Other income/(expenses)
Commission income - 1,357,685
Interest income 7,676 25,547
Interest expense (4,458) (905,238)
Tax recovery - 191,390
Other - 249,323
--------------------- ---------------------
Net income/(loss) $ 14,327 $ (248,379)
===================== =====================
Earnings/loss per common share-basic $ 0.01 $ (0.04)
===================== =====================
Weighted average number of common shares 1,661,810 6,007,373
===================== =====================
Global Security
Technologies, Inc.
and Subsidiaries
Pro-Forma
Consolidated
----------------------
<S> <C>
Revenues $ 7,496,735
Cost of revenues (4,582,826)
----------------------
Gross profit 2,913,909
Selling, general, and administrative expenses (3,952,152)
----------------------
Operating income/(loss) (1,038,243)
Other income/(expenses)
Commission income 1,357,685
Interest income 33,223
Interest expense (909,696)
Tax recovery 191,390
Other 249,323
----------------------
Net income/(loss) $ (116,318)
======================
Earnings/loss per common share-basic $ (0.05)
======================
Weighted average number of common shares 2,134,876
======================
</TABLE>
See accompanying notes to pro-forma condensed consolidated financial statements
(unaudited).
40
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Pro-Forma Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Prior to the transaction, SenTech EAS Corporation and Subsidiary
("SenTech"), and Ensec International, Inc. and Subsidiaries ("Ensec")
were unrelated companies which did not transact any common business
during the ordinary course of operations. To effectuate the
acquisition, each share of SenTech's and Ensec's common stock
outstanding immediately prior to the effective date of the acquisition
will be converted into the right to receive one share of common stock
of Global Security Technologies, Inc. ("Global") at the conversion rate
of 0.4965541 and 0.2180149, respectively, resulting in Ensec being the
accounting acquirer. The acquisition of SenTech will be accounted for
under the purchase method of accounting; the total purchase price was
allocated to the tangible and intangible assets and liabilities of
SenTech based upon their respective fair values on March 31, 1999 and
December 31, 1998 determined by various evaluations of fair value.
Therefore, the allocations reflected in the pro-forma condensed
consolidated financial statements may differ from the amounts
ultimately determined. Differences between the amounts included herein
and the final allocations are not expected to have a material effect on
the pro-forma condensed consolidated financial statements.
NOTE 2 - PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
(UNAUDITED)
The five day average closing market price of $0.05 for the common stock
of Ensec surrounding October 28, 1998, the date of the Agreement and
Plan of Merger, was used to value the acquisition. The $470,381 of
negative goodwill at March 31, 1999 represents the excess of the fair
market value of SenTech's net assets over the fair market value of
Global's common stock to be issued to effectuate the acquisition after
reducing to zero SenTech's net property and equipment and long-term
assets. The fair market value of Ensec's common stock was used in lieu
of the fair market value of Global's or SenTech's common stock since
the fair market value of Ensec's common stock was more clearly evident.
The following table summarizes the allocation of the purchase price to
the individual categories of assets and liabilities of SenTech:
FAIR MARKET VALUE
---------------------------
March 31, 1999
---------------------------
Assets $ 900,620
Liabilities (388,597)
---------------------------
$ 512,023
===========================
41
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Pro-Forma Condensed Consolidated Financial Statements
(Unaudited) (Continued)
NOTE 2 - PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS (UNAUDITED)
(CONTINUED)
Adjustments to the pro-forma condensed consolidated balance sheet
(unaudited) were made:
<TABLE>
<S> <C> <C>
(a) To give effect to the issuance of 832,830 shares of Global
common stock to acquire SenTech at March 31, 1999 as follows:
Outstanding common stock of SenTech at March 31, 1999 1,677,219
Conversion factor for conversion to Global common stock 0.4965541
---------------
Global common stock shares to be issued to acquire SenTech 832,830
Five day average closing market price of Ensec's
common stock surrounding October 28, 1998 $ 0.05
---------------
Global's investment in SenTech $ 41,642
===============
(b) To allocate Ensec's par value of common stock to additional
capital giving effect to the change in par value of common
stock from $0.01 to $0.001 as follows:
Outstanding common stock of Ensec at March 31, 1999 6,016,250
Conversion factor for conversion to Global common stock 0.2180149
---------------
Global common stock shares issued to convert Ensec common
stock shares 1,311,633
Global common stock par value $ 0.001
---------------
Global common stock par value related to conversion of
Ensec's common stock shares $ 1,311
Ensec's common stock par value at March 31, 1999 (60,163)
---------------
Allocation of Ensec's par value of common stock to additional
capital $ (58,852)
===============
(c) To eliminate investment in subsidiary against net assets
acquired resulting in negative goodwill after reduction of
SenTech's net property and equipment and long-term assets.
</TABLE>
42
<PAGE>
GLOBAL SECURITY TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Pro-Forma Condensed Consolidated Financial Statements
(Unaudited) (Continued)
NOTE 3 - PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
(UNAUDITED)
Adjustments to the pro-forma condensed consolidated statement of
operations (unaudited) were made:
(d) To reverse year to date depreciation and amortization related
to the net property and equipment and long-term assets which
were reduced to zero in determining the fair market value of
SenTech's net assets.
(e) To record the period to date amortization of negative goodwill
representing the excess of the fair market value of SenTech's
net assets over the fair market value of Global's common stock
to be issued to effectuate the acquisition of SenTech. The
negative goodwill is amortized using the straight line method
over five years.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ENSEC
The following discussion and analysis should be read in conjunction
with the selected historical financial data, financial statements and notes
thereto and the other historical financial information of Ensec contained
elsewhere in this Joint Proxy Statement/Prospectus. Amounts presented herein
have generally been rounded to the nearest hundred thousand dollars and the
related dollar and percentage fluctuations are calculated based on such
rounding.
Overview
Ensec, until recently, 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. Ensec'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, Ensec has installed approximately 400 systems, nearly all of which
have been in Brazil, for large corporations (such as Bosch, EDS, Caterpillar,
IBM and Texaco) and government agencies (such as the Brazilian Bureau of Mint
and Engraving, the Central Bank of Brazil and the NY & NJ Port Authority).
Ensec is a Florida corporation which was formed in April of
1996, as a holding company for Ensec Inc., a Florida corporation ("Ensec Inc."),
and Ensec Engenharia e Sistemas de Seguranca, S.A. ("Ensec, S.A."), a Brazilian
corporation.
While Ensec believes that the security systems market presents
many opportunities for the sale of its EnWork family products in the U.S., it
has experienced tremendous difficulty overcoming the cost of market entry
primarily as a result of insufficient capital required for the sales and
marketing efforts that create customer knowledge, sales opportunities and
product acceptability.
During 1997 in response to changing market conditions in
Brazil, Ensec S.A. expanded its security product lines by becoming a systems
integrator of security products. It is anticipated that these products will
continue to be a significant portion of the total sales. In response to poor
cash flow and the lack of significant backlog of sales in U.S., on February 28,
1998 Ensec elected to close its Boca Raton office, terminate substantially all
of its U.S. employees, cease the manufacturer sale, installation and service of
its EnWork's family of products and elected to license products in the United
States. As of March 16, 1998, Ensec has entered into licensing agreements with
Lockheed Martin and Integrated Security Resources, Inc. As a result of those
changes Ensec expects that revenue will decrease significantly in the U.S. and
consequently Ensec S.A. will represent a majority of the consolidated
operations.
As of the date of termination of the activities of Ensec Inc.,
as mentioned above, liabilities and legal claims against this subsidiary total
approximately $300,000.00, for which Ensec has accruals of $ 260,000.00.
Management is unsure that Ensec will be able to pay those liabilities.
Ensec is actively seeking sources of capital to allow Ensec to
continue its operations in the U.S. and Brazil. Ensec renegotiated and signed a
new letter of intent on August 13, 1998, with the underwriters Donald & Company
Securities Inc., for a merger and other combinations among Ensec International
and SenTech EAS Corp., and a new Public Offering expected to be underwritten by
Donald & Co., during 1999. There is no assurance that this financing will be
completed. Should
44
<PAGE>
Ensec become unable to complete such merger, it would be required to reduce or
eliminate its U.S. operations and would result in additional financial
difficulties in Brazil.
Ensec's business strategy is based on two objectives which
Ensec believes will allow it to better serve each of its geographic markets:
In Brazil, in addition to selling the EnWorks family of
products Ensec also sells a broad range of security products and services such
as, data security, time and attendance and CCTV. These products are being
marketed to the existing customer base, the general market and the Brazilian
market through Ensec S.A.'s established direct sales force and indirect sales
channels. Ensec anticipates that the sale, service and maintenance of the third
party products has and will continue to account for a majority of Ensec's total
sales. Ensec's sales growth from distribution revenue of third party security
products will also increase revenue by obtaining the maintenance contracts
related to such sales. Ensec has experienced a high renewal rate of maintenance
contracts and sales of one particular type of product may in any given quarterly
period account for a significant majority of sales and decreases thereafter.
On May 12, 1998, Ensec was delisted by Nasdaq for failing to
meet the minimum requirements to be on the Nasdaq SmallCap Market and presently,
we are listed on the OTCBB. This delisting by Nasdaq may adversely affect
Ensec's ability to raise additional financing.
Results of Operations
First Quarter 1999 Compared with First Quarter 1998
Sales. Total sales for the three months ended March 31, decreased $ 1.3
million, or 69.6%, to $0.6 million from $1.9 million in the prior year period.
This decrease was largely attributable to the first quarter economic crisis
Brazil suffered, with a 58% devaluation of the currency. This crisis postponed
most investments during this period.
Cost of Goods Sold. Cost of goods sold for the three months ended March
31, 1999 decreased $0.7 million, or 67.5%, to $ 0.5 million from $ 1.1 million
in the prior year's period. The decrease in the cost of goods sold resulted
primarily from the decrease in sales. The resulting gross profit and gross
profit percentage for the three months ended March 31, 1999, were $ 0.2 million
and 38.8%, compared to $0.8 million and 42.7%, respectively for the prior year
period.
Selling, General and Administrative Expenses. Selling general and
administrative expenses for the three months ended March 31, 1999, decreased $
0.3 million or 33.7%, to $ 0.5 million from $ 0.8 million in the prior year
period. As a percentage of Net Sales, SGA expenses in the first quarter of 1999
represented 94% of net sales, compared to 48.4% in the same period of 1998. This
increase in the level of SGA expenses as a percent compared to net sales is due
to the decrease of sales during the first three months of 1999.
Other Income and Expenses
Interest Income for the first quarter of 1999 increased by 77.8% from $
4,561.00 when compared to the same period of 1998. This increase was the result
of a stricter policy of charging interest on late payments by customers.
Interest Expenses decreased $ 0.1 million or 39,1%, down from $ 0.2
million during the first three months of 1999 when compared to the same period
of 1998. This decrease was the result of
45
<PAGE>
having liquidated one loan in February 1999, and the result of a devaluation of
the Brazilian Real in January 1999.
Other Income decreased during the first quarter of 1999 when
compared to the first quarter of 1998 by $ 0.1 million or 27.1%. Included in
this quarter results, are the profits earned on the sale of Ensec SA's shares in
DLRS (Brazil). These shares generated $ 261,000.00 income in February 1999.
Comparison of the Year Ended December 31, 1998 to the Year Ended
December 31, 1997
Sales. Total sales for the year ended December 31, 1998 decreased $ 0.8
million, or 12.9% to $ 5.4 million from $ 6.2 in the comparable 1997 period.
This decrease primarily occurred in the Company's North American operations
where its fiscal 1998 sales were $ 0.7 million as compared to $ 2.0 million in
the year earlier period. The Brazilian operations increased sales to $ 4.8
million or 12.6% from $ 4.3 million in the comparable 1997 year. The decrease in
the North American operations occurred because of the decision to close down
operations in the United States because of the Company's poor financial
condition and inability to resolve its long-term cash flow requirements had
resulted in loss of customer confidence and a corresponding reduction in sales.
Cost of Goods Sold. Cost of goods sold decreased $ .6 million or 15.6%
to $ 3.4 million for the year ended December 31, 1998 from $ 4.0 million in the
year earlier period. The decrease in cost of goods sold was the result of a
combination of the decrease in sales and a stronger control on cost, resulting
in a larger margin.
The gross profit and gross profit percentages for the years ended
December 31,1998 and 1997 were $ 2.1 million and 38.4% and $ 2.2 million and
35.8%, respectively. The increase in gross profit is attributable to a closer
control of costs in Brazil. The gross profit percentage for 1999 is expected to
maintain itself at the present level.
Selling, General and Administrative expenses. Selling, general and
administrative expenses in 1998 decreased $ 1.1 million or 26.8% to $ 3.3
million from $ 4.4 million in 1997. During 1998, the Company reduced the number
of its US personnel and eliminated or curtailed some North American operations
which results in a $ 1.8 million reduction in expenses as compared to the 1997
period.
Research and Development Expenses. Research and development expenses
for the year ended 1998 were non existent. As a result of the Company's decision
to eliminate research and development efforts in house and contract with outside
sources in both the U.S. and Brazil to support its installations.
Other income and expenses. Interest expense decreased $ 0.2 million or
16.5% to $ 0.9 million for the year ended December 31,1999 from $ 1.1 million
for the year earlier period. This decrease is the result of the need to borrow
less due to the decision to close down Ensec Inc.
Commission income amounted to $ 1.4 million for 1998. In connection
with the sale of the currency sorting and equipment division in December 1995,
the Company is entitled to receive commissions for a period of five years from
the date of such sale up to a maximum of $2,000,000. During 1997, the
commissions received were $ 0.6 million. The Company will no longer earn
commissions from this transaction.
In 1992, certain social taxes were judged unconstitutional in Brazil.
As a result of such ruling, Ensec S.A. sought and was awarded in September 1997
after exhausting the full appeal process, a refund of such social taxes. The
award will be increased for the monetary correction as defined under Brazilian
law. With respect to such award, the Company has recognized an additional $ .2
million as other income
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for the year ended December 31, 1998, this increase being the monetary
correction for the period and as defined by the Brazilian Law. The company
expects to realize this asset during 1999 or 2000.
The Company recognized the need to insure that its operations will not
be adversely impacted by Year 2000 software failures due to processing errors
potentially arising from calculations using the year 2000. In 1998, the Company
completed implementing upgrades to existing system applications as well as the
addition of new system applications. All of the Company's applications are Year
2000 compliant.
Liquidity and Capital Resources
Net cash used in operating activities for the three months ended March
31, 1999 was $0.2 million, which resulted primarily from the Company's results
from operations, a decrease in accruals and other liabilities, a decrease in
inventories, and a decrease in accounts receivables. Net cash provided by
operating activities for the year ended December 31, 1998 amounted to $ 0.4
million which resulted primarily from decreases in certain receivables and
increases in accounts payables, partially offset by a net loss and an increase
in other assets. Net cash used in operating activities for the year ended
December 31, 1997 resulted primarily from a net loss for the year then ended as
well as an increase in certain receivables. No significant capital investments
were made in the year ended December 31, 1998 or the three months ended
March 31, 1999.
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
credited facilities established with Brazilian banks. The Company maintains its
long-term debt financing through one Brazilian bank. This loan bears interest at
a rate of 12% per annum, plus an inflation adjustment, which is expected to be
18%-20% for 1999. In February 1999, the Company completed payment on the balance
of $ 0.5 million in long-term loans. This payment was accomplished with the
sources obtained from the sale of the 10% holding the Company held in De La Rue
Cash Systems Ltda.
Working capital deficiency at March 31, 1999 decreased $0.1 million to
$1.8 million. Working capital deficiency at December 31, 1998 increased $ 0.7
million to $ 1.9 million at December 31, 1998 from $ 1.2 million at December 31,
1997. This increase was substantially attributable to the Company's net loss.
The Company is party to various legal actions involving alleged
employment law claims. In the opinion of the Company's management, based upon
their experience with these types of claims, the resolution of these matters
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
The Company received an unqualified opinion, from its outside auditors,
however there was an explanatory paragraph regarding the Company's ability to
continue as a going concern. Management believes the Company's ability to
continue as a going concern is dependent upon securing adequate financing to
fund its operations until the time the Company is able to generate sufficient
revenues to be self-sustaining. There can be no assurance the Company will be
successful in achieving these goals.
The Company is actively seeking sources of capital to permit the
Company to continue its operations in Brazil. It has been unable to secure a
closing of any financing and there can be no assurance that financing will be
completed. Should the Company become unable to obtain additional financing, it
would result in additional financial difficulties in Brazil. The Company does
not presently meet listing requirements for the Nasdaq SmallCap Market and was
delisted in 1998 to the Nasdaq Electronic Bulletin Board and with the Company's
securities delisted, the Company's ability to raise additional financing has
been adversely affected.
On October 28, 1998, the Company entered into an Agreement and Plan of
Merger with SenTech EAS Corporation (SenTech) which, upon completion, will
result in the Company and SenTech becoming
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wholly-owned subsidiaries of a newly-formed holding company, Global
International, Inc. (Global). Under the terms of the agreement, the Company's
stockholders will receive approximately 60% or 1,425,000 shares of the
outstanding common shares of Global, and SenTech stockholders will receive
approximately 40% or 950,000 shares of the outstanding common shares of Global.
Completion of the merger is subject to the approvals of the Boards of Directors
and stockholders of both the Company and SenTech.
Subsequent to this merger, Global will attempt to raise capital through
a public offering which could hold potential for a capital infusion for the
Company. However, the Company can give no assurances regarding the occurrence or
outcome of these events.
The Company has no commitments for capital expenditures as of December
31, 1998 or March 31, 1999.
In April 1997 the Company was notified of its infringement of U.S.
patent No. RE 35,336. The Company reviewed the claim and proposed a settlement
which was rejected by the Claimant. The Claimant reassert its claim and asserted
a new claim of infringement of U.S. Patent No. 4,126,375 and reaffirmed its of
$75,0000 initial payment with a royalty equal to on all future qualifying sales
through February 1998. The Company has not responded to this proposal which
expired on December 31, 1997. No response has been received from the Claimant,
nor has any further contact been made with The Company during 1998.
Foreign Currency Exchange Rates and Translation Gains and Losses
The Company has a substantial portion of its operations located in
Brazil. Therefore, a substantial portion of its sales are collected in Brazilian
reais (plural of real, the Brazilian currency) and a substantial portion of the
Company's expenses are incurred in Brazilian reais, 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 other currencies, a substantial portion of the Company's reported net
sales, cost of goods sold and operating expenses will be commensurably lower or
higher than they would have been with a stable foreign currency relationship.
The consolidated financial statements of Ensec S.A. have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation". SFAS No 52
provides that all balance sheet accounts are translated at year-end exchange
rates, except for equity accounts which are translated at historical rates, if
the local currency is the functional currency. Income and expense accounts and
cash flows are translated at the average currency exchange rates in effect
during the year.
Prior to January 1, 1998, Ensec S.A. regarded the U.S. dollar as its
functional currency as per the prescribed accounting method for companies
subject to hyper-inflationary economies. As a result, a combination of current
and historical currency exchange rates were used in translating assets and
liabilities. The resulting translation adjustments were included in operations.
Beginning on January 1, 1998, Ensec S.A. was no longer considered to be
operating in a hyper- inflationary economy and thus the Company began to
translate the financial statements of Ensec S.A. using the local currency as the
functional currency. The resulting translation adjustments are included in
accumulated other comprehensive income.
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Although in 1994, the inflation rate in Brazil was approximately 900%,
in 1995, 1996, 1997 and 1998 inflation rates decreased to 22%, 10%, 8% and 6%
respectively. For 1999, the Company believes there will be an increase in
inflation in Brazil, possibly in the 18% to 20% range.
Year 2000 Issue
Computer programs used by businesses worldwide were written using two digits
rather than four digits to define the applicable year. Accordingly, these
programs recognize the dates "00" and "01" as the years 1900 and 1901 rather
than the years 2000 and 2001. The Company recognizes the need to ensure its
operations will not be adversely impacted by year 2000 computer program failures
arising from program processes and calculations misinterpreting the year 2000
date. The Company is currently evaluating its financial and operational systems
to determine the impact the year 2000 issue will have on its operations. The
Company also plans to communicate with its significant suppliers, dealers,
financial institutions, and others with which it conducts business to determine
the extent the Company may be impacted by third parties' failure to address the
year 2000 issue. Although the Company plans to be year 2000 compliant prior to
December 31, 1999 and expects no material impact to the Company's operations,
there can be no assurance that the failure of the Company or such third parties
to successfully address their respective year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows, and result of operations.
Forward-Looking Statements
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21 E of the Exchange Act, which represent the Company's expectations or beliefs
concerning future events, including without limitation the following: changes in
the Company's sales, costs, expenses and other financial information; changes or
adjustments in the Company's marketing and business strategies; the scope,
nature and effects of the Company's downsizing plan, including without
limitation the reduction of the Company's workforce and the potential sale of
the Company's Brazilian headquarters; the possibility of fluctuations in the
Brazilian economy, interest rates and currency and the effects thereof, if any,
on the Company; the Company's ability to secure additional credit facilities or
other future sources of financing in the U.S. and Brazil, as well as other
sources, if necessary for the Company to do so; and the sufficiency of the
Company's cash provided by operating, investing and financing activities for the
Company's future liquidity and capital resource needs.
The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, including without limitation
the following: general economic conditions; specific economic conditions
relating to the production of integrated security systems (including software);
the economic, social and political conditions in Brazil; 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 and introduce new products on a cost-effective
and timely basis; the amount and 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 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. As a result of these and other important factors,
the results actually achieved may differ materially from expected results
included in these statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SENTECH
The following discussion and analysis should be read in conjunction
with the selected historical financial data, financial statements and notes
thereto and the other historical financial information of SenTech contained
elsewhere in this Joint Proxy Statement/Prospectus. Amounts presented herein
have generally been rounded to the nearest hundred thousand dollars and the
related dollar and percentage fluctuations are calculated based on such
rounding.
Quarter ended March 31, 1999 as Compared to the Quarter ended March 31, 1998
Revenues
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Revenues were approximately $289,000 for the first quarter 1999, a decrease of
$397,000 or 58% from revenues of $686,000 for the first quarter 1998. The
decrease in revenues for the first quarter 1999 was primarily attributed to
sales from a new customer which generated 53% of the Company's total revenues
for the first quarter 1998. At March 31, 1999, the Company ended the quarter
with nearly $94,000 in backlog compared to $159,000 in backlog at March 31,
1998.
Gross profit
Gross profit was approximately $108,000 for the first quarter 1999, a decrease
of $113,000 or 51% from gross profit of $221,000 for the first quarter 1998
primarily as a result of the decrease in revenues. Gross profit margin was 37.6%
for the first quarter 1999, an increase from 32.2% for the first quarter 1998.
The Company realizes substantially higher gross profit margins on its
manufactured products than it realizes on its purchased products due to the
proprietary nature of purchased products, however, the current sales mix is
expected to remain constant as the Company's customer base expands.
Selling, general, and administrative expense
Selling, general, and administrative expenses were approximately $158,000 for
the first quarter 1999, a decrease of $87,000 or 36% from selling, general, and
administrative expenses of $245,000 for the first quarter 1998. Operating
expenses decreased significantly during the first quarter 1999 resulting from
the cost restructure and downsizing during the third quarter of 1998. Overall,
compensation expense decreased over $23,000 and professional fees decreased over
$25,000.
Interest expense and interest income
Interest expense was approximately $1,100 for the first quarter 1999, a decrease
of $200 or 15% from interest expense of $1,300 for the first quarter 1998
primarily due to the payment in full of the Company's 7.5% note payable to bank
in March 1998. Interest income for the first quarter 1998 primarily represents
interest earned on cash balances in excess of operating requirements.
Net loss and net loss per share
Net loss was approximately $(51,000) for the first quarter 1999, an increase of
$(28,000) or 122% from the net loss of $(23,000) for the first quarter 1998
primarily as a result of a decrease of approximately $113,000 in gross profit
offset by a decrease in operating costs of nearly $85,000.
Net loss per share was $(0.03) at March 31, 1999, an increase of $(0.02) per
share or 200% from the net loss per share of $(0.01) at March 31, 1998 resulting
from the $28,000 decrease in net loss and an increase of 36,792 weighted average
number of common shares from 1,640,427 during the first quarter 1998 to
1,677,219 during the first quarter 1999.
Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997
Revenues
Revenues were approximately $2,050,000 for the year ended December 31, 1998, a
decrease of nearly $346,000 or 14% from revenues of $2,396,000 for the year
ended December 31, 1997. The decrease in revenues for the year ended December
31, 1998 was primarily attributed to the decrease in sales from a significant
customer which generated 20% and 35% of the Company's total revenues for the
years ended December 31, 1998 and 1997, respectively. The Company does not
expect significant revenues
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from the customer during 1999, and there is no assurance of any future revenues
from the significant customer. Excluding revenues from significant customers,
1998 revenues increased more than 5% from revenues in 1997 although the
Company's customer base remained relatively constant during 1998. The Company
expects revenues to increase during 1999 primarily as a result of the Company's
planned merger, the increase in the Company's sales and marketing team, and the
results of the introduction of new products during 1998. The Company's planned
merger with a U.S. company with operations and facilities in Brazil will promote
the Company's expansion into South America while the increase in the Company's
sales and marketing team will facilitate the Company's expansion in North
America (see "Agreement and Plan of Merger" at Item 11 below).
Gross profit
Gross profit was approximately $822,000 for the year ended December 31, 1998, an
increase of over $38,000 or 5% from gross profit of $784,000 for the year ended
December 31, 1997 primarily as a result of the sales mix of products sold and a
combination of lower product costs and higher unit sales prices. Gross profit
margin was 40% for the year ended December 31, 1998, an increase from 33% for
the year ended December 31, 1997. Gross profit margins are expected to remain
fairly constant in the near term due to the ongoing maintenance of the Company's
new cost control management program and new pricing structure. The Company
realizes substantially higher gross profit margins on its manufactured products
than it realizes on its purchased products due to the proprietary nature of
purchased products, however, the current sales mix is expected to remain
constant as the Company's customer base expands.
Selling, general, and administrative expense
Selling, general, and administrative expenses were nearly $811,000 for the year
ended December 31, 1998, a decrease of over $35,000 or 4% from selling, general,
and administrative expenses of $846,000 for the year ended December 31, 1997.
Overall, operating expenses remained stable during 1998. Despite changes and
reductions in Company personnel, overall compensation expense remained fairly
constant including the payment of $30,000 of non-employee directors' cash
compensation plus $3,000 of common stock granted to the Company's officers and
board of directors during 1998 compared to $34,125 of common stock granted to
the Company's officers and board of directors during 1997. Professional fees
were unchanged at approximately $105,000 for both 1998 and 1997. Selling,
general, and administrative expenses are expected to moderately increase over
the next year relative to the expected increase in revenues primarily as a
result of the Company's planned merger and the increased costs of marketing as
the Company continues to expand its customer base.
Interest expense and interest income
Interest expense was approximately $4,500 for the year ended December 31, 1998,
a decrease of over $4,500 or 50% from interest expense of $9,000 for the year
ended December 31, 1997 primarily due to the payment in full of the Company's
7.5% note payable to bank in March 1998. Interest income for each of the years
ended December 31, 1998 and 1997 primarily represents interest earned on cash
balances in excess of operating requirements.
Net income/(loss) and net income/(loss) per share
Net income was approximately $14,000 for the year ended December 31, 1998, an
increase of over $69,000 or 125% from the net loss of $(55,000) for the year
ended December 31, 1997 primarily as a result of an increase of approximately
$38,000 in gross profit plus a decrease in operating costs of over $31,000 net
of interest expense and interest income.
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Net income per share was $0.01 at December 31, 1998, an increase of $0.05 per
share or 125% from the net loss per share of $(0.04) at December 31, 1997
resulting from the $69,000 increase in net income offset by an increase of
105,246 weighted average number of common shares from 1,556,564 during 1997 to
1,661,810 during 1998.
Liquidity and Capital Resources
The Company's accumulated deficit was approximately $(1,688,000) and
$(1,702,000) at December 31, 1998 and 1997, respectively. Working capital was
stable with approximately $784,000 and $798,000 at December 31, 1998 and 1997,
respectively.
Net cash used in operating activities was approximately $(150,000) in 1998, a
decrease of $(52,000) from $(202,000) in 1997 primarily as a result of operating
efficiencies and payment of the Company's liabilities. The Company believes its
working capital plus the expected results of operations in 1999 will be
sufficient to fund current business operations and anticipated growth. However,
the Company believes it may need to raise additional capital through debt or
equity financing to fund its anticipated growth beyond 1999. In connection with
the planned merger, the Company is actively seeking various sources of capital.
There is no assurance that such additional financing will be available when
needed or available with terms acceptable to the Company.
Seasonality
The Company's revenues are substantially dependent on its customers' seasonal
retail sales. Historically, the Company has experienced higher sales volume in
the third and fourth quarters of each year.
Year 2000 Issue
Computer programs used by businesses worldwide were written using two digits
rather than four digits to define the applicable year. Accordingly, these
programs recognize the dates "00" and "01" as the years 1900 and 1901 rather
than the years 2000 and 2001. The Company recognizes the need to ensure its
operations will not be adversely impacted by year 2000 computer program failures
arising from program processes and calculations misinterpreting the year 2000
date. The Company is currently evaluating its financial and operational systems
to determine the impact the year 2000 issue will have on its operations. The
Company also plans to communicate with its significant suppliers, dealers,
financial institutions, and others with which it conducts business to determine
the extent the Company may be impacted by third parties' failure to address the
year 2000 issue. Although the Company plans to be year 2000 compliant prior to
December 31, 1999 and expects no material impact to the Company's operations,
there can be no assurance that the failure of the Company or such third parties
to successfully address their respective year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows, and result of operations.
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INFORMATION REGARDING ENSEC
General
Ensec, until recently, 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. Ensec'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, Ensec 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).
Ensec International, Inc. ("Ensec"), a Florida corporation, was formed
in April 1996 as a holding company for Ensec Inc., a Florida corporation ("Ensec
Inc."), and Ensec Engenharia e Sistemas de Seguranca, SA. ("Ensec, S.A."), a
Brazilian corporation. 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.
Ensec, through Ensec, S.A., 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. Ensec'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, Ensec has installed approximately 400 systems, nearly all 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).
Ensec began marketing its En2000(TM) system in 1995 at which time Ensec
was 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 Ensec's U.S. operations for its En2000(TM) 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.
Ensec continued to experience tremendous difficulty overcoming the cost
of market entry primarily as a result of insufficient capital required for the
sales and marketing efforts that create customer knowledge, sales opportunities
and product acceptability.
In response to poor cash flow and a lack of significant backlog of
sales, in 1998, Ensec elected to close Ensec Inc.; terminate all of its U.S.
employees; cease the manufacture, sale, installation and service of its EnWork
family of products and elected to license products in the United States. As of
March 16, 1998, Ensec has entered into a licensing agreement with Lockheed
Martin and a service agreement with Integrated Security Resources, Inc. As a
result of those changes, revenues decreased significantly in the U.S. and
consequently, Ensec S.A. represents the majority of the consolidated operations.
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Ensec's business strategy is based on two objectives which Ensec
believes will allow it to better serve each of its geographic markets:
In Brazil, in addition to selling the EnWorks family of products, Ensec
also sells a broad range of security products and services such as data
security, time and attendance and CCTV. These products are being marketed to the
existing customer base, the general market and the Brazilian market through
Ensec S.A.'s established direct sales force and indirect sales channels. Ensec
anticipates that the sale, service and maintenance of the third party products
has and will continue to account for a majority of Ensec's total sales. Ensec's
sales growth from distribution revenue of the third party security products will
generate additional revenues by obtaining the maintenance contracts related to
such sales. Ensec has experienced a high renewal rate of maintenance contracts.
Sales of one particular type of product may in any given quarterly period
account for a majority of sales and decrease in significance thereafter.
In the United States, Ensec is looking to license its product to
strategic partners, who, with the direct sales force and established customer
base, are financially capable of absorbing the risks of selling the ENWorks
family of products. Ensec also seeks to enter into procurement contracts with
U.S. companies who wish to do business in the security industry in Brazil.
Agreement and Plan of Merger
On October 28, 1998, Ensec entered into an Agreement and Plan of Merger
with SenTech EAS Corporation (SenTech) which, upon completion of the merger,
will result in Ensec and SenTech becoming wholly-owned subsidiaries of a
newly-formed holding company, Global International, Inc. (Global). Under the
terms of the agreement, Ensec's stockholders will receive aproximately 60% or
1,425,000 common shares of Global, and SenTech stockholders will receive
approximately 40% or 950,000 common shares of Global. Completion of the merger
is subject to the approvals of the boards of directors and stockholders of both
Ensec and SenTech.
Integrated Security Systems
Integrated security systems perform functions such as access control,
facilities management and alarm monitoring through combined subsystems and
components such as card readers, closed circuit television ("CCTV"), paging
devices, intercoms and identification badges. An integrated security system
generally includes a central command and control feature that uses a single-user
interface and shares data among subsystems to form a system that performs in a
uniform and cohesive fashion. Systems integration allows various subsystems to
communicate with each other so that one system, rather than many subsystems,
controls a company's or a location's security. Ensec believes that, by
integrating disparate subsystems into a single system, functions are enhanced by
establishing uniform responses to certain conditions. Ensec believes that
integrated systems involve fewer steps to process data, therefore requiring less
response time to perform functions.
In an integrated security system, a central computer is necessary to
integrate components and subsystems. The degrees of systems integration can
vary, ranging from subsystems interconnected through electrical wiring to
subsystems that communicate with each other via separate databases and that are
monitored through a central processor and finally to the most 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 identification cards and
graphical screen monitoring of access control with monitored alarms and HVAC
(heating, ventilation and air conditioning)/lighting management systems for
large corporate or government sites.
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The primary function of an integrated security system is typically
access control. Conventional access control systems involve mechanical devices
allowing access, such as magnetic stripe card readers on turnstiles or proximity
card readers on doors. These mechanisms were often connected to a CCTV system,
but were not usually integrated with a larger premises control system. Today,
such mechanical access control systems are still being installed, but Ensec
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 electronic data. Gaining
access to a data stream, whether it be a corporate computer network or a
financial institution's 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 PlN-specific systems), remote detection cards such as ID badges
that emit radio frequencies and identification equipment based on fingerprint or
eye identification.
While the initial purchase and installation of an integrated security
system often will cost more than a simple, stand alone alarm monitoring, access
control, CCTV or security guard system, Ensec believes that integrated systems
justify their cost because they can result in reduced capital expenditures and
maintenance costs (due to the elimination of redundant components or circuitry
that would result from multiple stand-alone systems) over time while improving
performance. 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, fewer personnel are required to operate the
system. However, in Brazil, because Ensec has knowledge of the business and
because of the size and maturity of the Brazilian economy and social structure,
there are a small number of larger organizations requiring real-time integrated
security systems and a large number of smaller organizations requiring security
products. Consequently, there is a limited market for the ENWorks family of
products and a large market for security system related products.
Products and Services
Ensec has established four distinct yet related sources of revenue:
Systems Integration, Product Procurement, Service and Licensing. As of December
31, 1998, Ensec S.A. has a current backlog of orders for systems sales,
installations and service aggregating approximately $ 2.0 million. Backlog
consists of contracts or purchase orders with delivery dates scheduled within
the next 12 months. Ensec currently expects to ship its entire current backlog
within the next 12 months. Variations in the magnitude and duration of contracts
received by Ensec and customer delivery requirements may result in substantial
fluctuations in backlog from period to period. Since customers may cancel or
reschedule deliveries, backlog may not be a meaningful indicator of future
financial results.
Systems integration and product procurement: In response to the
requirements of the Brazilian market and as a complement to its existing
products, Ensec S.A. has entered into several systems integration agreements,
for different types of security-related products detailed as follows:
o En2000(TradeMark) Integrated Security System
Integrated security system providing on-line (i.e., real-time) access
control/ alarm monitoring and the integration and/or secondary monitoring (i.e.,
monitoring-only without operational capability) of multiple subsystems. This
system and the EnWin system, described below, consist of a central processing
unit running proprietary software that is connected to a number of devices
through distributive intelligence architecture.
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The En2000 family of products is designed to permit upgrades and
improvements allowing lesser-featured systems such as the Scape system to be
expanded to provide the features of the most sophisticated system offered, the
En2000(TradeMark) system. The En2000(TradeMark) 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 customer. The foundation for
this approach was established with the selection of the object-oriented design
methodology, a real time operating system, the standard PC computing platform,
and the graphical user interface. Ensec offers a number of components to expand
or enhance the En2000(TradeMark) system including a networked access
control/data collector, a networked alarm monitoring unit, multi-site
communications capabilities and expanded databases.
o Physical Security - Access Control and Alarm Monitoring.
o Analogic and Digital Closed Circuit Television and Video
Remote Surveillance
o Data Security - consists of software that can be used in a
network environment or on a stand-alone PC. Ensec has
entered into strategic alliance with PC Security in order
to offer integrated solutions in the Data Security area.
o O&M Kronos, Time, Attendance and Human Resource Management
computerized payroll hardware and software for personnel
tracking and management systems.
o EnWin Integrated Security System - O&M integrated security
system providing on-line access control / alarm monitoring
with a more limited number of readers and limited
integration or secondary monitoring of additional
application subsystems, running on a Windows NT platform.
o Scape Security System Offline access control system
consisting of software and DC500 terminals.
o DC500 Terminal Stand alone access control/data collector.
Service: An important part of any systems sale is the ability of the
systems provider to train, service and maintain the system. Ensec has developed
a service organization to provide project management, systems design, training,
technical documentation, site surveys and audits, installation and maintenance
services.
Ensec has outstanding bids totalling approximately $ 8.0 million for
its Integrated Security Systems installation and maintenance services in Brazil.
However, there can be no assurance that Ensec will receive contracts for these
bids.
Licensing: In the U.S., Ensec has entered into licensing agreements
with Lockheed Martin and Integrated Security Resources who are committed to
providing support for and paying royalties on the sale of software and hardware.
Since Ensec's installed base of systems is concentrated primarily in
Brazil, service revenues and related personnel resources are also primarily
based in Brazil, where Ensec provides nationwide installation, project
management and maintenance services through trained technicians located
throughout Brazil. These services are provided pursuant to contracts which
typically have a duration of five years or more. Ensec currently has 43
maintenance and service contracts covering 75 installations in Brazil. Ensec has
the right to provide, if contracted for by the customer, maintenance under its
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distribution agreements. To date, all products sold under distribution
agreements are under warranty. Ensec anticipates that a majority of the
customers will enter into maintenance contracts at the warranty expiration.
However, there is no assurance that Ensec will be retained by the customer.
Intellectual Property
Ensec's ability to compete successfully depends, in part, on its
ability to protect the proprietary technology contained in its products. Ensec
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(Registered) products. Ensec 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 Ensec 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 Ensec maintains its patents and copyrights and has pending
patent applications, do not protect Ensec's proprietary rights to the same
extent as do the laws of the United States. Ensec intends to seek copyright
protection under United States law with respect to some of its technology. While
Ensec 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(Registered)
products, unauthorized parties, nevertheless, might attempt to copy aspects of
Ensec's products or to obtain and use information that Ensec regards as
proprietary. The cost of enforcement by Ensec of its information rights could be
significant, regardless of the outcome of such enforcement proceedings.
Sales and Marketing
Ensec's sales strategy is focused on the following:
o In the U.S., Ensec seeks to license its product to strategic
partners, who, with the direct sales force and established
customer base are financially capable of absorbing the risks
of selling the ENWorks family of products. Ensec also seeks to
enter into royalty contracts with U.S. companies who wish to
do business in the security industry in Brazil.
o In Brazil, Ensec is primarily a systems integrator, service /
maintenance company and utilizes third party products to
arrive at a security solution for its customers. The benefits
of each product groupings are as follows:
o En2000 Security Product: This advanced generation of EnWorks
products, which utilizes the capabilities of a QNX operating
system, is the industry's only real-time application operation
system. These products are easily integrated with any CCTV
system, enhancing the productivity and efficiency of the
system. The QNX system is resourceful enough to handle
thousands of transactions on real-time basis, which is
critical for an integrated security system in a large
installation environment. The En500 is a combination package
of low-end access control and time & attendance program which
allows the clocking in / out during the access process in a
security environment.
o EnWin by PCSC: Price sensitive access control application that
is directed toward the competitive mid-range market. It has a
memory capacity to handle 1000 employee identification cards
and the last 500 transactions. This application can handle a
multitude of reader technologies, which makes it flexible in a
client environment.
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o CCTV: Customized solutions to meet the customer's surveillance
and security needs with system capabilities of up to 600
cameras. By using new products available in the international
market, our expertise allows us to deliver the best solutions
to customers.
o Video Remote Surveillance: The new digital video systems
developed by Roli S.A., allow Ensec to replace the outmoded
CCTV surveillance systems by utilizing the existing cameras
but managing alarms and images more easily and using existing
networks, telephone lines and even the Internet.
o Stoplock: This product, developed by PCSL, is designed as a
complementary security solution for individual PC's in a
network environment for the Access Manager. It also acts as an
independent security solution for stand-alone PC's. The unique
benefit of Stoplock is that it can be initially setup to
operate independently and then, in the future, it can be
migrated seamlessly to LAN or WAN with the use of Access
Manager.
o Timekeeper: A Time & Attendance system, developed by Kronos,
Inc., offers the most comprehensive set of features available
in a labor management system. It simplifies communications
with data collection devices, supports employee scheduling,
delivers hours and wages data to the supervisors and
interfaces with a wide range of payroll and human resources
available in the market.
o Market Point Simplicity: A simple and automatic parking
control system, developed by Magnetic Automation Corp.,
allows, with a "fee computer", a ticket dispenser, barriers
and a machine readable swipe reader, the total control of a
parking area.
o Service & Maintenance: Ensec has expanded and upgraded its
service and maintenance group to handle all the
security-related products that Ensec installs. In addition,
Ensec S.A. has expanded its services and maintenance program
to the new road concession companies in Brazil by installing
and providing maintenance for the next three years of toll
collection systems in Parana State.
Competition
In Brazil, Ensec competes with Sensormatic, Casi-Rusco and Northern
Computers Corporation, among others. In North America, significant competitors
include Software House/Sensormatic, Casi-Rusco, Matrix, Cardkey, Diebold,
Johnson Controls, Honeywell, Infographic, MDI and Pinkerton. Some of these
competitors have greater name recognition, more extensive engineering,
manufacturing, marketing and distribution capabilities and greater financial,
technological and personnel resources than Ensec. Ensec may also face
competition from potential new entrants into Ensec's segment of the security
systems industry, many of which have substantially greater resources than Ensec.
It is possible, for example, that existing or potential competitors of Ensec
could introduce less expensive and/or improved products. However, Ensec believes
that competition is based primarily on product performance and features and, to
a lesser extent, on the basis of price. Other critical competitive factors
include product reliability and flexibility of use with a user's other systems.
There can be no assurance that Ensec will be able to compete successfully in the
future against existing or potential competitors or successfully adapt to
changes in the market for Ensec's products. An increase in competition could
have a material adverse effect on Ensec's business and results of operations. In
the U.S., the ability of the licensor's of Ensec's product to compete will
determine the success of Ensec, Inc. The current licensor's are believed to have
established infrastructures necessary to compete in an industry which is
believed to be highly competitive and fragmented.
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Employees
As of December 31, 1998, Ensec employed 37 individuals, of which
approximately 35 were employed in Brazil and 2 were employed in the U.S. All of
Ensec's employees in Brazil are covered by a collective bargaining agreement.
The collective bargaining agreement expires on November 1, 1999 and is subject
to annual renewal. In the event that representatives of management and employees
are unable to agree on the terms of a new collective bargaining agreement, a
court may ultimately determine such terms by rendering a binding judicial
decision which would serve as the renewal agreement.
In addition to the collective bargaining agreement, Brazilian labor
laws are applicable to all of Ensec'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.
Ensec 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. Ensec has not experienced a work stoppage and believes
that its employee relations are good.
Description of Property
Ensec was headquartered in New York, New York up until January 31,
1999, at which time Ensec elected to closed its New York office, reducing the
number of employees in the U.S. to one. Currently, Ensec is operating through
the offices of an accountant in New York, New York.
Ensec's Brazilian operations are headquartered in a Company-owned
building located in Cotia, a city in the greater Sao Paulo area. The building
was constructed in 1990 and is comprised of approximately 40,000 square feet of
office and warehouse space. In addition to the Cotia-based headquarters, Ensec
maintains a number of service facilities located throughout Brazil. These
offices, many of which are provided by customers of Ensec, are used principally
by Ensec's service technicians.
As of February 28, 1999, the Brazilian property is encumbered by a $
1.8 million term mortgage held by a Brazilian bank. This mortgage currently
bears interest at a rate of approximately 12% per annum, plus an inflation
adjustment which was approximately 6% in 1998. Interest on the mortgage is
payable monthly. Principal shall be amortized and is payable over a period of 38
months commencing on March 15, 1999. The current monthly payment is
approximately $ 66,420.00. Ensec's management believes that it currently
maintains adequate insurance coverage on this property.
Ensec is actively seeking to sell its Brazilian facility. However,
Ensec believes that the current competitive conditions in the Brazilian real
estate market may limit the potential sale of its property in Brazil and that
Ensec may experience some difficulty in selling the property at a price which it
deems to be fair. Ensec has leased 50% of its Brazilian property to De La Rue
Sistemas Ltda. for a term of 60 months from August 8, 1997 of approximately $
18,000 per month, annually adjusted for inflation index in Brazil.
Ensec believes that its facilities are adequate to meet Ensec's current
business requirements, and that suitable additional space will be available as
needed to accommodate further physical expansion of its U.S. operations and for
additional sales and support offices in the U.S.
Legal Proceedings
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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. 4,126,375 and reaffirmed the proposal set forth below. The Claimant's
latest proposal, which expired on December 31, 1997, provided the Company with a
nonexclusive, 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. As of the date hereof, no further
contact has taken place between the Company and the Claimant. However, if the
Company is found to have infringed upon the Claimant's patents, the Company's
financial condition could be materially adversely affected. In addition, the
cost of defending or settling this claim could be significant and have a
material adverse affect on the Company.
As of April 30, 1999, Ensec has 13 outstanding labor claims, all
originating in Brazil, in the aggregate amount of $1,300,000. Ensec has accrued
$200,000 to cover future losses from such claims and although there can be no
assurance as to the outcome of such claims, Ensec believes the ultimate
resolution of these claims will not materially adversely affect Ensec.
Executive Compensation
Compensation of Executive Officers
The following table sets forth, as of December 31, 1998, all
compensation paid during Ensec's last three fiscal years to Ensec's Chief
Executive Officer and to executive officers whose total annual compensation
exceeded $100,000 during the last three fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation Awards
Annual Compensation(2) Number of Securities
Name and Principal Salary Bonus Other Annual Underlying All Other
Position Year US$ US$ Compensation Options Compensation
-------- ---- --- --- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
US$ (3) US$
Charles N. Finkel 1998 240,000(6) 0 0 0 0
Chief Executive 1997 240,000 20,000(7) 10,000 0 0
Office of Ensec. 1996 216,112 0 10,240 25,000 35,642 (4)
Flavio R. da Silva, 1998 125,381 0 0 0 0
Vice President-Brazil 1997 136,017 31,750 (5) 12,300 0 0
of Ensec and 1996 124,331 0 17,542 50,000 0
President and Chief
Operating Officer
of Ensec, S.A
</TABLE>
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(1) 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 named executive officers which are available generally to all
salaried employees of Ensec, 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 named executive officer's salary and
bonus disclosed in this table.
(2) In accordance with their employment agreements, Ensec paid to Messrs. Finkel
and da Silva a monthly automobile allowance and paid to Mr. da Silva the amount
of his medical premiums which exceed those provided under Ensec, S.A.'s employee
benefit plan. Additionally, the amounts in this column include the value of
additional employment-related benefits which accrued to Messrs. Finkel and da
Silva during fiscal 1996 under Brazilian law.
(3) The value of these options are detailed in the "Option Grants in Last Fiscal
Year" table below. All options were granted under Ensec's 1996 Stock Option Plan
(the "Plan").
(4) Represents the following compensation for expenses paid by Ensec on behalf
of the named executive officer in fiscal year 1996: (i) $1,786 in property
maintenance expenses; (ii) $3,575 in car expenses; (iii) $5,381 in meal
expenses; (iv) $14,283 in travel expenses; (v) $5,700 in entertainment expenses;
and (vi) $4,917 in miscellaneous expenses.
(5) Represents a bonus earned by Mr. da Silva which was accrued by Ensec in 1997
and paid in 1998.
(6) Represents total salaries earned by Mr. Finkel in 1998, of which only $
120,000 were paid, the balance of which is owed to Mr. Finkel.
(7) Represents a bonus earned and not paid to Mr. Finkel which was accrued by
Ensec in 1997.
Option Grants In Last Fiscal Year
None.
Aggregated Option Exercises in Last Fiscal Year and F-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In the Money
Options at F - End (1) Options at F-End (2)
Name Not Exercisable Exercisable Not Exercisable Exercisable
- ---- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Charles N. Finkel (3) 0 0 n/a n/a
Flavio da Silva 23,333 76,667 0 0
</TABLE>
(1) These options have an exercise price of between $1.5625 and $2.00 per share
and are exercisable during the period from 1997 to 2007.
(2) These values represent potential gains on both exercisable and unexercisable
options based on the closing price of the underlying Common Stock as of December
31, 1997 less the exercise price of the options.
(3) On July 24, 1997, Charles Finkel elected to cancel his 25,000 options.
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Compensation of Directors
In fiscal year 1998, Ensec did not pay a director's fee or other
similar compensation to any director of Ensec for their service as such. Ensec
does not intend to compensate non-employee directors for serving as directors of
Ensec, except to reimburse them for their reasonable expenses incurred in
connection with such service and to issue grants of Director Awards (as defined
below) under the Plan. See "1996 Stock Option Plan." Directors who are also
employees of Ensec do not receive additional compensation for serving as a
director.
Employment Agreements
Ensec or its subsidiaries are parties to substantially similar
employment agreements with Messrs. Finkel, and da Silva, pursuant to which each
of these individuals serve as an executive officer of Ensec and Ensec S.A. Each
of the employment agreements is for an initial three year term, which commenced
in May 1996 and will automatically renew for successive three-year terms unless
either party provides written notice to the other party least 90 days prior to
renewal.
Pursuant to the employment agreements, Messrs. Finkel and da Silva,
each received an annual base salary for fiscal year 1998 of $240,000 ($120,000
was paid, the remainder was accrued by Ensec) and $125,381, respectively, which
may be increased from time to time by the Board of Directors.
The agreements provide that upon the termination of employment by
Ensec, other than for cause (as defined in the agreements), Ensec shall pay an
amount equal to the aggregate present value of the product of (x) the average
aggregate annual compensation subject to U.S. income tax and paid to Mr. Finkel
by Ensec during the five calendar years preceding the taxable year in which the
date of termination occurs, multiplied by (y) 2.99. Ensec shall pay an amount
equal to the total amount of Base Salary and Bonus received by Mr. da Silva
pursuant to this Agreement for the twelve (12) month period ending on the Date
of Termination. The agreements provide for non-competition, non-solicitation and
non-disclosure covenants.
The agreements also provide for each executive officer to receive a
grant of options under the Plan which will vest in one-third equal installments
over a two-year period. The first two vestings occurred as of September 30, 1996
and 1997, and the final vesting will occur on September 30, 1998. The options
granted to Mr. da Silva are incentive stock options (as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code")) and provide for
an exercise price of $2.00 per share, subject to adjustment in accordance with
the terms of the Plan. In order for the options to vest, the executive officer
must be employed by Ensec or any of its subsidiaries as of the date of vesting.
According to the terms of the Plan and each executive officer's option
agreement, the vesting of options will be accelerated and the all of the options
will become immediately exercisable in the event the executive officer is
terminated by Ensec other than for Cause (as defined in such executive officer's
employment agreement), or in the event of certain changes in control of Ensec.
1996 Stock Option Plan
Ensec has adopted the Plan, pursuant to which stock options (both
Nonqualified Stock Options and Incentive Stock Options, as defined in the Plan),
stock appreciation rights, restricted stock, performance share awards and
phantom stock unit awards may be granted to directors and certain key employees
(the "Participants"). The Plan provides for the automatic grant to directors who
are not employees of Ensec (each, a "Director Award") or its subsidiaries, at
such time as an individual becomes a director of Ensec, of Nonqualified Stock
Options to purchase 15,000 shares of Common Stock at an exercise price per share
equal to the greater of $2.00 or the fair market value of the shares on the date
of grant. A Director Award vests in equal increments of 5,000 shares per year,
commencing upon the date of Ensec's annual meeting of shareholders for the
election of directors next following the date that such individual became a
director and continuing with
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each such successive annual meeting provided such person remains a director of
Ensec as of such date. The Plan also provides for the acceleration of the
vesting schedule of Director Awards in certain circumstances.
With respect to the grant of awards under the Plan to persons other
than nonemployed directors, the committee which is responsible for administering
the Plan (the "Committee") will determine persons eligible to be granted stock
options, stock appreciation rights, performance share awards 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 such option, grant or award. An
Incentive Stock 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 Ensec or any parent or subsidiary
of Ensec, 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 Common Stock that does not meet the Code's requirements for Incentive
Stock 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 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. 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 Ensec, 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.
Performance shares may be awarded to participants based upon the degree
to which certain objective performance goals, as established by the Committee,
are attained. The amount earned with respect to an award of performance shares
will usually be payable in stock based upon the fair market value of such stock
upon the valuation date. The Committee, may, however, vary the composition of a
performance share award at its discretion.
Ensec may also issue phantom stock unit awards to Participants upon
terms and conditions established by the Committee from time to time. A phantom
stock unit entitles the holder of such unit to a hypothetical equivalent of one
share of stock granted in connection with a Plan award or deferred performance
share award. Phantom stock unit awards are nontransferable and will be subject
to forfeiture if employment of the Participant is terminated before such awards
become vesting in accordance with their terms.
There are 450,000 shares of Common Stock authorized for possible
issuance under the Plan. As of December 31, 1998, options to purchase 251,667 of
such reserved shares have been granted to executive officers and non-employee
directors of Ensec.
Certain Relationships and Related Transactions
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In July 1996, Charles N. Finkel, Ensec's President and Chief
Executive Officer, deposited $400,000 in a Brazilian bank to secure the
guarantee of a $400,000 loan from such bank to Ensec. In addition, Mr. Finkel
loaned $100,000 to Ensec, which loan bore interest at a rate of 5% per annum. In
August 1996, Ensec borrowed $500,000 from an individual, through Mr. Finkel,
which debt was due September 30, 1996, and bore interest at a rate of
approximately 5% per month. Repayment of this indebtedness was personally
guaranteed by Mr. Finkel. Such loans were repaid in full in September and
October 1996, at which time the $400,000 deposited by Mr. Finkel was released by
the bank.
All related party transactions were on terms no less favorable
than those with unaffiliated third parties. All future transactions will be on
terms no less favorable than Ensec could obtain based upon negotiations with
unaffiliated third parties in arms-length transactions.
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INFORMATION REGARDING SenTech
General
SenTech EAS Corporation and its wholly owned subsidiary,
SenTech EAS International, Inc., hereinafter referred to collectively as
"SenTech", manufactures, distributes, and services electronic article
surveillance ("EAS") systems and accessories worldwide. SenTech's products are
used primarily by retailers to prevent financial losses attributed to theft of
merchandise. EAS equipment is composed of (i) a detachable or disposable
security circuit, label or other material (often referred to as a "tag" or
"target") which is attached to or placed on the article to be protected, and is
either removed upon sale of the article or, if not removed, activates a
detection system if the article is transported beyond the protected area, and
(ii) a detection system which is usually located in the exit path of the
protected area and is activated when an article, to which a tag or target is
attached, is transported beyond the protected area. EAS equipment has developed
over the last 30 years in response to problems associated with theft and
inventory control in the retail industry.
SenTech's original focus was sourcing, refurbishing,
marketing, installing, and servicing EAS equipment developed by other companies
in the EAS industry. Over the past five years, SenTech's business has evolved
more towards assembling, marketing, and servicing EAS equipment developed byThe
Company. SenTech's current strategy is to further expand its operations focusing
primarily on its own EAS equipment while continuing to refurbish, market,
install, and service EAS equipment developed and sold by other companies. The
EAS equipment developed by The Company is compatible with EAS equipment
developed by other companies allowing SenTech to market its own products to
retailers who have existing compatible equipment. Therefore, SenTech believes
that it is able to attract customers who desire to upgrade their existing
systems as well as those customers who desire to purchase a new system from an
alternative supplier at lower prices.
SenTech was incorporated in the State of Florida in February
1990 as "Ultimate EAS Corporation" and changed its name on several occasions.
Prior to September 1995, SenTech's name was "SenTech EAS Corporation." On
September 22, 1995, all of the outstanding capital stock of SenTech EAS
Corporation was acquired by Lorry Bay & Co., Inc. through the merger of its
subsidiary, Lorry Bay Capital, into SenTech EAS Corporation. The resulting
entity was renamed SenTech EAS International, Inc. Lorry Bay & Co., Inc. was
then merged into a newly formed Florida corporation, SenTech EAS Corporation
whereby the ultimate surviving entity was SenTech EAS Corporation and its
wholly-owned subsidiary, SenTech EAS International, Inc. SenTech's offices are
located at 484 Southwest 12th Avenue, Deerfield Beach, Florida 33442-3108, (954)
426-2965.
Electronic Article Surveillance (EAS) Industry
Three distinct technologies are utilized in the EAS industry;
radio frequency ("RF") detection, electromagnetic ("EM") detection, and
acousto-magnetic ("AM") detection. The Company manufactures, distributes, and
services only EAS equipment with RF detection.
EM Detection Systems
EM detection systems also utilize detection monitors at exit
points combined with detectable tags. The tags for EM detection systems also
take the form of reusable hard plastic tags or
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adhesive tags, however, instead of containing RF circuitry, the detectable tags
are electromagnetically sensitized strips. One of the disadvantages of utilizing
EM detection systems is the systems, unlike RF detection systems, must be
installed close together in order to detect EM tags passing out of the protected
area. EM systems are primarily used in food stores, video stores, and libraries,
where store operators are not as concerned with the visual appeal of the
entrances. One of the advantages of utilizing EM detection systems is EM
detection tags, unlike RF detection tags, are not detuned or rendered
ineffective when applied to metallic surfaces.
AM Detection Systems
Recently, a new acousto-magnetic technology has been
developed. Products utilizing acousto-magnetic technology are capable of
covering broader areas, and have a higher ability to detect labels and tags than
standard EM detection systems. However, systems utilizing acousto-magnetic
technology, and the required tags, are more expensive than standard EM detection
systems.
RF Detection Systems
RF detection systems are the most prevalent in the
marketplace. RF detection systems utilize low ("LF"), high ("HF") or ultra high
("UHF" or "microwave") frequency systems. In RF detection systems, electronic
detectors, consisting of antennas which emit radio waves of a specified
frequency, are housed in pedestals, overhead units, floor mats or other panels
located at the exits of protected areas (such as checkout counters, doorways,
elevators, and escalator locations). Tags for RF detection systems, which
contain electronic circuitry that interferes with the signal established between
the detector panels, are attached to or placed on the article to be protected.
The tags for RF detection systems take the form of either
reusable hard plastic tags or adhesive tags. Reusable hard plastic tags are
attached to the merchandise being protected usually by means of a specially
designed fastener. The reusable plastic tags can only be removed, without
causing damage to the article, by using a special decoupling device. Adhesive
tags are disposable, intended to be used only once, and are deactivated at the
point of purchase by passing the adhesive tag through a de-activation field.
When an adhesive tag is transported through the area between the detector
panels, the radio interference caused by the tag's circuitry triggers an alarm
such as a flashing light, a buzzer, or a central control point signal.
RF detection systems protect a large entrance or exit area
because of their broad scope of detection stemming from the broad range of radio
waves. Although systems using microwave frequencies (900 MHz) protect the widest
entrances, SenTech's EAS equipment does not utilize microwave frequencies
becauseThe Company believes that 8.2 MHz systems, such as those manufactured
byThe Company, will be utilized in most of the future growth in the EAS
industry. Tags must be attached to merchandise upon arrival at a store or
distribution center and removed at the time of purchase. RF detection systems
are most widely used in the protection of "soft goods" (i.e., clothing,
footwear), although RF tags in the form of metallic stickers, referred to as
"labels", are becoming widely used in the protection of "hard goods" (i.e.,
health and beauty supplies, electronics, books). Increasingly, there is a trend
towards source tagging whereby the manufacturer attaches the EAS tags on
products before shipping the products to retailers.
SenTech's Product Line
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SenTech currently assembles, refurbishes, markets, installs,
and services the following EAS Equipment for use in the retail industry, all of
which were developed by SenTech.
"X"Aisle(TradeMark) System
The "X"Aisle System is SenTech's newest and most powerful
extended aisle Swept RF system which was introduced during the third quarter of
1998. The "X"Aisle System consists of a set of pedestals constructed of durable
lightweight injection molded plastic which contain the RF detection circuits
with each pedestal measuring 60.5" tall, 18.25" wide and 4" deep. The primary
color available is gray, although custom-designed colors may be offered if
requested by customers. Two pedestals are capable of protecting entrances/exits
up to 8 feet wide using SenTech's new 8.2 MHz "X" Tag and up to 5.5 feet wide
with a 1.5" adhesive label. Since the "X"Aisle System detects any tags with 8.2
or 9.5 MHz RF, which are commonly used frequencies, it is compatible with 8.2 or
9.5 MHz RF tags designed by SenTech and its competitors. The "X"Aisle System
also uses advanced software programmable circuit design including a Digital
Signal Processor, surface mounted electronic components, self testing circuitry,
and fiber optics. Its adaptive filtering circuitry is largely immune to false
alarms and electrical interference. The electronics are designed for easy
installation by field technicians, dealers, or end users. The Company believes
the "X"Aisle System is among the most effective wide aisle EAS detection systems
currently available. The "X"Aisle System was designed bySenTech and is
manufactured and assembled by a related party company (see "Product Development"
below).
MultiTag(TradeMark) II System
The MultiTag II System consists of a set of pedestals which
contain RF detection circuits. Each pedestal measures 60" tall, 12" wide and
4.25" deep and is constructed of a solid all metal frame and composite
components. The primary color available is black although custom-designed colors
may be offered if requested by customers. The MultiTag II System is capable of
protecting entrances/exits up to six feet wide. Since the MultiTag II System
detects any tags with 8.2 or 9.5 MHz RF, which are commonly used frequencies, it
is compatible with 8.2 or 9.5 MHz RF tags designed bySenTech and its
competitors. SenTech believes the MultiTag II System is among the most effective
EAS detection systems currently available. SenTech also believes the MultiTag II
System is less susceptible to false alarm sources than other EAS detection
systems currently available. The MultiTag II System was designed bySenTech, and
its sub-assemblies are manufactured by outside sub-contractors and are assembled
by employees ofSenTech atSenTech's facilities.
Defender System
The Defender System consists of a set of pedestals which
contain RF detection circuits. Each pedestal measures 60" tall, 12" wide and 3"
deep and is constructed of textured satin black galvanized tubular steel
open-frame construction with charcoal gray molded plastic covers. The primary
color available is black tubing with charcoal gray covers although
custom-designed colors may be offered if requested by customers. The Defender
System is capable of protecting entrances/exits up to five feet wide. Since the
Defender System detects any tags with 8.2 or 9.5 MHz RF, which are commonly used
frequencies, it is compatible with 8.2 or 9.5 MHz RF tags designed bySenTech and
its competitors. The Defender System is a low-cost system intended for dealer
and domestic price competitive sales. SenTech believes the Defender System is
among the highest in target detection rates
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of EAS detection systems currently available. SenTech also believes the Defender
System is less susceptible to false alarm sources than other EAS detection
systems currently available. The Defender System was designed bySenTech, and its
sub-assemblies are manufactured by outside sub-contractors and are assembled by
employees ofSenTech atSenTech's facilities.
Solo System
The Solo System, introduced during the fourth quarter of 1997,
consists of a single pedestal which contains RF detection circuits. The pedestal
measures 60.5" tall, 12" wide and 3" deep and is constructed of textured satin
black galvanized tubular steel open-frame construction with charcoal gray molded
plastic covers. The primary color available is black tubing with charcoal gray
covers although custom-designed colors may be offered if requested by customers.
The Solo System is capable of protecting entrances/exits up to 9 feet wide.
Since the Solo System is available in either 2.0 or 3.25 MHz frequency allowing
for the detection of any tags with 2.0 or 3.25 MHz RF which are commonly used
frequencies, it is compatible with 2.0 and 3.25 MHz RF tags designed bySenTech
and its competitors. SenTech believes the Solo System is among the most
effective single pedestal EAS detection systems currently available. SenTech
also believes the Solo System is less susceptible to false alarm sources than
other single pedestal EAS detection systems currently available. The Solo System
was designed bySenTech, and its sub-assemblies are manufactured by outside
sub-contractors and are assembled by employees ofSenTech atSenTech's facilities.
Deactivation Pad
The deactivation pad is an instrument that permanently
deactivates any 8.2 MHz RF disposable label. Disposable tags are adhesive labels
that are attached to the merchandise and often disguised as a simulated bar code
or as a point-of-purchase advertising message. The deactivation pad
electronically deactivates the RF circuitry contained within the disposable tag.
The deactivation pad was designed bySenTech, and its sub-assemblies are
manufactured by outside sub-contractors and are assembled by employees ofSenTech
atSenTech's facilities. The deactivation pad contains all necessary electronics
and does not need to be "slaved" together with other components like most EAS
deactivation equipment. The deactivation pad is a 10.5" by 10.5" square pad
consisting of a black plastic chassis with a solid black metal base. Multiple
deactivation pads may be used together without causing interference with the RF
circuitry unlike most other deactivators available in the EAS industry.
Magnetic Detachers
Magnetic Detachers are instruments used to remove reusable
hard tags that contain RF circuitry from the merchandise to which they are
attached. A magnetic lock releases the pins contained within the reusable hard
tags. SenTech offers two types of magnetic detachers; (i) the Table Top
Detacher, and (ii) the Surface Mount Detacher. Both magnetic detachers were
designed bySenTech, and their sub-assemblies are manufactured by outside
sub-contractors and assembled by employees ofSenTech atSenTech's facilities. The
Table Top Detacher measures 5" in diameter, is constructed of a durable
scratch-resistant finish, and is designed to be secured to a counter-top using a
security lanyard. The Surface Mount Detacher measures 2.5" or 3" in diameter and
is designed to be permanently attached to a surface such as a counter-top. The
magnetic detachers are compatible with tags that are designed bySenTech and its
competitors.
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Third Party Product Lines
Ensec currently sells the following EAS equipment which were
developed by other companies in the EAS Industry but are made toSenTech's
specifications.
"X" Tag
The "X" Tag is a durable lightweight 8.2 MHz Swept RF tag to
be used with SenTech's newest and most powerful extended aisle Swept RF system,
the "X"Aisle System, which was introduced during the third quarter of 1998. The
"X" Tag is beige and is compatible with all 8.2 MHz RF systems and most ink
tags.
Mini Solo Tag
The Mini Solo Tag, introduced during the fourth quarter of
1997, is a durable lightweight 2.0 or 3.25 MHz RF tag which is used with
SenTech's Solo System. The Mini Solo Tag is light gray or beige and is
compatible with all 2.0 or 3.25 MHz RF systems and most ink tags.
Ink Tags
Introduced during 1998, the SenTech Ink Tag contains two vials
of ink on the head of the tag which breaks and disperses permanent ink onto the
item to which it is attached if improperly removed. This feature provides an
extra level of deterrence against shoplifting by adding the threat of permanent
garment damage if the tag is improperly or forcibly removed. The SenTech Ink Tag
may be used together with an EAS hard tag or with a locking clutch.
Omni Tag/Mini Tag
The Omni Tags and Mini Tags are reusable hard tags constructed
of strong lightweight plastic. The Omni Tag is a 2.75" by 2.25" rectangular tag
and the Mini Tag is a 1.875" by 1.625" rectangular tag, both of which contain
8.2 MHz RF circuitry. Both tags are available in black, beige, or
custom-designed colors. If either tag passes between an RF detection system an
alarm is triggered. The tags are attached to merchandise using special fasteners
prior to the merchandise being placed on the sales floor and are detached at the
point of purchase using a magnetic detacher. Removal of the tags without the
magnetic detacher will damage the protected merchandise. The Omni Tag and the
Mini Tag are compatible with 8.2 MHz RF detection systems.
SenTag
The SenTag is a reusable hard tag constructed of strong
lightweight beige polypropylene plastic. The SenTag is a 2.735" by 1.165" by
0.695" rectangular tag containing microwave frequency circuitry. The SenTag is
attached to merchandise using special fasteners prior to the merchandise being
placed on the sales floor and is detached at the point of purchase using a
special detacher. Removal of the tags without the special detacher will damage
the protected merchandise. The SenTag is compatible with most microwave
detection systems.
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Lanyards
Lanyards are used in conjunction with any type of tag. It
allows for the tagging of hard good items which have closed loop openings such
as handbags, luggage and tennis rackets.
Pins
Several styles of pins are available for use with various
types of reusable hard tags.
Product Development
SenTech maintains an on-going effort to develop new EAS
equipment. SenTech recently developed and marketed an ultra-light reusable hard
tag, the SenTag, described above, and introduced the SenTech Ink Tag during
1998. SenTech believes the SenTag and the Ink Tag, which are both manufactured
by non-affiliated companies, are well received by retailers who demand
contemporary styled reusable hard tags.
During the fourth quarter of 1997, SenTech also developed and
marketed the Solo System, described above, which has been well received in the
marketplace. SenTech believes the Solo System is among the most effective single
pedestal EAS detection systems currently available.
In June 1997, SenTech entered into a three year purchase and
manufacturing agreement (the "Agreement") with a company whose President and
Chief Executive Officer, Thomas A. Nicolette, is a director of SenTech. The
Agreement provides for the development and manufacture of SenTech's third
generation EAS system, the "X"Aisle System, and the electronic printed circuit
boards for the MultiTag II System and the Defender System. Currently, the
electronic printed circuit boards for the MultiTag II System and the Defender
System are designed and manufactured by a competitor of SenTech. The Agreement
requires SenTech to pay for non-recurring engineering costs in exchange for an
assignment of fifty percent of the joint technology as defined by the Agreement
and requires SenTech to purchase minimum quantities of the system each year.
Management believes that any new EAS equipment it develops,
combined with SenTech's existing equipment, customer and market base, may
provide SenTech with the potential for significant growth. Historically,
SenTech's research and development expenses have been immaterial relative to
SenTech's operations.
Assembly and Manufacturing Operations
SenTech's manufacturing operations consist primarily of the
procurement of component parts and the assembly of finished products at
SenTech's leased facility in Deerfield Beach, Florida. Most of the EAS equipment
developed by SenTech consists of component parts manufactured for SenTech or
purchased from third parties. SenTech does not maintain an extensive finished
goods inventory since SenTech believes it is able to obtain required component
parts, assemble, and ship its product within competitive lead times acceptable
to its customers. SenTech subcontracts with local vendors to assemble printed
circuit boards, and machine, mold, and finish various component parts. SenTech
anticipates it will continue to rely primarily on such third party manufacturers
and vendors
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in order to minimize overhead. SenTech minimizes dependence on any one supplier
by maintaining sufficient alternatives for its raw materials and finished goods
requirements.
Refurbishing Operations
SenTech acquires and refurbishes existing products developed
by its major competitors primarily from customers who are upgrading or changing
their current detection systems and from liquidation and foreclosure sales. All
of SenTech's refurbishing activities, including the inspection and testing of
the refurbished product, are performed by employees of SenTech at SenTech's
leased facility in Deerfield Beach, Florida.
Installation and Customer Service
SenTech usually provides one-year warranties on all its
products covering both parts and labor and offers optional extended warranties
which may be purchased by customers. In July 1995, SenTech entered into a
service agreement effective August 1995 with a national service organization,
whose President and Chief Executive Officer, Thomas A. Nicolette, is a director
of SenTech, which provides for the installation and servicing of any 8.2 MHz EAS
system. The national service organization has 31 service centers throughout the
United States and is capable of providing service on a national level. Any EAS
systems not covered by the agreement are handled by SenTech's service personnel
or other third party service providers. The agreement is for a one-year term and
is automatically renewable for one-year periods unless terminated in writing by
either party. SenTech has not received any termination notices and believes its
relationship with the service provider is favorable. Although there can be no
assurance the agreement will not be terminated or will be renewed in the future,
SenTech anticipates the agreement will automatically be renewed through August
2000.
Markets and Marketing Strategy
SenTech markets and sells EAS equipment in the United States
and abroad through an internal sales force of four individuals and Company
management. SenTech's current regional sales representatives primarily cover the
Eastern United States. SenTech is in the process of recruiting a national sales
force to expand its coverage of the United States market. Domestic dealer and
foreign distributor sales are conducted primarily by internal sales people.
Management markets EAS equipment through a direct-calling program in addition to
attending trade shows, advertising in trade publications, a direct-mailing
program, and internet advertising.
There were no material concentrations of sales or accounts
receivable outside the United States during December 31, 1998 and 1997.
SenTech's sales and marketing efforts are focused on retailers
who do not yet utilize EAS equipment as well as retailers who presently utilize
EAS equipment developed by SenTech's major competitors and are seeking an
alternative supplier of EAS equipment offering lower prices with more
personalized service. Since SenTech refurbishes, markets, and services EAS
equipment developed and sold by other companies, and its own products are
compatible with such other products, SenTech believes it is able to compete for
many of the needs of retailers presently utilizing EAS equipment.
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SenTech's sales and marketing efforts include a "Try Buy"
program under which SenTech installs its EAS equipment in a retailer's store for
a trial period at a minimal cost that covers only SenTech's cost of labor to
install and monitor such equipment. The trial period lasts for approximately
60-90 days, after which the retailer decides whether or not to purchase the
equipment. If the retailer chooses not to purchase SenTech's EAS equipment, the
equipment is removed from the location without any further obligation. Since the
introduction of this program, most of the trials have resulted in the retailers'
purchase of SenTech's equipment.
With respect to EAS equipment developed by other companies,
SenTech purchases such equipment from third party manufacturers and distributors
in the United States and abroad and resells such EAS equipment at discounted
rates. SenTech is able to purchase such equipment from third parties at
favorable rates based upon its relationship with such third parties.
Backlog
At December 31, 1998, SenTech ended the year with over $28,000
in backlog of sales orders compared to $326,000 in backlog at December 31, 1997.
SenTech expects the entire backlog of sales orders at the end of 1998 to be
shipped prior to the end of the first quarter of 1999. The amount of backlog at
any time during the year is not necessarily indicative of the volume of business
for the upcoming year. SenTech's revenues are substantially dependent on its
customers' seasonal retail sales. Historically, SenTech has experienced higher
sales volume in the third and fourth quarters of each year.
Employees
SenTech currently has 8 full time employees and one part time
employee, none of who have entered into employment agreements with SenTech nor
are represented by a labor union. From time to time, SenTech hires temporary
personnel to accommodate special requirements for larger projects. SenTech does
not have key-man life insurance on any of its employees.
Competition
SenTech competes in the EAS industry with several companies.
Many of these companies are larger and better known and have significantly
greater financial, technological, manufacturing and marketing resources than
SenTech. SenTech's principal competitors are Sensormatic Electronics Corporation
("Sensormatic"), Checkpoint Systems, Inc. ("Checkpoint"), Sentry Technology
Corporation ("Sentry"), and a number of smaller companies. Although SenTech
believes it has strived to compete effectively in the past by offering
innovative products and competitive prices, no assurance can be given that
SenTech will be capable of effectively competing successfully in the future, or
that SenTech will be successful in maintaining or expanding its share of the
market for its products. No assurance can be given the products or technologies
that may be developed and introduced by competitors will not render SenTech's
products less competitive or obsolete. SenTech remains competitive in the EAS
industry because the equipment developed by SenTech is compatible with EAS
equipment developed by other companies. In addition, SenTech purchases EAS
equipment developed by other companies from third party manufacturers and
distributors at favorable rates and resells such equipment at discounted prices.
Government Regulation
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The EAS Industry is subject to extensive regulation by various
federal and state regulatory agencies including the Federal Communications
Commission (the "FCC"). Any equipment manufactured by other companies that is
refurbished and resold by SenTech has received the required approvals from the
FCC. SenTech intends to submit applications for approval by the FCC of equipment
invented and developed by SenTech. There can be no assurance that SenTech will
obtain the requisite approvals, and the failure to obtain such approvals could
have a materially adverse effect upon SenTech's business.
From time to time, legislation and regulations that could
potentially affect SenTech, either beneficially or adversely, have been proposed
by federal and state legislators and regulators. Management is not aware of any
currently pending or proposed legislation or regulations which would have a
materially adverse impact onSenTech's operations if adopted. There can be no
assurance that the FCC or various state regulators will not adopt regulations or
take other actions that would materially adversely affect the business of
SenTech.
Absence of Patent Protection
SenTech does not currently have patent protection on most of
its products. Its ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
products. SenTech may apply for patent protection on future products it
develops, however, there can be no assurance that it will be successful in
obtaining such patents or, if obtained, that such patents will afford SenTech
sufficient protection. SenTech intends to rely substantially on unpatented
proprietary information and technological know-how, and there can be no
assurance that others will not develop such information and know-how
independently or otherwise obtain access to its technology. Also, it is not
certain that SenTech's proprietary technology will not infringe patents or other
rights owned by others. In the event that patent infringement claims are brought
against SenTech, SenTech may be forced to obtain a license for such technology,
and there can be no assurance that it will be successful in obtaining such
licenses. In the event that SenTech contests an infringement claim, it may
divert SenTech's resources from other purposes.
Technological Obsolescence or Failure and Uncertain Market Acceptance of Future
Products
The markets served by SenTech are to a certain extent
characterized by technological advances, changes in customer requirements, and
occasional new product introductions and enhancements. SenTech's business may
require, at times, ongoing research and development efforts and expenditures,
and its future success may depend on its ability to enhance its current products
and develop and introduce new products which keep pace with technological
developments in response to evolving customer requirements. There can be no
assurance SenTech's failure to anticipate or respond adequately to technological
developments and changing customer requirements, or the occurrence of
significant delays in new product development or introduction, or the
technological failures of its products or the systems in which they are
incorporated, would not result in a material loss of anticipated future revenues
and seriously impair SenTech's competitiveness. In addition, SenTech may
misgauge market needs and introduce products which fail to gain the necessary
market acceptance for whatever reason. Hence, it is also uncertain whether new
products or enhancements of existing products can be successfully marketed and
sold by SenTech.
Properties
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SenTech's offices, warehouse, and distribution center are
located in 6,300 square feet of leased facilities in Deerfield Beach, Florida of
which approximately 3,600 square feet are used for offices. Through the end of
the lease term on January 31, 2000, the lease provides for payments of
approximately $5,000 per month including sales tax and common area maintenance
expenses. SenTech believes these facilities are adequate to accommodate
operations through the end of the lease term.
Legal Proceedings
SenTech is involved in various claims and legal actions
arising in the ordinary course of business. Although SenTech is unable to
predict the ultimate disposition of these matters, SenTech does not believe the
resolution of such matters will have a material adverse effect on its
consolidated financial position, results of operations, or liquidity.
In October 1996, SenTech was named as a defendant in a lawsuit
filed in New Jersey Superior Court whereby the plaintiff is seeking damages with
respect to certain alleged invoices totaling approximately $20,000. A motion to
amend the pleadings was filed and granted to assert counterclaims and third
party claims against the plaintiff and its officers for, among other things,
false designation of origin under the federal Lanham Act, violations of
statutory and common law unfair competition, trademark and trade dress
infringement, and breach of contract all of which may result in damages
exceeding $1,000,000. SenTech's counterclaim and third party claims arose from
an alleged intentional breach of a requirements type contract in which the
plaintiff was authorized to manufacture for SenTech certain equipment for sale
to third parties. Although SenTech has recorded in accrued liabilities a
provision of approximately $20,000 for any liability which may result from the
plaintiff's claims, SenTech plans to continue to vigorously defend against the
plaintiff's alleged claims and to pursue its counterclaims and third party
claims against the plaintiff. While there is no assurance as to the outcome of
this legal action, management and legal counsel for SenTech believe the ultimate
resolution of this matter will not have a material adverse effect on its
consolidated financial position or results of operations.
Other than the claims noted above, SenTech has no notice of
any pending or threatened litigation.
Market For Registrant's Common Stock And Related Security Holder Matters
SenTech's common stock has not commenced trading but is listed
on the National Association of Securities Dealers, Inc. ("NASD") OTC Electronic
Bulletin Board ("Bulletin Board") under the symbol "SETE". There have been no
quotes on SenTech's common stock since its listing on the Bulletin Board.
In April 1997, in connection with a private placement of
SenTech's common stock under Regulation D Rule 506 of the Securities Act of
1933, as amended, SenTech consummated the sale of 343,894 units, each unit
consisting of one share of common stock and one common stock purchase warrant.
Each warrant expires after five years of issuance and entitles the registered
holder to purchase one share of common stock at a purchase price equal to the
lesser of $5.50 or ten percent above the offering price of a share of common
stock in a proposed public offering. The net proceeds received by SenTech from
this offering were approximately $707,000 of which approximately $198,000 from
the sale of 88,173 units was received during the year ended December 31, 1997.
In June 1998 October 1997, SenTech issued 30,000 and 97,500
shares of SenTech's common stock pursuant to directors' and officers'
compensation agreements.
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SenTech has never paid a cash dividend on its common stock
since its inception nor does it anticipate paying any cash dividends in the near
future. SenTech intends to retain any future earnings to finance the operations
of SenTech.
At January 31, 1999, SenTech had approximately 105 registered
holders of record.
Executive Compensation
The following table sets forth all compensation for services rendered in all
capacities to SenTech and its subsidiary for each of the years ended December
31, 1998 and 1997 bySenTech's President and Chief Executive Officer. There were
no other executive officers or other persons whose total compensation exceeded
$100,000 during the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
------------------- -------------------
Name/ Restricted Options/ All Other
Principal Position Year Salary Bonus Other Stock SARS Compensation
- ------------------ ---- ------ ----- ----- ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Meggison, Jr.
President & CEO 1998 $74,607 0 $25 $500 0 0
1997 67,103 0 19 15,750 0 0
Saul Pozensky
Former President & CEO 1998 48,903 0 104 500 0 0
1997 74,079 0 87 3,500 0 0
</TABLE>
Directors of SenTech receive 1,000 shares of common stock per
year for acting in such capacities. In addition, Directors receive 1,000 shares
of common stock for each Board of Directors meeting attended, however, no
Director shall receive more than 5,000 shares of common stock in any one year
period. For each of the years ended December 31, 1998 and 1997, 25,000 shares of
SenTech's common stock was granted pursuant to SenTech's Board of Director's
Compensation policy. Effective January 1, 1998, in addition to the Board of
Director's stock based compensation described above, non-management Directors
receive $10,000 annually payable quarterly in arrears.
SenTech does not currently have employment agreements with any
of SenTech's executive officers or any other members of management.
There were no performance options granted by SenTech during
the years ended December 31, 1998 and 1997.
Certain Relationships and Related Transactions
In the fourth quarter of 1996 and the first and second
quarters of 1997, SenTech sold an aggregate of 343,894 units, each unit
consisting of one share of common stock and one common stock purchase warrant,
in a private placement. SenTech's Chairman, Edward A. Mulhare, purchased 10,504
units in this private placement.
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In the second quarter of 1997, SenTech entered into a three
year purchase and manufacturing agreement (the "Agreement") with a company whose
President and Chief Executive Officer, Thomas A. Nicolette, is a director of
SenTech. The Agreement, as amended, provides for the development and manufacture
of SenTech's third generation EAS system. The Agreement requires SenTech to pay
$187,000 of non-recurring engineering costs in exchange for an assignment of
fifty percent of the joint technology as defined by the Agreement. As of
December 31, 1998, SenTech paid $187,000 of the non-recurring engineering costs
of which approximately $117,000 was paid during 1997. The Agreement also
requires SenTech to purchase minimum quantities of the system each year
representing an aggregate purchase commitment of $2,250,000 with annual
obligations of $375,000 by February 1999; $750,000 by January 2000; and
$1,125,000 by January 2001.
In the third quarter of 1997, warrants to purchase 12,500
shares of common stock at an exercise price of $2.40 per share expiring June
2000 were issued to Milan Resanovich, the Vice Chairman of the Board of
Directors, in exchange for extending the maturity date to December 31, 1998 on
both the 8% mandatory convertible promissory note in the amount of $53,000 and
the 6% senior note in the amount of $150,000 both of which are due to Messr.
Resanovich. Additionally, $4,325 of accrued interest on the 8% mandatory
convertible promissory note due to Messr. Resanovich was converted to 1,802
shares of SenTech's common stock.
In the third quarter of 1997, warrants to purchase 30,000
shares of common stock at an exercise price of $2.40 per share expiring June 25,
2002 were issued to Thomas A. Nicolette, a director of SenTech, as an incentive
for Messr. Nicolette to serve on the Board of Directors of SenTech.
In the fourth quarter of 1997, 45,000 shares of SenTech's
common stock was granted for additional compensation to Ronald L. Meggison,
Jr., SenTech's President and Chief Executive Officer.
In the first quarter of 1998, in exchange for extending the
maturity date to January 2001 on both the 8% mandatory convertible promissory
note in the amount of $53,000 and the 6% senior note in the amount of $150,000
both of which are due to Messr. Resanovich, the Vice Chairman of the Board of
Directors, SenTech (i) issued to Messr. Resanovich warrants to purchase 12,500
shares of common stock at an exercise price of $2.40 per share expiring January
2001 and (ii) amended the warrants to purchase 12,500 shares of common stock at
an exercise price of $2.40 per share expiring June 2000 issued to Messr.
Resanovich in the second quarter of 1997, to expire January 2001.
In the second quarter of 1998, $2,138 of accrued interest on
the 8% mandatory convertible promissory note due to Messr. Resanovich, the Vice
Chairman of the Board of Directors, was converted to 891 shares ofSenTech's
common stock.
In the second quarter of 1998, 5,000 shares of SenTech's
common stock was granted for additional compensation to Ronald L. Meggison, Jr.,
SenTech's President and Chief Executive Officer.
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THE SPECIAL MEETINGS
General
Ensec. This Joint Proxy Statement/Prospectus is being
furnished to holders of The Company Common Stock in connection with the
solicitation of proxies by the Ensec Board for use at the Ensec Special Meeting
to consider and vote upon the approval and adoption of the Merger Agreement and
the approval of the Plan Proposals, to grant authorization to Ensec to adjourn
the Ensec Special Meeting to solicit additional proxies and to transact such
other business as may properly come before the Ensec Special Meeting.
The Company board has unanimously approved the merger
agreement and ratified the plan proposals and unanimously recommends that the
holders of Ensec common stock vote for the approval and adoption of the merger
agreement and for the approval of the plan proposals.
SenTech. This Joint Proxy Statement/Prospectus is being
furnished to holders of SenTech Common Stock in connection with the solicitation
of proxies by the SenTech Board for use at the SenTech Special Meeting to
consider and vote upon the approval and adoption of the Merger Agreement and the
approval of the Plan Proposals, to grant authorization to SenTech to adjourn the
SenTech Special Meeting to solicit additional proxies and to transact such other
business as may properly come before the SenTech Special Meeting.
The SenTech board has unanimously approved the merger
agreement and ratified the plan proposals and unanimously recommends that the
holders of SenTech common stock vote for the approval and adoption of the merger
agreement and for approval of the plan proposals.
Record Dates
Ensec. Ensec Board has fixed the close of business on ,
1999 as the Ensec Record Date for the determination of the holders of Ensec
Common Stock entitled to receive notice of, and to vote at, the Ensec Special
Meeting.
SenTech. The SenTech Board has fixed the close of business on
, 1999 as the SenTech Record Date for the determination of the holders of
SenTech Common Stock entitled to receive notice of, and to vote at, the SenTech
Special Meeting.
Times and Places; Purposes
Ensec. The Ensec Special Meeting will be held at 352 Seventh
Avenue, Suite 1040, New York, New York on , 1999, starting at 10:00 a.m.
local time. At the Ensec Special Meeting, the holders of Ensec Common Stock will
be asked to consider and vote upon (i) the Merger Agreement, and (ii) such other
matters as may properly come before the Ensec Special Meeting, including
adjournment of the Ensec Special Meeting to solicit additional proxies.
SenTech. The SenTech Special Meeting will be held at Gersten,
Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York on ,
1999, starting at 10:00 a.m. local time. At the SenTech Special Meeting, the
holders of SenTech Common Stock will be asked to consider and vote upon (i) the
Merger Agreement, (ii) the Plan Proposals and (iii) such other matters as may
properly come before the SenTech Special Meeting, including adjournment of the
SenTech Special Meeting to solicit additional proxies.
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Voting Rights; Votes required for Approval
Ensec. Only holders of record of shares of Ensec Common Stock
on the Ensec Record Date are entitled to notice of, and to vote at, the Ensec
Special Meeting. On the Ensec Record Date, there were 6,016,250 shares of Ensec
Common Stock outstanding and entitled to vote at the Ensec Special Meeting held
by approximately 84 shareholders of record.
Each holder of record of Ensec Common Stock, as of the Ensec
Record Date, is entitled to cast one vote per share. The presence, in person or
by proxy, of the holders of a majority of the outstanding shares of Ensec Common
Stock entitled to vote is necessary to constitute a quorum at the Ensec Special
Meeting. Under the FCBA and pursuant to Ensec's Articles of Incorporation, the
affirmative vote, in person or by proxy, of the holders of a majority of the
outstanding shares of Ensec Common Stock entitled to vote thereon is required to
approve and adopt the Merger Agreement. The affirmative vote of the holders of a
majority of the Ensec Common Stock represented in person or proxy at the Ensec
Special Meeting, at which a quorum is not present, is required to approve an
adjournment of the Ensec Special Meeting. The Merger Agreement is also subject
to approval by the holders of SenTech Common Stock described herein. Proxies may
be revoked by notice of revocation or a later signed and dated proxy or by
attending the Ensec Special Meeting and voting in person. Attendance at the
Ensec Special Meeting will not in itself constitute the revocation of a proxy.
SenTech. Only holders of record of shares of SenTech Common
Stock on the SenTech Record Date are entitled to notice of and to vote at the
SenTech Special Meeting. On the SenTech Record Date, there were 10,398,954
shares of SenTech Common Stock outstanding and entitled to vote at the SenTech
Special Meeting held by five shareholders of record.
Each holder of record of SenTech Common Stock, as of the
SenTech Record Date, is entitled to cast one vote per share. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
SenTech Common Stock entitled to vote is necessary to constitute a quorum at the
SenTech Special Meeting. Under the FBCA, the affirmative vote, in person or by
proxy, of the holders of a majority of the outstanding shares of SenTech Common
Stock entitled to vote thereon is required to approve and adopt the Merger
Agreement. The affirmative vote of the holders of a majority of the SenTech
Common Stock represented in person or by proxy at the SenTech Special Meeting,
at which a quorum is not present, is required to approve an adjournment of the
Special Meeting. The Merger Agreement is also subject to approval by the holders
of Ensec Common Stock described herein. Proxies may be revoked by notice of
revocation or a later signed and dated proxy or by attending the SenTech Special
Meeting and voting in person. Attendance at the SenTech Special Meeting will not
in itself constitute the revocation of a proxy.
PROXIES
All shares of Ensec Common Stock and SenTech Common Stock
represented by properly executed proxies received prior to or at the Ensec
Special Meeting or SenTech Special Meeting, respectively, and not subsequently
revoked will be voted in accordance with the instructions indicated on such
proxies. If no instructions are indicated on a properly executed and returned
proxy, such proxy will be voted FOR the approval of the Merger Agreement. A
properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the applicable Special Meeting, will not be voted. Accordingly, as the
affirmative vote of a majority (in the case of Ensec) or two-thirds of the
outstanding shares is required for the approval of the Merger Agreement, a proxy
marked "ABSTAIN" will have the effect of a vote against the proposal. A broker
non-vote occurs when an agent holding shares for a beneficial owner does not
vote on a particular proposal because the agent does not have discretionary
voting power with respect to that proposal and has not received instructions
with respect to how to vote on such matter from the beneficial owner. Brokers
and nominees are precluded from exercising their voting discretion with respect
to the approval and adoption of the
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Merger Agreement and, therefore, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares with
respect to such proposals. Shares represented by broker non-votes will be
counted for purposes of determining whether there is a quorum at the applicable
Special Meeting but will not be counted for purposes of determining the number
of shares present entitled to vote with respect to a particular proposal for
which authorization to vote was withheld. With respect to the Merger Agreement,
however, since the affirmative vote of a majority of the outstanding shares is
required for approval of the Merger Agreement, a broker non-vote with respect to
such proposal will have the effect of a vote against such proposal. For other
matters to come before a meeting, broker non-votes have the practical effect of
reducing the number of affirmative votes required to achieve the requisite vote
for such proposal by reducing the total number of shares of common stock from
which the requisite vote is calculated. Accordingly, roker non-votes with
respect to a proposal will not be considered shares entitled to vote and,
therefore, will not be counted as votes for or against such proposal in
determining whether such proposal is approved. Ensec Board and the SenTech Board
are not currently aware of any business to be acted upon at their respective
Special Meetings other than as described herein. If, however, other matters are
properly brought before either Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment. Such adjournment may be
for the purpose of soliciting additional proxies. Shares represented by proxies
voting against the approval and adoption of the Merger Agreement will be voted
against a proposal to adjourn the respective Special Meeting for the purpose of
soliciting additional proxies with respect to such matter.
Holders of Ensec Common Stock and holders of SenTech Common
Stock will not be entitled to present any matter for consideration at either of
the Special Meetings. A holder of Ensec Common Stock or a holder of SenTech
Common Stock may revoke his or her proxy at any time prior to the voting of the
proxy by delivering to the Secretary of Ensec or SenTech, as the case may be, a
signed notice of revocation or a later dated signed proxy or by attending the
applicable Special Meeting and voting in person. Attendance at the Ensec Special
Meeting or the SenTech Special Meeting will not itself constitute the revocation
of a proxy. The cost of solicitation of proxies will be paid by Ensec for Ensec
proxies and by SenTech for SenTech proxies. In addition to solicitation by mail,
arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy material to beneficial owners, and Ensec or
SenTech, as the case may be, will, upon request, reimburse them for their
reasonable expenses in so doing.
Holders of Ensec common stock and holders of SenTech common
stock should not send in any stock or share certificates with their proxy cards.
A transmittal form with instructions for the surrender of certificates for Ensec
common stock and SenTech common stock will be mailed by Ensec and SenTech to
their respective holders of common stock as soon as practicable after the
consummation of the transaction. See "The Transaction--Appraisal Rights."
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THE MERGER AGREEMENT
General
The Merger Agreement contemplates the mergers of E-Sub and
S-Sub, two wholly owned subsidiaries of Global, with and into Ensec and SenTech,
respectively, with Ensec and SenTech surviving the Mergers as wholly owned
subsidiaries of Global, The Mergers will become effective by filing Articles of
Merger with the Secretary of State of the State of Florida. It is anticipated
that such filings will be made immediately on the closing under the Merger
Agreement. The following description of the Merger Agreement is qualified by
reference to the complete text of the Merger Agreement, which is incorporated by
reference herein and attached hereto as Exhibit 2.1. Capitalized terms used in
the following description of the Merger Agreement that are defined in the Merger
Agreement and not otherwise defined are used herein as defined in the Merger
Agreement.
Consideration to be Received in the Mergers
At the Ensec Merger Effective Time, (a) each outstanding share
of Ensec Common Stock and all rights in respect thereof will be converted into
0.2180149 shares of Global Common Stock and (b) each outstanding share of Ensec
Common Stock held in the treasury of Ensec will be canceled and cease to exist.
At the SenTech Merger Effective Time, (a) each outstanding
share of SenTech Common Stock and all rights in respect thereof will be
converted into 0.4965541 shares of Global Common Stock and (b) each outstanding
share of SenTech Common Stock held in the treasury of SenTech will be canceled
and cease to exist.
Exchange of Shares
Subject to the terms and conditions of the Merger Agreement,
at or prior to the Closing Date, Global will appoint an exchange agent (the
"Exchange Agent") to effect the exchange of Ensec Common Stock and SenTech
Common Stock for Global Common Stock. Global will upon the Closing Date deposit
certificates representing shares of Global Common Stock with the Exchange Agent
for conversion of Ensec Common Stock and SenTech Common Stock. Commencing
immediately after the relevant Effective Time, holders of Ensec Common Stock or
SenTech Common Stock may surrender their certificates to the Exchange Agent. In
exchange for such share certificates, holders will receive Global Common Stock
certificates representing such number of shares as described under
"--Consideration to be Received in the Transaction." Holders of unexchanged
certificates that, prior to the relevant Effective Time, represented shares of
Ensec Common Stock or SenTech Common Stock will not be entitled to receive any
dividends or other distributions payable by Global until their certificates are
surrendered. Upon surrender, however, subject to applicable laws, such holders
will receive accumulated dividends and distributions, without interest. No
fractional shares of Global Common Stock will be issued. Each holder of shares
of Ensec Common Stock and SenTech Common Stock who would otherwise be entitled
to a fraction of a share of Global Common Stock (after aggregating all
fractional shares of Global Common Stock to be received by such holder) shall be
entitled to receive a whole share of Global Common Stock.
Dissenter's Rights
Holders of shares of Ensec Common Stock and SenTech Common
Stock have dissenters' rights under Sections 607.1301, 607.1302 and 607.1320 of
the FBCA. Any shares of capital stock of Ensec or SenTech with respect to which
the holder thereof ("Dissenter") ultimately receives payment pursuant to
Sections 607.1301, 607.1302 and 607.120 of the FBCA will not be converted into
Global Common Stock pursuant to
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the Agreement, but the holder thereof will only be entitled to such rights as
are granted by the FBCA. See "The Transaction--Appraisal Rights." If, after the
Closing Date, a Dissenter loses the right to receive payment pursuant to the
FBCA, then such holder's shares will automatically be converted into and
represent only the Global Common Stock into which such shares would have been
converted under the Merger Agreement if there had been no dissent, effective as
of the relevant Effective Time. Upon surrender of the certificate representing
such shares, without prejudice to any corporate proceedings which may have been
taken during the interim period between the relevant Effective Time and the
occurrence of such event, such shareholder will be entitled to receive any
dividends or other distributions made to shareholders during such interim
period. See "The Transaction--Appraisal Rights."
Treatment of Outstanding Warrant and Stock Options
At the relevant Effective Time, (a) each outstanding and
unexercised warrant and option to purchase shares of Ensec Common Stock or
SenTech Common Stock will be assumed by Global and converted into a warrant or
option, as the case may be, to purchase shares of Global Common Stock. The
number of shares of Global Common Stock to be subject to the Global warrant or
option into which such warrant or option is converted (a "Converted Option")
shall be equal to the product of (x) the number of shares of Ensec Common Stock
or SenTech Common Stock subject to the option that is converted immediately
prior to the relevant Effective Time and (y) the Ensec Exchange Ratio or the
SenTech Exchange Ratio, as applicable, each rounded down to the nearest whole
share. The exercise price per share of Global Common Stock for each particular
Global option shall be equal to (x) if such Global option resulted from a
Converted option to acquire Ensec Common Stock, the exercise price per share
under the Converted option, or (y) if such Global Option resulted from a
Converted option to acquire SenTech Common Stock, (1) the exercise price per
share under the Converted option divided by (2) the SenTech Exchange Ratio, each
of which shall be rounded up to the nearest whole cent.
For a further discussion of the treatment of Ensec and SenTech
stock options and other employee benefit plans for each of Ensec and SenTech
under the Merger Agreement, see "The Transaction--Interests of Certain Persons
in the Transaction." For a description of Global Common Stock, see "Description
of Global Capital Stock--Common Stock."
Global's Board
The Merger Agreement provides that following the consummation
of the Mergers, the Board of Directors of Global will consist of Edward A.
Mulhare, as Chairman, Charles N. Finkel, Theodore Olson Pemberton, Milan
Resanovich and Thomas A. Nicolette. See "Directors and Management of
Global--Directors."
Certain Conditions
Conditions of Each Party's Obligation to Effect the Mergers
In addition to approval by shareholders of Ensec and SenTech,
the obligation of each party to the Merger Agreement to consummate the Mergers
is subject to the following conditions: (a) no federal, state or foreign
statute, rule, regulation, executive order, decree or injunction shall have been
enacted, entered, promulgated or enforced by any court or governmental authority
which makes the Mergers illegal or otherwise prohibits their consummation, (b)
all material authorizations, consents, orders and approvals of, applicable
government agencies, (c) the Registration Statement, of which this Joint Proxy
Statement/Prospectus forms a part, shall have become effective prior to mailing
by Ensec and SenTech of this Joint Proxy Statement/Prospectus to their
respective shareholders and no stop order suspending the effectiveness of the
Registration
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Statement, of which this Joint Proxy Statement/Prospectus forms a part, shall be
then threatened, initiated or in effect, and (d) all required state securities
and blue sky permits or approvals shall have been received.
Additional Conditions to the Obligations of Ensec
The obligations of Ensec to effect the transactions
contemplated by the Merger Agreement are further subject to all of the following
conditions, among others: (a) the representations and warranties of SenTech
contained in the Merger Agreement shall be true and correct as of the Closing
Date with the same effect as though made on and as of such time (except to the
extent such representations and warranties speak as of an earlier date); (b)
SenTech shall have performed or complied in all material respects with all
covenants, obligations and conditions required to be performed and complied with
as of the Closing Date; (c) SenTech shall have obtained certain required
third-party consents with respect to the transactions; (d) Ensec and SenTech
shall have received certain legal opinions with respect to corporate, regulatory
and tax matters; and (e) there shall not have occurred any event, fact or
condition which has had or reasonably would be expected to have a Material
Adverse Effect on Global, SenTech, or the surviving corporations since the date
of the Merger Agreement.
Additional Conditions to the Obligations of SenTech
The obligations of SenTech to effect the transactions
contemplated by the Merger Agreement are further subject to all of the following
conditions, among others: (a) the representations and warranties of Ensec
contained in the Merger Agreement shall be true and correct as of the Closing
Date with the same effect as though made as of such time (except to the extent
such representations and warranties speak as of an earlier date); (b) Ensec and
shall have performed or compiled in all material respects with all covenants,
obligations and conditions required to be performed and complied with as of the
Closing Date; (c) SenTech and Ensec shall have received certain legal opinions
with respect to corporate, regulatory and tax matters; and (d) there shall not
have occurred any event that has had or could reasonably be expected to have a
Material Adverse Effect on Ensec.
"Material Adverse Effect," as defined in the Merger Agreement,
means a fact or event which has had or is reasonably likely to have a material
adverse effect on the assets, business, financial condition or results of
operations of Global and its Subsidiaries taken as a whole. Ensec and its
Subsidiaries taken as a whole, or SenTech and its Subsidiaries taken as a whole,
as indicated by the context in which used, and when used with respect to
representations, warranties, conditions, covenants or other provisions hereof
means the individual effect of the situation to which it relates and also the
aggregate effect of all similar situations unless the context indicates
otherwise.
Certain Representations and Warranties
The Merger Agreement contains certain representations and
warranties of Ensec, SenTech and Global as to, among other things, due
organization and good standing, authorized capital stock, ownership of
subsidiaries, corporate authority to enter into the contemplated transactions,
recent filings with the Commission (if applicable), financial statements,
ownership of and title to assets and properties, material contracts, tax
matters, regulatory matters, information supplied for use in this Registration
Statement and Joint Proxy Statement/Prospectus, the absence of material changes
or events, compliance with laws, agreements, contracts or commitments with third
parties, ownership of personal property, litigation, employee benefit plans,
intellectual property, labor matters and environmental matters.
Certain Covenants
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The Merger Agreement provides that from the date thereof to
the Closing Date, except as otherwise permitted by the Merger Agreement, Ensec
and SenTech will each conduct its business in the ordinary course consistent
with past practices. By way of illustration and without limiting the foregoing,
the Merger Agreement places restrictions on the ability of Ensec and SenTech to,
among other things, (a) enter into any material commitment or transaction other
than in the ordinary course of business; (b) grant any severance or termination
pay in excess of $10,000; (c) transfer intellectual property rights, subject to
certain exceptions; (d) violate or amend any contracts or agreements required to
be set forth in the disclosure schedule to the Merger Agreement; (e) declare or
pay dividends, make distributions with respect to its stock, or split, combine
or reclassify its stock or issue securities; (f) issue or sell shares, unless
pursuant to an warrant or option granted prior to the execution of the Merger
Agreement; (g) amend its Articles of Incorporation or Bylaws; (h) adopt or amend
employee compensation and severance benefits; (i) change any material election
or any accounting method in respect of taxes; or (j) take any action which would
jeopardize the ability of the business combination to be effected by the Mergers
and the Interest Exchange from being accounted for as a pooling of interests.
No Solicitation of Transactions
The Merger Agreement provides that Ensec and SenTech will not,
and will not allow any of its officers, directors, or agents to, directly or
indirectly, solicit, initiate, encourage or participate in any discussions or
negotiations relating to an Acquisition Proposal (as defined below) except for
an Acquisition Proposal from a third party that among other requirements, has
been determined by the respective Board in good faith and consistent with its
fiduciary duty, is superior to the Transaction.
As defined in the Merger Agreement, "Acquisition Proposal"
means a bona fide proposal or offer for a tender or exchange offer, merger,
consolidation or other business combination involving Ensec or SenTech as the
case may be, or any Subsidiary thereof, or any proposal to acquire in any manner
a substantial equity interest in, or a substantial amount of the assets of Ensec
or SenTech as the case may be or any such Subsidiary.
Control of Other Party's Business
Nothing in the Merger Agreement grants (i) Ensec the right to
control or direct SenTech's operations prior to the Closing Date, or (ii)
SenTech the right to control or direct Ensec's operations prior to the Closing
Date.
Termination
At any time prior to the Closing Date, the Merger Agreement
may be terminated as authorized by the respective Boards of Directors of Ensec,
on the one hand, or of SenTech, on the other hand, as follows: (a) by mutual
written consent of Ensec and SenTech; (b) by either Ensec or SenTech (each
referred to as "party" to the Transaction), if the Mergers shall not have been
consummated on or before February 28, 1999 (unless such failure to consummate is
caused solely by reason of the failure of the terminating party to consummate
the Transaction; (c) by either party if the other party shall have made a
misrepresentation or breached an obligation under the Merger Agreement, and such
breach or misrepresentation is not cured within 20 days after notice thereof and
such breach or misrepresentation results or would reasonably be expected to
result in a Material Adverse Effect on the terminating party; (d) by either
party upon the occurrence of a Material Adverse Effect on the other party or an
event which could reasonably be expected to result in a Material Adverse Effect
on the other party; (e) by either party (the "terminating party") (i) if the
other party's Board of Directors shall withdraw or modify in any adverse manner
its approval or recommendation of the Merger Agreement or the Mergers or (ii) if
the terminating party's own Board of Directors shall have failed to reaffirm its
recommendation with respect to the Transaction; (f) by either party if any of
the required approvals
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of the shareholders or partners, as the case may be, shall fail to have been
obtained; (g) by either party prior to the approval of the Merger Agreement by
the shareholders or the partners of such party, as applicable, upon five
business days' prior notice to the other party, if, as a result of an
Acquisition Proposal received from a person other than a party to the
Transaction or any of its affiliates, the Board of Directors, as applicable, of
such party determines in good faith, on the basis of advice of outside counsel,
that their fiduciary obligations under applicable law require that such
Acquisition Proposal be accepted; provided, however, that (i) the Board of
Directors of such party shall have concluded in good faith, after considering
applicable provisions of law, on the basis of advice of outside counsel, that
such action is necessary for the Board of Directors of such party to act in a
manner consistent with its fiduciary duties under applicable law and (ii) prior
to any such termination, the terminating party shall, and shall cause its
respective financial and legal advisors to, negotiate with the non-terminating
party to adjust the terms and conditions of the Merger Agreement to provide the
opportunity for the terminating party to proceed with the transactions
contemplated thereby; or (h) by Ensec or SenTech if there exists a final,
nonappealable order or a ruling by a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement.
Effect of Termination
The Merger Agreement obligates Ensec to pay to SenTech, or
SenTech to pay to Ensec, in certain circumstances set forth in the Merger
Agreement, such party's reasonable out-of-pocket expenses up to $50,000 (the
"Termination Fee") on the date the Merger Agreement is terminated. The Merger
Agreement obligates SenTech to pay to Ensec the Termination Fee if (i) Ensec
(or, in certain cases, SenTech) terminates the Merger Agreement because the
Board of Directors or any committee thereof of SenTech withdraws or modifies in
any adverse manner its approval or recommendation of the Merger Agreement, the
Mergers or the Interest Exchange, (ii) Ensec or SenTech terminate the Merger
Agreement due to the failure to obtain the required approval from the SenTech
shareholder, (iii) SenTech terminates the Merger Agreement prior to the approval
of the Merger Agreement by the SenTech shareholders or the partners in the
Partnership, upon SenTech having received an Acquisition Proposal and the
SenTech Board having concluded that its fiduciary obligations under applicable
law require that such Acquisition Proposal be accepted, or (iv) Ensec terminates
the Merger Agreement as a result of the failure of SenTech to take all action
necessary to obtain approval of the Transaction from its shareholders.
In addition, the Merger Agreement obligates Ensec to pay to
SenTech the Termination Fee if (i) SenTech (or, in certain cases, Ensec)
terminates the Merger Agreement because the Ensec Board or any committee thereof
withdraws or modifies in any adverse manner its approval or recommendation of
the Merger Agreement, the Mergers; (ii) Ensec or SenTech terminate the Merger
Agreement due to the failure to obtain the required approval from the Ensec
shareholders, (iii) Ensec terminates the Merger Agreement prior to the approval
of the Merger Agreement by the Ensec shareholders upon Ensec having received an
Acquisition Proposal and the Ensec Board having concluded that its fiduciary
obligations under applicable law require that such Acquisition Proposal be
accepted, or (iv) SenTech terminates the Merger Agreement as a result of Ensec's
failure to take all action necessary to obtain approval of the Transaction from
Ensec's shareholders.
Expenses
Each of the parties to the Merger Agreement will bear its own
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby, except that the expenses incurred in
connection with the printing of this Joint Proxy Statement/Prospectus and the
Registration Statement will be paid by Global.
Modification or Amendment
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The Merger Agreement may be amended by action taken in writing
by all of the parties at any time before the Effective Time, but after approval
of the Mergers by the shareholders of Ensec or SenTech (whichever shall occur
first), no amendment may be made that would (a) alter or change the amounts or
kinds of consideration to be received by the holders of Ensec Common Stock or
SenTech Common Stock upon consummation of the Mergers, (b) alter or change any
term of the Articles of Incorporation of either of the Surviving Corporations or
(c) alter or change any of the terms and conditions of the Merger Agreement if
such alteration or change would adversely affect the holders of any class or
series of securities of Global, Ensec or SenTech.
COMPARISON OF SHAREHOLDER RIGHTS
If the Mergers are consummated, Ensec's and SenTech's
shareholders will receive shares of Global Common Stock, and the rights of such
shareholders will be governed by Delaware state law, the Certificate of
Incorporation of Global and the Bylaws of Global. The following is a summary of
the material differences between (i) the rights of holders of Ensec Common Stock
and the rights of holders of Global Common Stock and (ii) the rights of holders
of SenTech Common Stock and the rights of holders of Global Common Stock. Each
of Ensec and SenTech are companies incorporated under the laws of the State of
Florida.. This summary does not purport to be a complete statement of the rights
of holders of Ensec Common Stock, SenTech Common Stock and Global Common Stock,
and is qualified in its entirety by reference to, The Delaware General Corporate
Law ("DGCL"), the Florida Business Corporation Act ("FBCA") and the respective
articles of incorporation and bylaws of Ensec, SenTech and Global.
Authorized Capital
Ensec. The authorized capital stock of Ensec is 23,000,000
shares of stock in the aggregate, including 20,000,000 shares of common stock
and 3,000,000 shares of preferred stock, each having a par value of $.01 per
share.
SenTech. The authorized capital stock of SenTech is 24,000,000
shares of common stock, par value $.00024 per share.
Global. The authorized capital stock of Global is 21,000,000
shares of stock in the aggregate, including 20,000,000 shares of common stock
and 1,000,000 shares of preferred stock, each having a par value of $.001 per
share.
Preferred Shares
Ensec. The Articles of Incorporation of Ensec authorize the
Board of Directors to issue preferred stock in one or more series and to fix or
determine from time to time the designations, preferences, limitations and
relative rights including voting rights.
SenTech. The Articles of Incorporation of SenTech do not
authorize the issuance of preferred stock.
Global. The Certificate of Incorporation of Global authorizes
the Board of Directors to issue preferred stock in one or more series and to fix
or determine from time to time the designations, preferences, limitations and
relative rights including voting rights of the shares of any series to the same
extent that such designations, preferences, limitations, and relative rights
could be stated if fully set forth in the Certificate of Incorporation. Such
authority includes, without limitation, the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption, redemption
price or prices, and the liquidation preferences of any
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wholly unissued series of preferred stock. The holders of common stock may
receive distributions and have liquidation rights subject to the prior rights
and preferences of the preferred stock.
Preemptive Rights
Ensec. The Ensec shareholders do not have any preemptive,
preferential or presumptive right to receive, purchase or subscribe to and
treasury shares, evidences of indebtedness or other securities of Ensec,
subscriptions, warrants or options, but the Ensec Board may by contract grant
preemptive rights from time to time.
SenTech. The SenTech shareholders do not have any preemptive,
preferential or presumptive right to receive, purchase or subscribe to and
treasury shares, evidences of indebtedness or other securities of SenTech,
subscriptions, warrants or options, but the SenTech Board may by contract grant
preemptive rights from time to time.
Global. Similar to Ensec and SenTech, Global does not provide
its stockholders any preemptive, preferential or presumptive right to receive,
purchase or subscribe to and treasury shares, evidences of indebtedness or other
securities of Global, subscriptions, warrants or options, but the SenTech Board
may by contract grant preemptive rights from time to time.
Meetings of Shareholders
Ensec. Meetings of shareholders of Ensec may be held within or
without the State of Florida, without the consent of the shareholders or the
location. Shareholder action may not be effected by written consent.
SenTech. Meetings of shareholders of SenTech may be held
within or without the State of Florida, without the consent of the shareholders
or the location. Shareholder action may be taken by written consent.
Global. Meetings of stockholders of Global may be held inside
or outside the State of Delaware, without the consent of the stockholders as to
location. Stockholder action may be taken by written consent.
Special Meetings
Ensec. Special meetings of shareholders of Ensec may be called
for any purpose or purposes by the Ensec Board or the holders of not less than
10% of all shares entitled to vote at the meeting.
SenTech. Special meetings of shareholders of SenTech may be
called for any purpose or purposes by the President, the SenTech Board, or the
holders of not less than 10% of all shares entitled to vote at the meeting.
Global. Special meetings of stockholders of Global may be
called for any purpose or purposes by the Chief Executive Officer, the
President, the SenTech Board, or the holders of not less than 10% of all shares
entitled to vote at the meeting.
Notice
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Ensec. Written notice of a meeting or special meeting must be
delivered not less than 10 nor more than 60 days before the date of the meeting
to each shareholder of record of Ensec entitled to vote at the meeting.
SenTech. Written notice of a meeting or special meeting must
be delivered not less than 10 nor more than 60 days before the date of the
meeting to each shareholder of record of SenTech entitled to vote at the
meeting.
Global. Written notice of a meeting or special meeting must be
delivered not less than 10 nor more than 60 days before the date of the meeting
to each shareholder of record of Global entitled to vote at the meeting.
Voting
Ensec. The vote of the holders of a majority of the shares
having voting power present in person or represented by proxy at a meeting at
which a quorum is present shall decide any question (including election of
directors) brought before a meeting, unless the question is one which under a
statute, the Articles of Incorporation of Ensec or the Bylaws of Ensec, a
different vote is required. The FBCA requires the affirmative vote of at least a
majority of the outstanding shares entitled to vote in a merger, exchange,
acquisition and a sale, lease or disposition of substantially all assets (if not
in the ordinary course of business).
SenTech. The vote of the holders of a majority of the shares
having voting power present in person or represented by proxy at a meeting at
which a quorum is present shall decide any question (including election of
directors) brought before a meeting, unless the question is one which under a
statute, the Articles of Incorporation of SenTech or the Bylaws of SenTech, a
different vote is required. The FBCA requires the affirmative vote of at least a
majority of the outstanding shares entitled to vote in a merger, exchange,
acquisition and a sale, lease or disposition of substantially all assets (if not
in the ordinary course of business).
Global. With respect to any matter other than election of a
director, the affirmative vote of the holders of a majority of the shares
entitled to vote on that matter and represented in person or by proxy at a
meeting of stockholders at which a quorum is present shall decide any question
brought before a meeting, unless otherwise provided by the DGCL a different vote
is required. The DGCL requires the affirmative vote of at least a majority of
the outstanding shares entitled to vote in a merger, exchange, acquisition and a
sale, lease or disposition of substantially all assets (if not in the ordinary
course of business). With respect to election of directors, a plurality of the
votes cast by the holders of shares entitled to vote at a meeting at which a
quorum is present will determine the directors.
Directors
Ensec. The Ensec Board consists of three directors. The Ensec
Board is divided into three classes, each class of directors holding office for
a three-year term. Directors may be removed by the vote of a majority of the
shareholders, with or without cause. If any vacancies occur in the Ensec Board,
a successor may be elected by either a majority of the remaining directors,
though less than a quorum, or by the shareholders at a special meeting called
for that purpose.
SenTech. The SenTech Board consists of three directors. If any
vacancies occur in the SenTech Board by reason other than increase in the number
of directors, a successor may be elected by either a majority of the remaining
directors, though less than a quorum, or by the shareholders at a special
meeting called for that purpose.
87
<PAGE>
Global. The Global Board consists of five directors. The
Global Board is divided into three classes, each class of directors holding
office for a three-year term. Directors shall be elected by a plurality of votes
cast by holders of shares entitled to vote in the election of directors at each
annual meeting and, if a vacancy occurs in the Global Board by reason of
increase in the number of directors, at a special meeting of shareholders called
for that purpose. If any vacancies occur in the Global Board by reason other
than increase in the number of directors, a successor may be elected by a
majority of the remaining directors, though less than a quorum.
Fixing Record Date
Ensec. The Ensec Board may fix in advance a record date for
the purpose of determining shareholders entitled to receive payment of any
dividend, such record date not to be more than 70 days prior to the payment
date.
SenTech. The SenTech Board may fix in advance a record date
for the purpose of determining shareholders entitled to receive payment of any
dividend, such record date not to be more than 70 days prior to the payment
date.
Global. The Global Board may fix in advance a record date for
the purpose of determining shareholders entitled to receive payment of any
dividend, such record date not to be more than 60 days prior to the payment date
and not less than 10 days prior to the payment date, or the Global Board may
close the stock transfer books for such purpose for a period of not more than 60
days prior to the payment date of such dividend.
Anti-Takeover Provision
The FBCA prevents an interested shareholder (defined in the
FBCA as a shareholder with more than 10% of the outstanding voting shares) from
engaging in certain affiliated transactions with the affiliated Florida
corporation, including certain business combinations, unless the holders of at
least two-thirds of the outstanding voting shares not owned by the interested
shareholder approve the transaction. The FBCA further generally prevents an
acquisition of controlling interest of a Florida corporation, subject to certain
exceptions such as a transaction done with the approval of the board of
directors or of the holders of at least a majority of the outstanding voting
shares. The existence of these two provisions ("Anti-Takeover Laws") generally
is expected to have an anti-takeover effect.
Ensec. Ensec has not elected to opt out of the Anti-Takeover
Laws of the FBCA.
SenTech. SenTech has not elected to opt out of the
Anti-Takeover Laws of the FBCA.
Global. Global will be subject to Delaware's "business
combination" statute, Section 203 of the DGCL. In general, such statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with a person who is an "interested stockholder" for a period of
three years after the date of the transaction in which that person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates, owns (or, within three years prior to the proposed business
combination, did own) 15% or more of the Delaware corporation's voting stock.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to Global and, accordingly, may discourage
attempts to acquire Global.
88
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of Global's securities is
qualified in its entirety by reference to Global's Certificate of Incorporation,
as amended, and its By-laws, copies of which have been filed as Exhibits to the
Registration Statement of which this Joint Proxy/Prospectus is a part.
Global is authorized to issue 20,000,000 shares of Common
Stock, $.001 par value per share and 1,000,000 shares of Preferred Stock, $.001
per share. After giving effect to the securities to be issued in connection with
the Transaction, there will be 2,144,463 shares of Common Stock outstanding. No
shares of Preferred Stock have been issued by Global. An additional 230,537
shares of Common Stock are reserved for issuance upon the exercise of various
options and warrants outstanding.
Common Stock
Holders of shares of Common Stock are entitled to one vote per
share of Common Stock on all matters submitted to a vote of stockholders of
Global and to receive dividends when declared by the Board of Directors from
funds legally available therefor. Upon the liquidation, dissolution or winding
up of Global, holders of shares of Common Stock are entitled to share ratably in
any assets available for distribution to stockholders after payment of all
obligations of Global and after provision has been made with respect to each
class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have cumulative voting rights or preemptive,
subscription or conversion rights.
Preferred Stock
Global is authorized to issue preferred stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of Global's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Global. Global has no present intention to issue any shares of its
preferred stock.
Delaware Law with Respect to Business Combinations
As of the date of this Prospectus, Global will be subject to
the State of Delaware's "business combination" statute, Section 203 of the
Delaware General Corporation Law. In general, such statute prohibits a publicly
held Delaware corporation from engaging in a "business combination" with a
person who is an "interested stockholder" for a period of three years after the
date of the transaction in which that person became an interested stockholder,
unless the business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates, owns (or, within three years prior to
the proposed business combination, did own) 15% or more of the Delaware
corporation's voting stock. The statute could prohibit or delay mergers or other
takeover or change in control attempts with respect to Global and, accordingly,
may discourage attempts to acquire Global.
Reports to Stockholders
Global intends to furnish its stockholders with annual reports
containing audited financial statements and to make available such other
periodic reports as Global may determine to be appropriate or as may be required
by law.
89
<PAGE>
Application for Listing
Global has applied for listing its Common Stock and Public
Warrants on the Nasdaq SmallCap Market under the symbols "[____]" and "[____],"
respectively.
Exchange Agent, Transfer Agent and Public Warrant Agent
Global has appointed North American Stock Transfer Company as
Exchange Agent in connection with the Transaction, Transfer Agent and Registrar
for its Common Stock and Warrant Agent for its Public Warrants.
Public Warrants
In connection with the initial public offering by Ensec in
September 1997, Ensec issued redeemable common stock purchase warrants. In
connection with the Transaction, and subject to approval of the Mergers, the
warrants shall automatically be exchanged for redeemable common stock purchase
warrants of Global ("Public Warrants") subject to a warrant agreement (the
"Warrant Agreement"), between Global and North 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 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
$[_____] 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 upon the closing of the Transaction 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. Ensec 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.
Global has the right at any time 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 or on a national securities exchange) equals or exceeds $[______] 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 Global 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. Global 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 Global's
intention to do so, there is no assurance that it will be able to so do.
90
<PAGE>
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.
91
<PAGE>
LEGAL MATTERS
The validity of the Global Common Stock to be issued in
connection with the Transaction will be passed upon by Gersten, Savage &
Kaplowitz, LLP, New York, New York. Matters entered under the heading "The
Transaction--Certain United States Federal Income Tax Consequences of the
Merger-SenTech" have been passed upon by Gersten, Savage & Kaplowitz, LLP and
are included herein in reliance upon the authority of such firm as experts.
Matters entered under the heading "The Transaction--Certain United States
Federal Income Tax Consequences of the Merger-Ensec" have been passed upon by
Atlas Pearlman Trop & Borkson, P.A., Fort Lauderdale, Florida and are included
herein in reliance upon the authority of such firm as experts.
EXPERTS
The consolidated financial statements of Ensec as of and for
the year ended December 31, 1998 included herein and made a part of the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part,
have been included herein in reliance on the report, which contains an
explanatory paragraph relating to Ensec's ability to continue as a going
concern, of Rothstein, Kass & Company, P.C., independent accountants, given or
the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Ensec at December 31,
1997 included herein and made a part of the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part, have been audited by Grant Thornton,
LLP, independent certified public accountants, as set forth in their report
thereon included elsewhere herein, which contains an explanatory paragraph
relating to Ensec's ability to continue as a going concern. Such consolidated
financial statements of Ensec are included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of SenTech at December
31, 1997 and 1998 included herein and made part of the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part, have been audited by
Spear, Safer Harmon & Co., independent certified public accountants, as set
forth in their report therein included elsewhere herein. Such financial
statements of SenTech are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
It is expected that representatives of Rothstein, Kass &
Company, P.C. will be present at the Ensec Special Meeting and representatives
of Spear, Safer Harmon & Co. will be present at the SenTech Special Meetings to
respond to appropriate questions of shareholders and to make a statement if they
desire.
FUTURE STOCKHOLDER PROPOSALS
The timing of the first annual meeting of the public
stockholders of Global will depend upon when the Mergers are consummated.
Commission rules set forth standards as to what stockholder proposals are
required to be included in a proxy statement.
AVAILABLE INFORMATION
This Joint Proxy Statement/Prospectus incorporates important
business and financial information about Global, Ensec and SenTech that is not
included in or delivered with this document. This information is available
without charge upon written or oral request to the following appropriate party:
<TABLE>
<S> <C> <C>
Global Security Technologies, Ensec International, Inc. Deerfield Beach, FL 33442
Inc. 352 Seventh Avenue, Suite 484 S.w. 12th Avenue
352 Seventh Avenue, Suite 1040 Deerfield Beach, FL 33442
1040 New York, NY 10048 (954) 426-2965
New York, NY 10001 (212) 524-0600 Attn: Ronald L. Meggison,
(212) 524-0600 Attn: Charles Finkel Jr.
Attn: Charles Finkel SenTech EAS Corporation
484 S.W. 12th Avenue
</TABLE>
92
<PAGE>
To obtain timely delivery of such information, security
holders must request this information no later than , 1999.
Ensec and SenTech are each subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Upon
consummation of the Transaction, Global will be subject to the information
reporting requirements of the Exchange Act and will be required to file reports,
proxy and information statements and other information with the Commission. Such
reports, proxy and information statements and other information filed with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, Room 1024,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission 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 including
Ensec and SenTech (http://www.sec.gov).
Global has filed a registration statement on Form S-4
(together with all amendments thereto and all schedules and exhibits filed or
incorporated by reference as a part thereof, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
up to 2,144,463 shares of Global Common Stock that are proposed to be issued in
connection with the Mergers to holders of outstanding shares of Ensec Common
Stock and to holders of outstanding shares of SenTech Common Stock and 476,363
redeemable common stock purchase warrants to be issued to in connection with the
Mergers to holders of SenTech's publicly traded redeemable common stock purchase
warrants. This Joint Proxy Statement/Prospectus also constitutes the Prospectus
of Global filed as part of the Registration Statement.
This Joint Proxy Statement/Prospectus does not include all of
the information set forth in the Registration Statement filed by Global with the
Commission under the Securities Act, as permitted by the rules and regulations
of the Commission. The Registration Statement is available for inspection and
copying as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated herein by reference or
included herein concerning the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, and each statement
shall be deemed qualified in its entirety by such reference.
No person has been authorized to give any information or make
any representation other than those contained or incorporated by reference in
this Joint Proxy Statement/prospectus, and, if given or made, such information
or representation must not be relied upon as having been authorized. This Joint
Proxy Statement/prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the securities covered by this Joint Proxy
Statement/Prospectus or a solicitation of a Proxy in any jurisdiction where, or
to or from any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Joint Proxy Statement/prospectus nor
any distribution of securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Ensec,
SenTech or Global since the date hereof or that the information contained or
incorporated herein by reference is correct as of any time subsequent to its
date.
93
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements Page
Number
------
Consolidated Balance Sheet F-2
Consolidated Statements of Stockholders' Equity F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5
F-1
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
-------------------- --------------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10,193 $ 58,055
Accounts receivable 518,659 1,107,618
Social taxes and other receivables
Inventory 348,898 594,006
Prepaid expenses & other assets 121,754 154,022
-------------------- -------------------
Total current assets 999,504 1,913,701
Property and equipment, net 1,630,636 1,668,711
Other assets 1,055,098 1,022,418
Total assets $ 3,685,238 $ 4,604,830
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term loans 183,623 166,185
Accounts payable 1,281,000 1,358,440
Accrued and other liabilities 678,289 1,132,449
Current portion of long term debt 667,371 1,092,243
-------------------- -------------------
Total current liabilities 2,810,283 3,749,317
Long term debt - net of current portion 1,266,186 1,913,536
Stockholders' Equity
Additional paid-in capital 13,896,110 13,896,108
Accumulated other comprehensive gain (loss) 695,007 (132,036)
Retained Earnings (Accumulated deficit) (15,042,509) (14,882,258)
Common Stock 60,163 60,163
Total stockholders' equity (391,231) (1,058,023)
-------------------- --------------------
Total liabilities and stockholders' equity $ 3,685,238 $ 4,604,830
==================== ====================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------------------
1999 1998
---- ----
<S> <C> <C>
Sales $ 580,591 $ 1,908,917
Cost of goods sold 355,581 1,093,296
---------------------- ---------------------
Gross profit 225,010 815,621
---------------------- ---------------------
Selling, general and
administrative expenses 545,581 823,026
Translation loss (gain) (13,000)
---------------------- ---------------------
Income (Loss) from Operations (320,571) 5,595
---------------------- ---------------------
Commission (Income)
Other (income) expenses
Interest income (8,109) (4,561)
Interest expense 128,123 210,260
Other Income (280,337) (384,488)
---------------------- ---------------------
(160,323) (178,789)
---------------------- ---------------------
Income (loss) from operations
before income taxes (160,248) 184,384
Net Income (loss) $ (160,248) $ 184,384
---------------------- ---------------------
Net Income (loss) per common share $ (.027) $ .03
Comprehensive Gain (loss)
Net Income (loss) (160,248) 184,384
Other comprehensive gain
(loss)
Foreign currency
translation adjustment 695,007 0
Comprehensive Gain (loss) 534,759 184,384
---------------------- ---------------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------------------
1999 1998
---------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (160,248) $ 184,384
Foreign Currency Translation gain (loss) 827,043
net cash (used in) operating activities:
Depreciation and amortization expense 65,955 45,467
Changes in assets and liabilities
Decrease (increase) in accounts receivable 588,959 (141,776)
Decrease (increase) in inventories 245,108 56,210
Decrease (increase) in interest receivable
Decrease (increase) in Prepaid & Other current assets 32,268 46,606
Decrease (Increase) in other assets (32,680) (262,000)
Increase (decrease) in accounts payable (77,440) (188,679)
Increase (decrease) in short term loans 17,438
Increase (decrease) in accrued and other liabilities (454,160) 42,781
------------------ -------------------
Net cash (used in) operating activities 1,052,243 (217,216)
------------------ -------------------
Cash flows from investing activities:
Purchase of fixed assets
Decrease in equipment under capital lease (27,883) 22,014
Proceeds on sale of fixed assets 16,770
------------------ -------------------
Net cash (used in) investing activities (27,883) 38,784
------------------ -------------------
Cash flows from financing activities:
Net borrowings (repayments) under credit line agreements 42,385
Net borrowings under short term loan agreements (281,282)
Repayment of long term debt (1,072,222) 133,966
Issuance of common stock 180,000
Decrease in capital lease obligation (16,418)
Offering Costs
------------------ -------------------
Net cash provided by financing activities (1,072,222) 58,651
------------------ -------------------
Net (decrease) increase in cash and cash equivalents (47,862) (119,781)
Translation (loss) gain on cash and cash equivalents (13,944)
Cash and cash equivalents at beginning of year 58,055 211,803
------------------ -------------------
Cash and cash equivalents at end of period $ 10,193 $ 78,087
Cash paid during the period for income tax, interest expenses and consultant services: $ 0 $ 441,824
================== ===================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies
The quarterly consolidated financial statements herein have been prepared
by Ensec International, Inc., a Florida corporation (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission and in accordance with the requirements of Regulation S-B promulgated
under the Securities Exchange Act of 1934, as amended. Certain information and
footnote disclosures which would otherwise be included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company's management believes the disclosures are sufficient to make the
information not misleading, it is suggested that these quarterly consolidated
financial statements be read in conjunction with the Company's audited annual
consolidated financial statements and footnotes thereto contained in its Form
10-KSB/A, as filed with the Commission on April 15, 1999.
Principles of Consolidation - The consolidated financial statements include
the accounts of Ensec International and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Foreign Currency Translation - The consolidated financial statements of
Ensec S.A. have been translated into U.S. dollars in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation". SFAS No 52 provides that all balance sheet accounts are translated
at year-end exchange rates, except for equity accounts, which are translated at
historical rates, if the local currency is the functional currency. Income and
expense accounts and cash flows are translated at the average currency exchange
rates in effect during the year.
Prior to January 1, 1998, Ensec S.A. regarded the U.S. dollar as its
functional currency as per the prescribed accounting method for companies
subject to hyper-inflationary economies. As a result, a combination of current
and historical currency exchange rates, were used in translating assets and
liabilities. The resulting translation adjustments were included in operations.
Beginning on January 1, 1998, Ensec S.A. was no longer considered to be
operating in a hyper-inflationary economy and thus the Company began to
translate the financial statements of Ensec S.A. using the local currency as the
functional currency. The resulting translation adjustments are included in
accumulated other comprehensive income.
F-5
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited interim of consolidated financial statements
include all adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results of the interim period.
2. Earnings Per Common Share
The Financial Accounting Standards Board recently issued Statement No. 128,
"Earnings Per Share" ("SFAS No. 128"). This statement is effective for periods
ending after December 15, 1998 and supersedes APB Opinion No. 15. The effect of
the adoption of SFAS No. 128 on the Company's earnings per share for each of the
periods presented has not been determined.
3. Long-term Debt
Commencing in December 1998, the Company started to amortize the principal
amount of $3.0 million of long term due to FINEP, a Brazilian Financial
Institution. On April 15, 1999, the Company initiated negotiations to amend the
Loan Agreement covering such debt, whereby the original principal repayments
will be paid over the same period, with a reduction during the period of
December 1998 through September 1999, with the possibility of liquidating the
debt in full in October 1999. The interest rate remains the same on the loan and
no other terms of the Loan Agreement were amended. The Company has not incurred
any cost in renegotiating the Loan Agreement.
F-6
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Issuing Common Stock
No common stock was issued in the quarter ending March 31, 1999.
5. Working Capital Requirements
Working capital deficit at March 31, 1999, decreased from $ 1.9 million at
December 31, 1998 to $ 1.8 million. This decrease is attributable to the
company's results for the period. The Company is actively seeking additional
sources of capital to permit the Company to continue to grow its operations in
Brazil. The only credit lines made available are those where receivables or
contracts are put up in collateral, thus reducing the companies ability to
invest over and above the normal growth of sales.
Should the Company become unable to obtain additional financing, it would
result in additional financial difficulties in Brazil.
The Company has no commitments for capital expenditures as of March 31,
1999.
F-7
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements:
Independent Auditors' Report F-9
Predecessor Independent Auditors' Report F-10
Consolidated Balance Sheet F-11
Consolidated Statements of Operations and Comprehensive Loss F-12
Consolidated Statements of Stockholders' Deficit F-13
Consolidated Statements of Cash Flows F-14
Notes to Consolidated Financial Statements F-15
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Ensec International, Inc.
We have audited the accompanying consolidated balance sheet of Ensec
International, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations and comprehensive loss, stockholders'
deficit and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of Ensec
International, Inc. and Subsidiaries for the year ended December 31, 1997 were
audited by other auditors whose report dated April 8, 1998, expressed an
unqualified opinion on those statements with an explanatory paragraph relating
to the Company's ability to continue as a going concern.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ensec
International, Inc. and Subsidiaries as of December 31, 1998, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has suffered significant
losses from operations and has a working capital deficit and a stockholders'
deficit at December 31, 1998. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 12. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 11, 1999
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Ensec International, Inc.
We have audited the accompanying consolidated statements of operations and
comprehensive loss, stockholders' deficit and cash flows of Ensec
International, Inc. and Subsidiaries (the "Company") for the year ended
December 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of operations and
comprehensive loss, stockholders' deficit and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of operations and comprehensive
loss, stockholders' deficit and cash flows. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the results of operations and
their cash flows. We believe that our audit of the statements of operations and
comprehensive loss, stockholders' deficit and cash flows provide a reasonable
basis for our opinion.
In our opinion, the statements of operations and comprehensive loss,
stockholders' deficit and cash flows referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of
Ensec International, Inc. for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.
The accompanying consolidated statements of operations and comprehensive loss,
stockholders' deficit and cash flows have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements referred
to above, the Company incurred a consolidated net loss of $5,869,866 during the
year ended December 31, 1997, and as of that date, the Company's consolidated
current liabilities exceeded its consolidated current assets by $1,163,556.
These factors, among others, as discussed in Note 12 to the financial
statements, raise doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 12. The consolidated statements of operations and comprehensive loss,
stockholders' deficit and cash flows do no include any adjustments that might
result from the outcome of this uncertainty.
/s/ Grant Thornton, LLP
Fort Lauderdale, Florida
April 8, 1998
F-10
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash $ 58,055
Accounts receivable, less allowance for doubtful
accounts of $90,924 1,107,618
Inventories 594,006
Other current assets 154,022
------------
Total current assets 1,913,701
Property and equipment, net 1,668,711
Social taxes receivable 921,681
Other assets 100,737
------------
$ 4,604,830
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term loan $ 166,185
Long-term debt, current portion 1,092,243
Accounts payable 1,358,440
Accrued expenses and other liabilities 1,132,449
------------
Total current liabilities 3,749,317
------------
Long-term debt, less current portion 1,913,536
------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value,
authorized 3,000,000 shares, none issued
Common stock, $.01 par value,
authorized 20,000,000 shares,
issued and outstanding 6,016,250 shares 60,163
Additional paid-in capital 13,896,108
Accumulated other comprehensive loss (132,036)
Accumulated deficit (14,882,258)
------------
Total stockholders' deficit (1,058,023)
------------
$ 4,604,830
============
See accompanying notes to consolidated financial statements
F-11
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS Years Ended
December 31, 1998 and 1997
1998 1997
------------ -----------
Revenues $ 5,446,879 $ 6,197,891
Cost of revenues 3,357,968 3,978,053
------------ -----------
Gross profit 2,088,911 2,219,838
------------ -----------
Selling, general and administrative expenses 3,255,997 4,448,639
Research and development 791,237
Write-down of long-lived assets 3,575,789
Translation gain (259,317)
----------
Operating loss (1,167,086) (6,336,510)
------------ -----------
Other expenses (income)
Interest income (25,547) (52,927)
Interest expense 905,238 1,083,769
Commission income (1,357,685) (642,315)
Rental and other income (249,323) (128,596)
Tax recovery (191,390) (726,575)
------------ -----------
(918,707) (466,644)
------------ -----------
Net loss $ (248,379) $(5,869,866)
============ ===========
Loss per common share
Basic and diluted $(0.04) $(1.04)
====== ======
Weighted average number of common shares
outstanding
Basic and diluted 6,007,373 5,656,250
============ ===========
COMPREHENSIVE LOSS
Net loss (248,379) $(5,869,866)
Other comprehensive loss, foreign currency
translation adjustment (132,036)
------------
Comprehensive loss $ (380,415) $(5,869,866)
============ ===========
See accompanying notes to consolidated financial statements
F-12
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Additional Other Total
--------------- ------------------- Paid-In Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Capital Loss Deficit Deficit
------ ------- --------- ------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 $ -- 5,656,250 $56,563 $13,721,482 $ -- $ (8,764,013) $ 5,014,032
Offering costs (1,774) (1,774)
Net loss (5,869,866) (5,869,866)
------ ------- --------- ------- ----------- --------- ------------ -----------
Balances, December 31, 1997 5,656,250 56,563 13,719,708 (14,633,879) (857,608)
Issuance of common stock 360,000 3,600 176,400 180,000
Foreign currency translation
adjustment (132,036) (132,036)
Net loss (248,379) (248,379)
------ ------- --------- ------- ----------- --------- ------------ -----------
Balances, December 31, 1998 $ -- 6,016,250 $60,163 $13,896,108 $(132,036) $(14,882,258) $(1,058,023)
====== ======= ========= ======= =========== ========= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-13
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (248,379) $(5,869,866)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 216,681 535,932
Write-down of long-lived assets 3,575,789
Stock issued for services 180,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (123,989) 340,782
Social taxes receivable 369,567 (399,040)
Inventories (121,758) 238,880
Other current assets (42,838) 197,605
Other assets (380,373) (395,762)
Accounts payable 690,863 87,678
Accrued expenses and other liabilities (116,844) (56,784)
---------- -----------
Net cash provided by (used in) operating activities: 422,930 (1,744,786)
---------- -----------
Net cash used in investing activities,
acquisition of property and equipment (9,845) (280,946)
----------- -----------
Cash flows from financing activities:
Net borrowings under short-term loans 166,185
Net repayments under loan agreements (512,108) (17,794)
Offering costs (1,774)
-----------
Net cash used in financing activities (345,923) (19,568)
----------- -----------
Effect of exchange rate changes on cash (220,910)
-----------
Net decrease in cash (153,748) (2,045,300)
Cash, beginning of year 211,803 2,257,103
----------- -----------
Cash, end of year $ 58,055 $ 211,803
=========== ===========
Supplemental disclosure of cash flow information,
cash paid during the year for:
Interest $ 905,238 $ 769,065
=========== ===========
Income taxes $ -- $ 11,129
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-14
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ensec International, Inc. ("Ensec International") and Subsidiaries
(collectively, the "Company") designs, assembles, sells, licenses and
maintains integrated security systems. Ensec International has two
wholly-owned subsidiaries, Ensec Engenharia a Sistemas de Seguranca
S.A. ("Ensec S.A."), a Brazilian corporation and Ensec Inc., a
Florida corporation.
In February 1998, the Company closed its Florida facility.
Consequently, substantially all of the Company's 1998 operations were
derived from Brazil (see Note 10.)
Principles of Consolidation
The consolidated financial statements include the accounts of Ensec
International and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Inventories
Inventories, which are primarily comprised of parts and supplies, are
stated at the lower of cost or market, with cost being determined on
the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the following estimated
useful lives.
Estimated
Asset Useful Lives
Building and improvements 40 Years
Machinery and equipment 5-10 Years
Furniture and fixtures 5-10 Years
Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be fully recoverable. To
determine the recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows
will be less than the carrying amount of the assets. Impairment is
the amount by which the carrying value of the assets exceeds its fair
value.
Capitalized Software Costs
The costs of software development, including significant product
enhancements, incurred subsequent to establishing technological
feasibility had been capitalized in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" and amortized over the estimated economic useful
life of the software product. However, in light of the Company's
uncertainty of continuing as a going concern and in accordance with
its policy on impairment of long-lived assets, all capitalized
software costs, aggregating $3,308,905, were written-off during 1997.
Costs incurred, prior to establishment of technological feasibility,
are charged to research and development expense.
F-15
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Foreign Currency Translation
The consolidated financial statements of Ensec S.A. have been
translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation". SFAS No 52 provides that all balance sheet accounts are
translated at year-end exchange rates, except for equity accounts
which are translated at historical rates, if the local currency is
the functional currency. Income and expense accounts and cash flows
are translated at the average currency exchange rates in effect
during the year.
Prior to January 1, 1998, Ensec S.A. regarded the U.S. dollar as its
functional currency as per the prescribed accounting method for
companies subject to hyper-inflationary economies. As a result, a
combination of current and historical currency exchange rates were
used in translating assets and liabilities. The resulting translation
adjustments were included in operations.
Beginning on January 1, 1998, Ensec S.A. was no longer considered to
be operating in a hyper-inflationary economy and thus the Company
began to translate the financial statements of Ensec S.A. using the
local currency as the functional currency. The resulting translation
adjustments are included in accumulated other comprehensive income.
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. Revenue from those systems that require significant
customization is recognized as contract revenues under the percentage
of completion method of accounting. Progress billings in amounts
receivable under maintenance contracts is recognized over the terms
of the related agreements.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
The Company complies with SFAS No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future, based on enacted tax
laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
F-16
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Nature of Operations and Summary of Significant Accounting Policies
(Continued)
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities, which qualify
as financial instruments under SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," approximate the carrying amounts
presented in the consolidated balance sheet.
Loss Per Common Share
The Company complies with SFAS No. 128, "Earnings Per Share" which
requires dual presentation of basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the year.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity.
Comprehensive Loss
During the year ended December 31, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive loss and its
components; however, the adoption of this Statement had no impact on
the Company's net loss or shareholders' deficit. SFAS No. 130
requires the Company's change in the foreign currency translation
adjustment to be included in other comprehensive loss, a component of
stockholders' deficit.
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
F-17
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - Property and Equipment
Property and equipment consists of the following at December 31,
1998:
Land $ 257,752
Building and improvements 1,235,175
Machinery and equipment 2,131,787
Furniture and fixtures 96,016
----------
3,720,730
Less accumulated depreciation
and amortization 2,052,019
----------
$1,668,711
==========
As a result of the Company closing its Florida facility, the Company
recorded a 1997 impairment loss in the value of its furniture and
fixtures, equipment and leasehold improvements of $266,884.
NOTE 3 - Short-term Loan
The Company has a 90 day bank facility in the amount of $166,185, due
March 15, 1999 and bearing interest at 3% plus inflation per month.
The facility was renewed on March 15, 1999.
NOTE 4 - Long-term Debt
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1998:
Mortgage note payable, monthly principal and interest
payments through 2002, bearing interest at 12% per annum
plus inflation adjustment (approximately 6% in 1998) $2,733,622
Term note payable, monthly principal and interest payments
through February 1999, bearing interest at 6% per annum,
guaranteed by the Chief Executive Officer of the Company 236,476
Other 35,681
----------
3,005,779
Less current portion 1,092,243
----------
$1,913,536
==========
</TABLE>
F-18
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Long-term Debt (Continued)
Future minimum annual payments of long-term debt are as follows:
Year ending December 31,
1999 1,092,243
2000 820,086
2001 820,086
2002 273,364
----------
$3,005,779
==========
NOTE 5 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following at
December 31, 1998:
Salaries and bonuses $140,000
Labor claims 194,162
Advances from customers 239,576
Deferred income 309,548
Other 249,163
----------
$1,132,449
==========
NOTE 6 - Contingencies
Litigation
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. 4,126,375 and reaffirmed the
proposal set forth below. The Claimant's latest proposal, which
expired on December 31, 1997, provided the Company with a
nonexclusive, 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. As of the date
hereof, no further contact has taken place between the Company and the
Claimant. However, if the Company is found to have infringed upon the
Claimant's patents, the Company's financial condition could be
materially adversely affected. In addition, the cost of defending or
settling this claim could be significant and have a material adverse
affect on the Company.
The Company is party to various legal actions involving alleged
employment law claims. In the opinion of the Company's management,
based upon their experience with these types of claims, the
resolution of these matters will not have a material adverse effect
on the financial position, results of operations or cash flows of the
Company.
Employment Agreements
The Company has an agreement with its President and Chief Executive
Officer which provides for a severance payment 2.99 times the
employee's average annual compensation paid by the Company as defined
by the agreement.
F-19
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Contingencies (Continued)
The Company has an employment agreement with its President and Chief
Operating Officer of Ensec S.A. providing the employee with severance
benefits equal to the total amount of base salary and bonus received
for the twelve month period ended on the date of termination. The
agreement also calls for a bonus dependent on the financial
performance of Ensec S.A., which is subject to the approval of the
Board of Directors of the Company.
NOTE 7 - Stockholders' Deficit
During 1998, the company issued 360,000 shares of Common Stock for
services in connection with certain consulting agreements and
professional fees valued at $180,000, which were charged to
operations during 1998.
NOTE 8 - Warrants and Stock Option Plan
Pursuant to its 1996 initial public offering, the Company completed
the sale of redeemable warrants to purchase 2,185,000 shares of
Common Stock at $.10 per warrant. Each redeemable warrant entitles
the 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 on or after September 25, 1997 and expiring four
years from that date. The redeemable warrants may be redeemed by the
Company commencing on September 25, 1997 at a price $.10 per warrant
subject to certain prior notification requirements and provided that
the closing bid price of the Common Stock 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 the redemption. No warrants have
been redeemed as of December 31, 1998.
In connection with the January 1998 issuance of Common Stock for
services, the Company also issued 330,000 warrants to purchase the
same number of underlying shares at $1.20 per share. The warrants
became exercisable on April 1, 1998 for a term of three years.
In June 1996, the Company 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"). There are 450,000
shares authorized for possible issuance under the Plan. The Plan
provides for the automatic grant to directors ("Directors Awards"),
who are not employees of the Company 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 equal to
the greater of $3.00 or the fair market value of the shares on the
date of the grant. In 1997, the Company's Board of Directors approved
the reduction of the exercise price of all options initially granted
at an option price of $3.00 or above to $2.00 per share.
The options of a Director Award vest in increments of 5,000 shares
per year, commencing on the date of the Company's annual
shareholders' meeting 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.
F-20
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - Warrants and Stock Option Plan (Continued)
Stock appreciation rights may be granted in conjunction with the
grant of a Nonqualified or Incentive 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 this event, the exercise of stock option terminates the
stock appreciation right to the extent of the shares to which such
right is exercised. A stock appreciation right may not, however, be
granted in conjunction with an Incentive Stock Option under certain
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 payment of any option price by the Participant but will call
for the transfer of share 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.
At December 31, 1998, Nonqualified Stock Options to purchase 30,000
shares of Common Stock at $2.00 per share were outstanding to a
director. Also, options to purchase 30,000 shares not associated with
the Plan were granted in October 1996 to a consultant. The
consultant's options vest and have the same exercise price as the
options granted to the director.
The Company complies with the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the Plan. Had compensation
cost for the Plan been determined based on the fair value at the
grant date of awards in the years ended December 31, 1998 and 1997
consistent with the provisions of SFAS No. 123, the Company's net
loss and net loss per common share would have been increased to the
pro-forma amounts indicated below:
1998 1997
---- ----
Net loss as reported $(248,379) $(5,869,866)
Net loss, pro forma $(325,064) $(5,925,790)
Basic and diluted loss per common
share, as reported $(0.04) $(1.04)
Basic and diluted loss per common
share, pro forma $(0.05) $(1.05)
F-21
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - Warrants and Stock Option Plan (continued)
A summary of the status of the Plan as of December 31, 1998 and 1997
and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997
------------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 153,333 $2.50 385,000 3.26
Granted 125,000 1.56
Exercised
Forfeited 63,333 2.00 356,667 3.00
Outstanding, end of year 90,000 1.81 153,333 2.50
Options exercisable at year end 46,666 1.84 51,111 --
Weighted-average fair value of
options granted during the year 1.44
Range of exercise prices on
outstanding options, end of year 1.56-2.00 1.56-6.34
Weighted average remaining
contractual life 8.50 9.56
</TABLE>
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes options pricing method with the
following weighted average assumptions used for grants in 1997:
expected volatility of 150.79%, risk free interest rate of 6.37% and
expected life of five years.
NOTE 9 - Income Taxes
The components of the Company's deferred tax assets at December 31,
1998 and 1997 are as follows:
1998 1997
---------- ---------
Net operating loss - Federal $3,607,000 $2,834,084
Net operating loss - Foreign 1,782,000 2,673,000
Depreciation 92,310
Other 1,088 4,572
---------- ---------
5,390,088 5,603,966
Less valuation allowance
Federal 3,608,088 2,930,966
Foreign 1,782,000 2,673,000
---------- ---------
$ -- $ --
========== ==========
At December 31, 1998, the Company had net operating loss
carryforwards for income tax purposes approximately as follows:
Federal $10,608,000
Foreign corporate taxes $5,400,000
F-22
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - Income Taxes (Continued)
The federal tax NOL expires throughout 2018. The foreign NOL's have
no expiration date and therefore can be carried forward indefinitely.
Due to historical losses, valuation allowances have been established
for the tax benefits attributed to the Federal and Foreign tax NOL's.
The difference between the tax benefit reflected in the consolidated
statement of operations and the amount calculated at the federal
statutory income tax rate of 34% results primarily from reserving
against tax benefits derived from net operating losses.
NOTE 10 - Information Concerning Business Segments
The Company is engaged principally in one line of business -
integrated security systems which represent substantially all of the
Company's consolidated sales. The following table presents
information about the Company by geographic area. There were no
material amounts of sales or transfers among geographic areas and no
material amounts of United States export balance.
United
States Brazil Consolidated
----------- ----------- ------------
1998
Revenues $ 664,221 $ 4,782,658 $ 5,446,879
Operating loss (753,848) (413,238) (1,167,086)
Identifiable assets 320,669 4,284,161 4,604,830
1997
Revenues $ 1,950,186 $ 4,247,705 $ 6,197,891
Operating loss (5,545,633) (790,877) (6,336,510)
Identifiable assets 516,237 4,483,725 4,999,962
Substantially all of the Company's operations are based in Brazil.
Consequently, 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 in Brazil for
over 15 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 consolidated
financial position, results of operations or cash flows.
In January 1999, the Brazilian Central Bank (BAC) changed its foreign
policy by abandoning the exchange bank that it used to administer the
floating rates of the Brazilian real against the U.S. dollar, leaving
the market free to negotiate the exchange rate. Consequently, the
Brazilian real significantly devalued in relationship to the U.S.
dollar during 1999. At December 31, 1998 and March 11, 1999 the
exchange rate was approximately 1.2 and 1.9 Brazilian reais,
respectively, to the U.S. dollar.
F-23
<PAGE>
ENSEC INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Other Matters
Lease of Brazilian Facility
In August 1997, Ensec S.A. entered into an agreement to lease 50% of
the Brazilian facility to another entity. The initial lease term is
for ten years with a noncancellable term for the first five years.
The annual rental charge is approximately $216,000 adjusted annually
for changes in purchasing power of the real and, at the request of
either the lessor or lessee, for changes in the rental market values
of the property. In addition to the monthly rental charge the lease
also provides that the lessee pay for its share of maintenance, taxes
and other operating expenses.
Employees Retirement Plan
As a result of the Company closing its Florida facility and thus
terminating its U.S. workforce, the Company discontinued its 401(k)
profit sharing plan.
NOTE 12 - Continuing Operations
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company
has suffered significant losses from operations and has a working
capital deficit of $1,835,616 and a stockholders' deficit of
$1,058,023 as of December 31, 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management's plans include a search for new capital.
On October 28, 1998, the Company entered into an Agreement and Plan of
Merger with Sentech EAS Corporation (Sentech) which, upon completion,
will result in the Company and Sentech becoming wholly-owned
subsidiaries of a newly-formed holding company, Global Security
Technologies, Inc. (GST) formerly known as Sensec International, Inc.
(Sensec). Under the terms of the agreement, the Company's stockholders
will receive approximately 60% or 1,425,000 shares of the outstanding
common shares of Sensec, and Sentech stockholders will receive
approximately 40% or 950,000 shares of the outstanding common shares
of Sensec. Completion of the merger is subject to the approvals of the
Boards of Directors and stockholders of both the Company and Sentech.
Subsequent to this merger, GST will attempt to raise capital through a
public offering which could hold potential for a capital infusion for
the Company. However, the Company can give no assurances regarding the
occurrence or outcome of these events.
F-24
<PAGE>
SENTECH EAS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements
Consolidated Balance Sheets F-26
Consolidated Statements of Operations F-27
Consolidated Statement of Shareholders' Equity F-28
Consolidated Statements of Cash Flows F-29
Notes to Consolidated Financial Statements F-30
F-25
<PAGE>
SenTech EAS Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
--------------------------------------------
Assets
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 240,787 $ 305,307
Accounts receivable, net of allowances of $5,000 149,266 110,576
Inventories 467,436 478,886
Other current assets 65,639 54,847
---------------------- --------------------
Total current assets 923,128 949,616
Property and equipment, net 29,716 33,450
Other assets 160,857 161,570
---------------------- --------------------
$ 1,113,701 $ 1,144,636
====================== ====================
Liabilities and Shareholders' Equity
- ---------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 137,905 $ 110,090
Accrued liabilities 47,692 55,814
---------------------- --------------------
Total current liabilities 185,597 165,904
---------------------- --------------------
Long-term debt 203,000 203,000
---------------------- --------------------
Shareholders' equity
Common stock; $0.00024 par value; 20,833,333 authorized;
1,677,219 issued and outstanding 403 403
Additional capital 2,463,182 2,463,182
Accumulated deficit (1,738,481) (1,687,853)
---------------------- --------------------
Total shareholders' equity 725,104 775,732
---------------------- --------------------
$ 1,113,701 $ 1,144,636
====================== ====================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
- ----------------------------------------------------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Revenues $ 288,692 $ 685,862
Cost of revenues (180,198) (464,742)
---------------------- ---------------------
Gross profit 108,494 221,120
Selling, general, and administrative expenses (158,076) (245,160)
---------------------- ---------------------
Operating loss (49,582) (24,040)
Interest expense (1,046) (1,263)
Interest income - 2,290
---------------------- ---------------------
Net loss $ (50,628) $ (23,013)
====================== =====================
Net loss per share $ (0.03) $ (0.01)
====================== =====================
- -----------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
F-27
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
----------------------------- Additional Accumulated
Shares Amount capital deficit Total
-------------- -------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 1,677,219 $ 403 $ 2,463,182 $ (1,687,853) $ 775,732
Net loss (50,628) (50,628)
Balance at March 31, 1999
(Unaudited) 1,677,219 $ 403 $ 2,463,182 $ (1,738,481) $ 725,104
============== ============== ================= ================== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
F-28
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
- ---------------------------------------------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (50,628) $ (23,013)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,447 5,184
Net changes in operating assets and liabilities:
Accounts receivable (38,690) 1,136
Inventories 11,450 (111,313)
Other current assets (10,792) 13,582
Other assets - 350
Accounts payable 27,815 (53,324)
Accrued liabilities (8,122) (2,502)
--------------------- ---------------------
Net cash used in operating activities (64,520) (169,900)
--------------------- ---------------------
Cash flows from investing activities:
Capital expenditures - (1,383)
--------------------- ---------------------
Cash flows from financing activities:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Payments on note payable to bank - (16,657)
--------------------- ---------------------
Net cash used in financing activities - (16,657)
--------------------- ---------------------
Net decrease in cash and cash equivalents (64,250) 187,940)
Cash and cash equivalents at beginning of year 302,307 475,263
--------------------- ---------------------
Cash and cash equivalents at end of year $ 240,787 $ 287,323
===================== =====================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
SenTech EAS Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the financial statements of
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., (collectively, the "Company"). All significant
intercompany balances and transactions have been
eliminated in consolidation.
The interim consolidated financial statements presented have been prepared
by the Company without audit and, in the opinion of the management,
reflect all adjustments of a normal recurring nature necessary for a fair
statement of (a) the results of operations for the three months ended
March 31, 1999 and March 31, 1998, (b) the financial position at March 31,
1999, and (c) the cash flows for the three month periods ended March 31,
1999 and March 31, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 31, 1998 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated
financial statements and notes are condensed as permitted by Form 10- QSB
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form
10-KSB.
2. Inventories
INventories consisted of the following:
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
---------------------- ---------------------
<S> <C> <C>
Raw materials $ 205,289 $ 249,129
Finished goods 262,147 229,757
---------------------- ---------------------
$ 467,436 $ 478,886
====================== =====================
</TABLE>
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
3. Net loss per share
F-30
<PAGE>
Net loss per share is calculated using the weighted average number of
common shares and dilutive potential common stock outstanding during the
year. The number of shares used in the per share computations were
1,677,219 and 1,640,427 at March 31, 1999 and 1998, respectively. Potential
common stock, when included in the computation of dilutive earnings per
share, was anti-dilutive at March 31, 1999 and 1998.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" and
Statement of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" which are both effective for fiscal
years beginning after December 15, 1997. SFAS No. 128 simplifies the
current required calculation of earnings per share ("EPS") under APB No.
15, "Earnings per Share", by replacing the existing calculation of primary
EPS with a basic EPS calculation. It requires a dual presentation for
complex capital structures of basic and diluted EPS on the face of the
income statement and requires a reconciliation of basic EPS factors to
diluted EPS factors. SFAS No. 129 requires disclosure of the Company's
capital structure. There was no material impact to the Company's EPS
calculation or financial statement presentation and disclosure due to the
adoption of SFAS No. 128 and SFAS No. 129.
4. Recent pronouncements in accounting standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements which requires the Company to (i) classify items of
other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. There was no material impact to the
Company"s financial reporting or presentation due to the adoption of SFAS
No. 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
and amends SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries". SFAS No. 131 requires annual financial statements to
disclose information about products and services, geographic areas, and
major customers based on a management approach, along with interim
reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating
segments based on reporting information the way management organizes the
segments for making business decisions and assessing performance. It also
eliminates the requirement to disclose additional information about
subsidiaries that were not consolidated. This new management approach may
result in more information being disclosed than presently practiced and
require new interim information not previously presented. There was no
material impact to the Company's financial reporting or presentation due
to the adoption of SFAS No. 131.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 "Employers Disclosures About
Pensions and Other Postretirement Benefits-an
F-31
<PAGE>
amendment of FASB Statements No. 87, 88, and 106" which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 132 revises only
the employers' disclosures about pension and other postretirement benefit
plans; it does not change the measurement or recognition of such plans.
Since the Company does not have such plans, there is no impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 132.
5. Commitments and contingencies
Agreement and Plan of Merger
On October 28, 1998, the Company entered into an Agreement and Plan of
Merger with Ensec International, Inc. ("Ensec") which, upon completion of
the merger, will result in the Company and Ensec becoming wholly owned
subsidiaries of a newly formed holding company, Sensec International, Inc.
("Sensec"). Under the terms of the agreement, the Company's stockholders
will receive approximately 40% of the outstanding common shares of Sensec,
and the Ensec stockholders will receive approximately 60% of the
outstanding common shares of Sensec. Completion of the merger is subject to
the approval of the boards of directors and stockholders of both the
Company and Ensec. Ensec is a systems integrator and services provider in
commercial and industrial integrated security systems, video remote
surveillance, and data information security systems and is listed on the
OTC Bulletin Board under the symbol "ENSC".
Purchase and Manufacturing Agreement
In June 1997, the Company entered into a three year purchase and
manufacturing agreement (the "Agreement") with a company whose President
and Chief Executive Officer is a director of the Company. The Agreement, as
amended, provides for the development and manufacture of the Company's
third generation EAS system. The Agreement requires the Company to pay
$187,000 of non-recurring engineering costs in exchange for an assignment
of fifty percent of the joint technology as defined by the Agreement.
Payments made for non-recurring engineering are recorded at cost and are
amortized as a component of cost of revenues using the units-of-production
method. As of March 31, 1999, $183,000 of non-recurring engineering costs
were capitalized, net of $4,000 of accumulated amortization, of which
$31,000 and $152,000 are included in other current assets and other assets,
respectively. For the three months ended March 31, 1999 and 1998, there was
approximately $700 and $0 of amortized non-recurring engineering costs
included in cost of revenues. The Agreement also requires the Company to
purchase minimum quantities of the system each year representing an
aggregate purchase commitment of $2,250,000 with annual obligations of
$375,000 by February 1999; $750,000 by January 2000; and $1,125,000 by
January 2001.
Year 2000 Issue
Computer programs used by businesses worldwide were written using two
digits rather than four digits to define the applicable year. Accordingly,
these programs recognize the dates "00" and "01" as the years 1900 and 1901
rather than the years 2000 and 2001. The Company recognizes the need to
ensure its operations will not be adversely impacted by year 2000 computer
program failures arising from program processes and calculations
misinterpreting the year 2000 date. The Company is currently evaluating its
financial and operational systems to determine the impact the year 2000
issue will have on its operations.
F-32
<PAGE>
The Company also plans to communicate with its significant suppliers,
dealers, financial institutions, and others with which it conducts
business to determine the extent the Company may be impacted by third
parties' failure to address the year 2000 issue. Although the Company
plans to be year 2000 compliant prior to December 31, 1999 and expects no
material impact to the Company's operations, there can be no assurance
that the failure of the Company or such third parties to successfully
address their respective year 2000 issues will not have a material adverse
effect on the Company's business, financial condition, cash flows, and
result of operations.
F-33
<PAGE>
SENTECH EAS CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report F-35
Consolidated Balance Sheets at December 31, 1998 and 1997 F-36
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 F-37
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997 F-38
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-39
Notes to Consolidated Financial Statements F-40
</TABLE>
Consolidated Financial Statement schedules have been omitted because they are
not applicable or the required information is shown in the Consolidated
Financial Statements or the notes thereto.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
SenTech EAS Corporation and Subsidiary
Deerfield Beach, Florida
We have audited the accompanying consolidated balance sheets of SenTech EAS
Corporation and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These consolidated 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 consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SenTech EAS Corporation and Subsidiary, as of December 31, 1998 and 1997, and
the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ SPEAR, SAFER, HARMON & CO.
Miami, Florida
January 29, 1999
F-35
<PAGE>
SenTech EAS Corporation
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
--------------------------------------------
Assets
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 305,307 $ 475,263
Accounts receivable, net of allowances of $5,000 110,576 199,802
Inventories 478,886 531,197
Other current assets 54,847 62,150
---------------------- --------------------
Total current assets 949,616 1,268,412
Property and equipment, net 33,450 50,916
Other assets 161,570 96,407
---------------------- --------------------
$ 1,144,636 $ 1,415,735
====================== ====================
Liabilities and Shareholders' Equity
- ---------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 110,090 $ 390,759
Accrued liabilities 55,814 63,051
Current maturities of long-term debt N 16,657
---------------------- --------------------
Total current liabilities 165,904 470,467
---------------------- --------------------
Long-term debt less current maturities 203,000 203,000
---------------------- --------------------
Shareholders' equity
Common stock; $0.00024 par value; 20,833,333 authorized;
1,677,219 and 1,640,427 issued and outstanding 403 394
Additional capital 2,463,182 2,444,054
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Accumulated deficit (1,687,853) (1,702,180)
---------------------- --------------------
Total shareholders' equity 775,732 742,268
---------------------- --------------------
$ 1,144,636 $ 1,415,735
====================== ====================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Operations
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
- ---------------------------------------------------------------------------------------- ------------------ --------------------
<S> <C> <C>
Revenues $ $ 2,395,844
2,049,856
Cost of revenues (1,227,780) (1,611,975)
------------------ --------------------
Gross profit 822,076 783,869
Selling, general, and administrative expenses (810,967) (846,212)
------------------ --------------------
Operating income/(loss) 11,109 (62,343)
Interest expense (4,458) (8,975)
Interest income 7,676 15,993
------------------ --------------------
Income/(loss) before provision for income taxes 14,327 (55,325)
Provision for income taxes N N
Net income/(loss) $ $ (55,325)
14,327
================== ====================
Earnings/(loss) per common share-Basic $ $ (0.04)
0.01
================== ====================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
-------------------------------
Shares Amount capital deficit Total
-------------- -------------- ----------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,452,952 349 2,208,283 (1,646,855) 561,777
Conversion of debt interest 1,802 1 4,324 N 4,325
Issued pursuant to compensation
arrangements 97,500 23 34,102 N 34,125
Issued pursuant to private offering, 88,173 21 197,345 N 197,366
net
Net loss N N N (55,325) (55,325)
-------------- -------------- ----------------- ------------------ ---------------
Balance at December 31, 1997 1,640,427 $ 394 $ 2,444,054 $ $
(1,702,180) 742,268
Conversion of debt interest 891 1 2,137 N 2,138
Issued in lieu of payment for
professional services 5,901 1 13,999 N 14,000
Issued pursuant to compensation
arrangements 30,000 7 2,993 N 3,000
Net income N N N 14,327 14,327
-------------- -------------- ----------------- ------------------ ---------------
Balance at December 31, 1998 1,677,219 $ 403 $ 2,463,182 $ $
(1,687,853) 775,732
============== ============== ================= ================== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
SenTech EAS Corporation
Consolidated Statements of Cash Flows
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
- ------------------------------------------------------------------ --------------------- --------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 14,327 $ (55,325)
Adjustments to reconcile net income/(loss) to net cash used in operating
activities:
Depreciation and amortization 23,658 25,163
Loss on disposal of equipment _ _
Provision for losses on accounts receivable _ _
Debt interest converted to common stock 2,138 4,325
Stock issued in lieu of payment for professional services 14,000 _
Stock based compensation 3,000 34,125
Net changes in operating assets and liabilities:
Accounts receivable 89,226 (13,799)
Inventories 52,311 (133,370)
Other current assets 7,303 (20,117)
Other assets (68,085) (87,066)
Accounts payable (280,669) 18,373
Accrued liabilities (7,238) 26,188
--------------------- ------------------
Net cash used in operating activities (150,029) (201,503)
--------------------- ------------------
Cash flows from investing activities:
Capital expenditures (3,270) (8,998)
--------------------- ------------------
Cash flows from financing activities:
Payments on note payable to bank (16,657) (61,314)
Payments on notes payable to shareholders _ (17,500)
Net proceeds from issuance of common stock _ 197,366
Net cash (used in) provided by financing activities (16,657) 118,552
--------------------- ------------------
Net decrease in cash and cash equivalents (169,956) (91,949)
Cash and cash equivalents at beginning of year 475,263 567,212
--------------------- ------------------
Cash and cash equivalents at end of year $ 305,307 $
475,263
===================== ==================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of operations
SenTech EAS Corporation manufactures, distributes, and services electronic
article surveillance (EAS) systems and accessories worldwide used
primarily by retailers to prevent financial losses attributed to theft of
merchandise.
Principles of consolidation
The consolidated financial statements include the financial statements of
SenTech EAS Corporation and its wholly owned subsidiary, SenTech EAS
International, Inc., (collectively the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents
For purposes of the consolidated statements, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents. Cash in excess of operating requirements is
invested in short term income producing instruments with stable, high
quality financial institutions which may exceed insurable limits. The book
value of the Company's investments approximates fair value because of the
short maturity of these instruments.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful
lives of the assets or the lease term ranging from three to eight years.
F-40
<PAGE>
Revenue recognition
Revenue from sales of systems and accessories is recognized upon shipment
of the equipment or upon acceptance by a third party leasing company of an
operating lease and the related equipment. Revenue from services are
recognized as earned, and maintenance revenues are recognized ratably over
the term of the maintenance contract.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
assets and liabilities and their respective tax bases including operating
losses and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income
in the years in which those differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized as income in the period which includes the tax
enactment date. A valuation allowance is recorded to reduce deferred tax
assets when realization of a tax benefit is unlikely.
Earnings/(loss) per common share-Basic
Earnings/(loss) per common share-basic is calculated using the weighted
average number of common shares and dilutive potential common stock
outstanding during the year. The number of shares used in the per share
computations were 1,661,810 and 1,556,564 at December 31, 1998 and 1997,
respectively. Potential common stock, when included in the computation of
dilutive earnings per share, was anti-dilutive at December 31, 1998 and
1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Impairment
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to Be Disposed Of", the
Company reviews long-lived assets and related goodwill for impairment on
an exception basis whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable
through future cash flows. If this review indicates that the assets and
related goodwill will not be recoverable, as generally determined based on
estimated undiscounted cash flows over the remaining amortization period,
the carrying amount would be adjusted to fair value and any loss will be
recognized in the statement of operations and certain disclosures
regarding the impairment will be disclosed in the notes to financial
statements. At December 31, 1998 and 1997, the Company believes no
material impairments existed.
F-41
<PAGE>
Recent pronouncements in accounting standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
and Statement of Financial Accounting Standards No. 129 "Disclosure of
Information about Capital Structure" which are both effective for fiscal
years beginning after December 15, 1997. SFAS No. 128 simplifies the
current required calculation of earnings per share ("EPS") under APB No.
15, "Earnings per Share", by replacing the existing calculation of primary
EPS with a basic EPS calculation. It requires a dual presentation for
complex capital structures of basic and diluted EPS on the face of the
income statement and requires a reconciliation of basic EPS factors to
diluted EPS factors. SFAS No. 129 requires disclosure of the Company's
capital structure. There was no material impact to the Company's EPS
calculation or financial statement presentation and disclosure due to the
adoption of SFAS No. 128 and SFAS No. 129.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
which is effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements which requires the Company to (i) classify items of
other comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the
equity section of the balance sheet. There was no material impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 130.
Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
and amends SFAS No. 94, "Consolidation of All Majority-Owned
Subsidiaries". SFAS No. 131 requires annual financial statements to
disclose information about products and services, geographic areas, and
major customers based on a management approach, along with interim
reports. The management approach requires disclosing financial and
descriptive information about an enterprise's reportable operating
segments based on reporting information the way management organizes the
segments for making business decisions and assessing performance. It also
eliminates the requirement to disclose additional information about
subsidiaries that were not consolidated. This new management approach may
result in more information being disclosed than presently practiced and
require new interim information not previously presented. There was no
material impact to the Company's financial reporting or presentation due
to the adoption of SFAS No. 131.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosures About Pensions and Other Postretirement Benefits-an amendment
of FASB Statements No. 87, 88, and 106" which is effective for fiscal
years beginning after December 15, 1997. SFAS No. 132 revises only the
employers' disclosures about pension and other postretirement benefit
plans; it does not change the measurement or recognition of such plans.
Since the Company does not have such plans, there is no impact to the
Company's financial reporting or presentation due to the adoption of SFAS
No. 132.
F-42
<PAGE>
2. Inventories
Inventories consisted of the following at December 31, :
1998 1997
-------------- ---------------
Raw materials $ 249,129 $ 339,015
Finished goods 229,757 192,182
-------------- ---------------
$ 478,886 $ 531,197
============== ===============
3. Property and equipment
Property and equipment consisted of the following at December 31,:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Furniture, fixtures and office equipment $ 95,707 $ 94,324
Machinery and equipment 87,850 85,963
Leasehold improvements 5,250 5,250
-------------- ---------------
188,807 185,537
Accumulated depreciation and amortization (155,357) (134,621)
-------------- ---------------
$ 33,450 $ 50,916
============== ===============
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997, was
approximately $20,000 and $24,000, respectively.
4. Other assets
Other assets consisted of the following at December 31,:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Non-recurring engineering costs $ 156,000 $ 87,500
F-43
<PAGE>
Accumulated amortization of non-recurring engineering costs _
(2,922)
Deposits
8,492 8,907
-------------- ---------------
$ 161,570 $ 96,407
============== ===============
5. Long-term debt
Long-term debt consisted of the following at December 31,:
1998 1997
-------------- ---------------
7.5% note payable to bank $ _ $
16,657
8% mandatory convertible notes
53,000 53,000
6% senior notes payable
150,000 150,000
-------------- ---------------
203,000 219,657
Current maturities of long-term debt _ (16,657)
-------------- ---------------
$ 203,000 $ 203,000
============== ===============
</TABLE>
Note payable to bank
In March 1998, the Company paid in full the balance of a $225,000 four year
loan agreement bearing interest at 7.5% with its principal lending bank. The
note was collateralized by substantially all the assets of the Company and
contained certain restrictive covenants. Principal and interest payments of
$5,429 were paid monthly through March 1998.
Mandatory convertible notes
Through December 1994, the Company issued 8% Mandatory Convertible Notes
totaling in the aggregate $932,250 due June 1997 of which $226,000 of the notes
were issued to related parties. Upon an event resulting in the Company's common
stock being publicly held as defined by the note, the notes provide for
mandatory conversion at the rate of one share of common stock for each $3.49 of
outstanding amount of principal and accrued interest. Interest at 8% is payable
annually in arrears.
F-44
<PAGE>
During 1995, $816,250 of the convertible notes plus $125,642 accrued interest
were converted into common stock.
In June 1996, the Company tendered an offer to the holders of the convertible
notes a one time reduced conversion rate of $1.35 to induce note holders to
convert their notes to shares of the Company's common stock. Accordingly,
during 1996, $63,000 of the notes plus $19,492 accrued interest were converted
to 58,381 shares of the Company's common stock.
The maturity date for the remaining $53,000 of the convertible notes was
extended to January 2001 in exchange for warrants to purchase 5,000 shares of
common stock at $2.40 per share. The warrants were issued during 1998 and 1997.
Senior notes payable
In May 1995, the Company issued to two directors of the Company 6% Senior Notes
totaling in the aggregate $330,000 due June 1997 with detachable warrants to
purchase 137,500 common stock shares expiring June 30, 1999. Interest at 6% is
payable annually in arrears subject to certain net income requirements.
In June 1996, the Company tendered an offer to the holders of the senior notes
a one time reduced conversion rate of $1.35 to induce note holders to convert
their notes to shares of the Company's common stock. Accordingly, during 1996,
one holder of $180,000 of the senior notes tendered the full amount in payment
of the exercise price of the detachable warrant and received 133,333 shares of
the Company's common stock.
The maturity date for the remaining $150,000 of the senior notes was extended
to January 2001 in exchange for warrants to purchase 20,000 shares of common
stock at $2.40 per share. The warrants were issued during 1998 and 1997.
No interest was paid or payable on the senior notes during 1998 and 1997.
The total long-term debt of $203,000 matures in 2001.
6. Shareholders' equity
In April 1997, pursuant to an underwritten private offering, the Company
consummated the sale of 343,894 units, each unit consisting of one share
of common stock and one common stock purchase warrant. Each warrant
expires after five years of issuance and entitles the registered holder to
purchase one share of common stock at a purchase price equal to the lesser
of $5.50 or ten percent above the offering price of a share of common
stock in a proposed public offering. The net proceeds received by the
Company from this offering were approximately $706,620 of which $509,254
was received in December 1996. The proceeds were used for working capital
purposes and payment of the balance due under a stock purchase agreement
pursuant to which the Company repurchased shares of common stock held by a
former employee during 1996.
F-45
<PAGE>
In June 1998 and October 1997, the Company issued 30,000 and 97,500 shares
of the Company's common stock pursuant to directors' and officers'
compensation arrangements, respectively. The Company has accounted for the
issuance of the shares of the Company's common stock to the Company's
directors and officers in accordance with Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation".
Accordingly, the Company included in the consolidated statement of
operations approximately $3,000 and $34,000 of compensation expense during
1998 and 1997, respectively. For purposes of recording compensation
expense related to the Company's directors' and officers' stock based
compensation, each share of stock was valued using the net tangible book
value per share.
7. Stock options and warrants
The following schedule summarizes stock warrant activity and status:
<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
<S> <C> <C>
Outstanding at beginning of year 879,680 749,007
Issued pursuant to private offering - 88,173
Issued pursuant to compensation arrangements - 30,000
Issued to related parties 12,500 12,500
Exercised - -
Expired - -
Outstanding at end of year 892,180 879,680
===================== ===================
Price range of warrants outstanding at end of year $1.92 to 5.50 $1.92 to 5.50
Price range of warrants exercised during the year - -
Weighted average exercise price of currently exercisable warrants $4.58 $4.60
Weighted average exercise price of exercisable warrants outstanding $4.58 $4.60
</TABLE>
8. Income taxes
At December 31, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $1,600,000 which may be available to
offset future taxable income, if any, through 2012.
Deferred tax liabilities (assets) consisted of the following at
December 31,:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
Net operating loss carryforwards $(540,000) $(543,000)
Valuation allowance 540,000 543,000
------------------ ----------------
- -
</TABLE>
As of December 31, 1998, there was a decrease of approximately $3,000 in
the valuation allowance as a result of the utilization of previous net
operating loss carryforwards used to offset 1998 taxable income.
A reconciliation of the statutory income tax rate with the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
Statutory federal income tax rate
34.0% 34.0%
State income tax, net of federal income tax benefit 3.6 3.6
Federal tax benefit of net operating loss carryforward (37.6) (37.6)
------------------ ----------------
Effective income tax rate - -
</TABLE>
9. Supplemental cash flow information
The Company paid cash for interest of approximately $200 and $4,700 in
1998 and 1997, respectively.
The Company paid no cash for income taxes in 1998 and 1997.
10. Concentration of credit risk
The Company's revenues included sales to one customer in 1998 and 1997
representing 20% and 35% of total revenues, respectively. Approximately $0
and $71,000 was due from the customer and included in accounts receivable
at December 31, 1998 and 1997, respectively. The Company minimizes credit
risk through diversification and continued evaluation of its customers'
financial condition and account status.
During 1998 and 1997, the Company purchased approximately 29% and 49% of
its inventory from one vendor in 1998 and three vendors in 1997, of which
approximately $0 and $182,000 were payable to the suppliers and included
in accounts payable at December 31, 1998 and 1997, respectively. The
Company minimizes dependence on any one supplier by maintaining sufficient
alternatives for its raw materials and finished goods requirements. There
were no material concentrations of sales or accounts receivable outside of
the United States during December 31, 1998 and 1997.
F-46
<PAGE>
11. Employee Benefit Plans
Since January 1, 1998, the Company provides a 401(k) and profit sharing
plan (the "Plan") for eligible employees whereby the Company's annual
contributions to the Plan are made at the discretion of the board of
directors. The Company did not make any contributions to the Company's
Plan during 1998.
An employee stock option plan (the "Plan") was adopted by the shareholders
of the Company in 1995. The plan provides for 312,500 shares of common
stock to be issued at the discretion of the Compensation Committee of the
Board of Directors. Of this amount, 156,250 shares may be purchased
pursuant to the exercise of incentive stock options, and 156,250 shares
may be purchased pursuant to the exercise of non-qualified stock options.
No stock options under the Plan have been granted since the inception of
the Plan.
12. Commitments and contingencies
Agreement and Plan of Merger
On October 28, 1998, the Company entered into an Agreement and Plan of
Merger with Ensec International, Inc. ("Ensec") which, upon completion of
the merger, will result in the Company and Ensec becoming wholly owned
subsidiaries of a newly formed holding company, Sensec International, Inc.
("Sensec"). Under the terms of the agreement, the Company's stockholders
will receive approximately 40% of the outstanding common shares of Sensec,
and the Ensec stockholders will receive approximately 60% of the
outstanding common shares of Sensec. Completion of the merger is subject
to the approval of the boards of directors and stockholders of both the
Company and Ensec. Ensec is a systems integrator and services provider in
commercial and industrial integrated security systems, video remote
surveillance, and data information security systems and is listed on the
OTC Bulletin Board under the symbol "ENSC".
Purchase and Manufacturing Agreement
In June 1997, the Company entered into a three year purchase and
manufacturing agreement (the "Agreement") with a company whose President
and Chief Executive Officer is a director of the Company. The Agreement,
as amended, provides for the development and manufacture of the Company's
third generation EAS system. The Agreement requires the Company to pay
$187,000 of non-recurring engineering costs in exchange for an assignment
of fifty percent of the joint technology as defined by the Agreement.
Payments made for non-recurring engineering are recorded at cost and are
amortized as a component of cost of revenues using the units-of-production
method. As of December 31, 1998, $187,000 of non-recurring engineering
costs were capitalized of which $31,000 and $153,000 are included in other
current assets and other assets, respectively. For the year ended December
31, 1998, approximately $3,000 of non-recurring engineering costs were
included in cost of revenues (none in 1997). The Agreement also requires
the Company to purchase minimum quantities of the system each year
representing an aggregate purchase commitment of $2,250,000 with annual
F-47
<PAGE>
obligations of $375,000 by February 1999; $750,000 by January 2000; and
$1,125,000 by January 2001.
Leases
The Company leases its office and production facility and certain
equipment under non-cancelable operating leases expiring through 2000.
Rent expense for all operating leases approximated $45,000 and $41,000 in
1998 and 1997, respectively. Future minimum lease payments for operating
leases having non-cancelable terms in excess of one year at December 31,
1998 are approximately $48,000 and $4,000 in 1999 and 2000, respectively.
Installation and Customer Service Agreement
In July 1995, the Company entered into a service agreement effective
August 1995 with a national service organization, whose President and
Chief Executive Officer is a director of the Company, which provides for
the installation and servicing of any 8.2 MHz EAS system. Any EAS systems
not covered by the agreement are handled by the Company's service
personnel or other third party service providers. The agreement is for a
one-year term and is automatically renewable for one-year periods unless
terminated in writing by either party. The Company has not received any
termination notices and believes its relationship with the service
provider is favorable. Although there can be no assurance the agreement
will not be terminated or will be renewed in the future, the Company
anticipates the agreement will automatically be renewed through August
2000. Costs incurred in connection with this agreement were approximately
$24,000 for each of the years ended December 31, 1998 and 1997.
Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Although management is unable to predict the
ultimate disposition of these matters, the Company does not believe the
resolution of such matters will have a material adverse effect on its
consolidated financial position, results of operations, or liquidity.
In October 1996, the Company was named as a defendant in a lawsuit filed
in New Jersey Superior Court whereby the plaintiff is seeking damages with
respect to certain alleged invoices totaling approximately $20,000. A
motion to amend the pleadings was filed and granted to assert
counterclaims and third party claims against the plaintiff and its
officers for, among other things, false designation of origin under the
federal Lanham Act, violations of statutory and common law unfair
competition, trademark and trade dress infringement, and breach of
contract all of which may result in damages exceeding $1,000,000. The
Company's counterclaim and third party claims arose from an alleged
intentional breach of a requirements type contract in which the plaintiff
was authorized to manufacture for the Company certain equipment for sale
to third parties. Although the Company has recorded in accrued liabilities
a provision of approximately $20,000 for any liability which may result
from the plaintiff's claims, the Company plans to continue to vigorously
defend against the plaintiff's alleged claims and to pursue its
counterclaims and third party claims against the plaintiff. While there is
no assurance as to the outcome of this legal action, management and legal
counsel for the Company believe
F-48
<PAGE>
the ultimate resolution of this matter will not have a material adverse
effect on its consolidated financial position or results of operations.
Year 2000 Issue
Computer programs used by businesses worldwide were written using two
digits rather than four digits to define the applicable year. Accordingly,
these programs recognize the dates "00" and "01" as the years 1900 and
1901 rather than the years 2000 and 2001. The Company recognizes the need
to ensure its operations will not be adversely impacted by year 2000
computer program failures arising from program processes and calculations
misinterpreting the year 2000 date. The Company is currently evaluating
its financial and operational systems to determine the impact the year
2000 issue will have on its operations. The Company also plans to
communicate with its significant suppliers, dealers, financial
institutions, and others with which it conducts business to determine the
extent the Company may be impacted by third parties' failure to address
the year 2000 issue. Although the Company plans to be year 2000 compliant
prior to December 31, 1999 and expects no material impact to the Company's
operations, there can be no assurance that the failure of the Company or
such third parties to successfully address their respective year 2000
issues will not have a material adverse effect on the Company's business,
financial condition, cash flows, and result of operations.
F-49
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, among
other things, and subject to certain conditions, authorizes the Company to
indemnify its officers and directors against certain liabilities and expenses
incurred by such persons in connection with claims made by reason of their being
such an officer or director. The restated Certificate of Incorporation and
By-laws of the Company provide for indemnification of its officers and directors
to the full extent authorized by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES
(a) Exhibits
Exhibits Description
-------- -----------
2.1 Agreement and Plan of Merger dated October 30, 1998,
as amended December 2, 1998
3.1 Certificate of Incorporation of GLOBAL SECURITY
TECHNOLOGIES, INC.
3.2 Bylaws of Global Security Technologies, Inc.
4.1 Warrant Agreement*
4.2 Form of common stock certificate*
4.3 Form of warrant certificate*
4.4 Exchange Agent Agreement.*
5.1 Legal opinion of Gersten, Savage & Kaplowitz, LLP*
8.1 Tax opinion from Gersten, Savage & Kaplowitz, LLP*
8.2 Tax opinion from Atlas Pearlman Trop & Borkson, P.A.*
10.1 1999 Stock Option Plan*
10.2 Strategic Alliance Agreement between Lockheed Martin IMS
and Ensec Inc.*
10.3 Card Access Systems Agreement between Ensec Inc. and
Electronic Data Systems Corporation, as amended to the
date hereof (1)*
10.4 Software Value Added Reseller Agreement between Ensec
Inc. and ICL Ent.*
10.5 Agreement between Ensec Inc. and The Port Authority of
New York and New Jersey*
10.6 Agreement for Purchase and Sale of the Bank Automation
Division of Ensec Inc. De La Rue Investimentos Uda. and
Ensec S.A. (1)*
II-1
<PAGE>
Exhibits Description
10.7 Form of Employment Agreement representing Employment
Agreements between the Global Security Technologies,
Inc. and Charles N. Finkel*
10.8 ADT Original Equipment Manufacturer Agreement between
Ensec Inc. and A*
11.1 Calculation of Earnings Per Share*
20.1 Subsidiaries*
23.1 Consent of Gersten, Savage & Kaplowitz, LLP (included in
Exhibit 5.1)*
23.2 Consent of Gersten, Savage & Kaplowitz, LLP to tax
opinion (included in Exhibit 8.1)*
23.3 Consent of Atlas Pearlman Trop & Brokson, P.A. to tax
opinion (included in Exhibit 8.2)*
23.4 Consent of Rothstein, Kass & Company, P.C.
23.5 Consent of Spear, Safer, Harmon & Co.
23.6 Consent of Grant Thornton, LLP
- -------------
* To be Filed by Amendment.
(b) Financial Statement Schedules
All schedules for which provision has been made in the applicable accounting
regulations of the Commission are either not required under the related
instructions, are not applicable (and therefore have been omitted), or the
required disclosures are contained in the financial statements included herein.
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the 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 registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) Each of the undersigned registrants hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
II-2
<PAGE>
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and The Company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on June 28, 1999.
GLOBAL SECURITY TECHNOLOGIES, INC.
By: /s/ Charles N. Finkel
---------------------------
Charles N. Finkel
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and has appointed Charles N. Finkel, Chief
Executive Officer, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
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 and all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting 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 or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Edward A. Mulhare Chairman of the Board June 28, 1999
-----------------------------------
Edward A. Mulhare
/s/ Charles Finkel Chief Executive Officer and June 28, 1999
----------------------------------- Director
Charles N. Finkel
/s/ Thomas A. Nicolette Chief Financial Officer and Director June 28, 1999
-----------------------------------
Thomas A. Nicolette
/s/ Theodore Olson Pemberton Director June 28, 1999
-----------------------------------
Theodore Olson Pemberton
/s/ Milan Resanovich Director June 28, 1999
-----------------------------------
Milan Resanovich
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
among
SENSEC INTERNATIONAL, INC.
a Delaware corporation,
ENSEC ACQUISITION CORPORATION
a Florida corporation,
ENSEC INTERNATIONAL, INC.
a Florida corporation,
SENTECH ACQUISITION CORPORATION
a Florida corporation,
and
SENTECH EAS CORPORATION
a Florida corporation
OCTOBER 28, 1998
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I DEFINITIONS........................................................1
ARTICLE II THE ENSEC PLAN OF MERGER..........................................10
2.1. The Ensec Merger ..............................................10
2.2. Effective Time.................................................10
2.3. Certificate of Incorporation and Bylaws........................10
2.4. Directors and Officers.........................................10
2.5. Conversion or Cancellation of Ensec Shares.....................10
2.6. Exchange of Ensec Shares.......................................11
2.7. Options and Warrants...........................................12
2.8. Adjustments....................................................13
2.9. Merger Subsidiary Capital Stock................................13
2.10. No Further Transfer of Shares.................................13
2.11. Dissenting Shares ............................................14
ARTICLE III THE SENTECH PLAN OF MERGER.......................................14
3.1. The Sentech Merger ............................................14
3.2. Effective Time.................................................14
3.3. Certificate of Incorporation and Bylaws........................14
3.4. Directors and Officers.........................................14
3.5. Conversion or Cancellation of Sentech Shares...................15
3.6. Exchange of Sentech Shares....................................15
3.7. Options and Warrants...........................................16
3.8. Adjustments....................................................17
3.9. Merger Subsidiary Capital Stock................................17
3.10. No Further Transfer of Shares.................................18
3.11. Dissenting Shares ............................................18
ARTICLE IV THE CLOSING ......................................................18
4.1. Location, Date.................................................18
4.2. Deliveries.....................................................18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ENSEC............................19
5.1. Corporate......................................................19
5.2. Authorization..................................................19
5.3. Validity of Contemplated Transactions..........................19
5.4. Capitalization and Stock Ownership.............................20
5.5. [Reserved].....................................................20
5.6. Proxy Statement................................................20
i
<PAGE>
5.7. Ensec SEC Reports; Financial Statements........................20
5.8. Taxes..........................................................21
5.9. Title to Assets and Related Matters............................22
5.10. Real Property.................................................22
5.11. Subsidiaries..................................................22
5.12. Legal Proceedings; Compliance with Law; Governmental Permits..23
5.13. Contracts and Commitments.....................................23
5.14. Employee Relations............................................24
5.15. ERISA.........................................................24
5.16. Patents, Trademarks, etc......................................26
5.17. Absence of Certain Changes....................................26
5.18. Corporate Records.............................................27
5.19. Finder's Fees.................................................27
5.20. Reorganization................................................27
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SENTECH.........................27
6.1. Corporate......................................................27
6.2. Authorization..................................................28
6.3. Validity of Contemplated Transactions..........................28
6.4. Capitalization and Stock Ownership.............................28
6.5. [Reserved].....................................................29
6.6. Proxy Statement................................................29
6.7. Sentech SEC Reports; Financial Statements......................29
6.8. Taxes..........................................................30
6.9. Title to Assets and Related Matters............................31
6.10. Real Property.................................................31
6.11. Subsidiaries..................................................31
6.12. Legal Proceedings; Compliance with Law; Governmental
Permits......................................................31
6.13. Contracts and Commitments.....................................32
6.14. Employee Relations............................................33
6.15. ERISA.........................................................33
6.16. Patents, Trademarks, etc......................................34
6.17. Absence of Certain Changes....................................35
6.18. Corporate Records.............................................36
6.19. Finder's Fees.................................................36
6.20. Interests; Reorganization.....................................36
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SENSEC.........................36
7.1. Corporate......................................................36
7.2. Authorization..................................................36
7.3. Validity of Contemplated Transactions..........................37
7.4. Capitalization and Stock Ownership.............................37
7.5. [Reserved].....................................................37
ii
<PAGE>
7.6. Proxy Statement................................................37
7.7. Reorganization.................................................38
7.8. Ownership of Merger Subsidiary; No Prior Activities............38
ARTICLE VIII COVENANTS OF THE PARTIES........................................38
8.1. Proxy/Registration Statement...................................38
8.2. No Solicitation................................................39
8.3. Notification of Certain Matters................................41
8.4. Access to Information..........................................41
8.5. Public Announcements...........................................42
8.6. Cooperation....................................................42
8.7. Reorganization; Pooling........................................42
ARTICLE IX COVENANTS OF ENSEC................................................42
9.1. Operation of the Business......................................42
9.2. Ensec Stockholder Meeting......................................44
9.3. Maintenance of the Assets......................................44
9.4. Employees and Business Relations...............................44
9.5. Rule 145 Affiliates............................................44
9.6. Expenses.......................................................45
9.7. Certain Tax Matters............................................45
9.8. Employment Arrangements........................................45
9.9. State Anti-Takeover Law........................................45
ARTICLE X COVENANTS OF SENTECH...............................................45
10.1. Operation of the Business.....................................45
10.2. Sentech Stockholder Meeting...................................47
10.3. Maintenance of the Assets.....................................47
10.4. Employees and Business Relations..............................47
10.5. Rule 145 Affiliates...........................................47
10.6. Expenses......................................................47
10.7. Certain Tax Matters...........................................48
10.8. State Anti-Takeover Law.......................................48
ARTICLE XI COVENANTS OF SENSEC...............................................48
11.1. Appointment to the Board of Directors of Sensec...............48
11.2. Expenses......................................................48
11.3. Indemnification, Directors' and Officers' Insurance...........48
11.4. Interim Financial Report......................................49
ARTICLE XII CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES...............49
12.1. Legality......................................................49
12.2. Registration Statement........................................49
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12.3. Approval by Sentech Stockholders and Ensec Stockholders.......49
12.4. Concurrent Mergers............................................49
12.5. Tax Opinions..................................................49
ARTICLE XIII CONDITIONS PRECEDENT TO OBLIGATIONS OF ENSEC....................50
13.1. Representations and Warranties................................50
13.2. Agreements, Conditions and Covenants..........................50
13.3. Certificates..................................................50
13.4. Material Adverse Effect.......................................50
13.5. Ancillary Documents...........................................50
13.6. Board Recommendation..........................................50
13.7. Fairness Opinion..............................................50
ARTICLE XIV CONDITIONS PRECEDENT TO OBLIGATIONS OF SENTECH...................51
14.1. Representations and Warranties................................51
14.2. Agreements, Conditions and Covenants..........................51
14.3. Certificates..................................................51
14.4. Material Adverse Effect.......................................51
14.5. Ancillary Documents...........................................51
14.6. Board Recommendation..........................................51
14.7. Fairness Opinion..............................................51
ARTICLE XV CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
SENSEC PARTIES............................................................52
15.1. Representations and Warranties................................52
15.2. Agreements, Conditions and Covenants..........................52
15.3. Certificates..................................................52
15.4. Required Consents.............................................52
15.5. Material Adverse Effect.......................................52
15.6. Ancillary Documents...........................................52
15.7. Employment Agreements.........................................52
15.8. Board Recommendation..........................................52
ARTICLE XVI TERMINATION.....................................................53
16.1. Grounds for Termination.......................................53
16.2. Effect of Termination.........................................55
ARTICLE XVII GENERAL MATTERS................................................55
17.1. Survival of Representations and Warranties....................55
17.2. Contents of Agreement.........................................55
17.3. Amendment, Parties in Interest, Assignment, Etc...............56
17.4. Interpretation................................................56
17.5. Notices.......................................................56
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17.6. Governing Law.................................................57
17.7. Counterparts..................................................57
17.8. Waivers.......................................................57
17.9. Modification..................................................57
17.10. Enforcement of Agreement.....................................58
17.11. Waiver of Jury Trial.........................................58
17.12. Severability.................................................58
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of October 28, 1998 by and
among Sensec International, Inc. a Delaware corporation ("Sensec"), Ensec
Acquisition Corporation, a Florida Corporation (the "Ensec Merger Subsidiary"
and together with Sensec, the "Sensec/Ensec Parties"), Ensec International,
Inc., a Florida corporation ("Ensec"), Sentech Acquisition Corporation, a
Florida corporation (the "Sentech Merger Subsidiary" and together with Sensec,
the "Sensec/Sentech Parties"), and SenTech EAS Corporation, a Florida
corporation ("Sentech"). Sensec, Ensec Merger Subsidiary, Sentech Merger
Subsidiary, Ensec and Sentech are collectively referred to herein as the
"Parties"). Certain other terms are used herein as defined below in Article I or
elsewhere in this Agreement.
BACKGROUND
This Agreement sets forth the terms and conditions under which (i) the
Ensec Merger Subsidiary, which is a Wholly-Owned Subsidiary of Sensec, will
merge with and into Ensec (the "Ensec Merger"), and (ii) the Sentech Merger
Subsidiary, which is a Wholly-Owned Subsidiary of Sensec, will merge with and
into Sentech (the "Sentech Merger"). The Parties intend that (a) upon completion
of the Ensec Merger, Ensec will be a Wholly-Owned Subsidiary of Sensec, (b) upon
completion of the Sentech Merger, Sentech will be a Wholly-Owned Subsidiary of
Sensec, and (c) for federal income tax purposes, each of the Ensec Merger and
Sentech Merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended.
Ensec Merger Subsidiary and Sentech Merger Subsidiary are each a
Wholly-Owned Subsidiary of Sensec and each has been formed solely to facilitate
the Ensec Merger and Sentech Merger, respectively, and has conducted and will
conduct no business or activity other than in connection with the Ensec Merger
and Sentech Merger, respectively.
WITNESSETH
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the Parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Acquisition Proposal" is defined in Section 8.2(a).
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"Affiliates" means, with respect to a particular Party, persons or
entities controlling, controlled by or under common control with that Party, as
well as any executive officers, directors and majority-owned entities of that
Party and of its other Affiliates.
"Agreement" means this Agreement and the Exhibits and Disclosure
Schedules hereto.
"Assets" means, with respect to Sensec, Ensec or Sentech, as shown by
the context in which used, all of the assets, properties, goodwill and rights of
every kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in such Party's most recent financial
statements, that are owned or possessed by such Party and its Subsidiaries,
taken as a whole.
"Assumed Ensec Option" and "Assumed Sentech Option" are defined in
Sections 2.7(a) and 3.7(a), respectively.
"Benefit Plan" means all employee benefit, health, welfare,
supplemental unemployment benefit, bonus, pension, profit sharing, deferred
compensation, severance, incentive, stock compensation, stock purchase,
retirement, hospitalization insurance, medical, dental, legal, disability,
fringe benefit and similar plans, programs, arrangements or practices,
including, without limitation, each "employee benefit plan" as defined in
Section 3(3) of ERISA.
"Business" means with respect to Sensec, Ensec or Sentech, as shown by
the context in which used, the entire business and operations of such Party and
its Subsidiaries, taken as a whole.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 4.1.
"Closing Date" is defined in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended. All
citations to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.
"Confidentiality Agreement" is defined in Section 8.4(b).
"Contract" means any written or oral contract, agreement, letter of
intent, agreement in principle, lease, instrument or other commitment that is
binding on any Person or its property under applicable Law.
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"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority, or any arbitrator that is binding on any Person or its property
under applicable Law.
"Default" means (i) a breach, default or violation, (ii) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Dissenting Shares" of Ensec and Sentech are defined in Sections 2.11
and 3.11, respectively.
"DGCL" means the Delaware General Corporation Law, as amended.
"Effective Time" shall mean the time that the Sentech Merger
Certificate and the Ensec Merger Certificate are filed with the Florida
Secretary of State, which certificates shall be filed simultaneously.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Ensec" is defined above in the Preamble.
"Ensec Assets" means the Assets of Ensec.
"Ensec Balance Sheet" is defined in Section 5.7.
"Ensec Balance Sheet Date" is defined in Section 5.7.
"Ensec Benefit Plan" is defined in Section 5.16(a).
"Ensec Business" means the Business of Ensec.
"Ensec Certificate of Merger" is defined in Section 2.2.
"Ensec Certificates" is defined in Section 2.7(a).
"Ensec Common Shares" is defined in Section 2.6(a).
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"Ensec Common Stock" means the common stock, par value $0.01 per share,
of Ensec.
"Ensec Companies" means Ensec and any Ensec Subsidiaries.
"Ensec Conversion Number" is defined in Section 2.6(b).
"Ensec Disclosure Schedule" means the Disclosure Schedule containing
information relating to Ensec pursuant to Article V and other provisions hereof
that has been provided to the other Parties on the date hereof.
"Ensec Holder" means a recordholder, as of the Effective Time, of an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Ensec Shares.
"Ensec's knowledge" or "knowledge of Ensec" with reference to any item
means that which an executive officer of Ensec actually knows.
"Ensec Merger" is defined above in the Background.
"Ensec Merger Certificate" is defined in Section 2.2.
"Ensec Merger Consideration" is defined in Section 2.5(c).
"Ensec Merger Subsidiary" is defined above in the Preamble.
"Ensec Personnel" is defined in Section 5.21(a).
"Ensec Required Consents" is defined in Section 5.3.
"Ensec SEC Reports" is defined in Section 5.7.
"Ensec Shares" is defined in Section 2.5(a).
"Ensec Stockholder Meeting" is defined in Section 9.2.
"Ensec Subsidiary" means any Subsidiary of Ensec.
"Ensec Surviving Corporation" is defined in Section 2.1.
"Ensec 10-KSB" is defined in Section 5.10.
"Ensec Warrants" means any warrants to purchase Ensec Common Stock that
are outstanding immediately prior to the Closing.
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"Ensec Welfare Plan" is defined in Section 5.16(f).
"Environmental Condition" means any condition or circumstance,
including the presence of Hazardous Substances which does or would (i) require
assessment, investigation, abatement, correction, removal or remediation under
any Environmental Law, (ii) give rise to any civil or criminal Liability under
any Environmental Law, (iii) create or constitute a public or private nuisance
or (iv) constitute a violation of or non-compliance with any Environmental Law.
"Environmental Law" means all Laws, Court Orders, principles of common
law, and permits, licenses, registrations, approvals or other authorizations of
any Governmental Authority relating to Hazardous Substances, pollution,
protection of the environment or human health.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" is defined in Section 2.6(a).
"Existing Ensec Option" and "Existing Sentech Option" are defined in
Sections 2.7(a) and 3.7(a), respectively.
"FBCA" means the Florida Business Corporation Act of 1989, as amended.
"GAAP" means United States generally accepted accounting principles, as
amended from time to time.
"Governmental Authority" means any federal, state, local, municipal or
foreign or other government or governmental agency or body.
"Governmental Permit" is defined in Section 5.12(c).
"Hazardous Substances" means any material, waste or substance
(including, without limitation, any product) that may or could pose a hazard to
the environment or human health or safety including, without limitation, (i) any
"hazardous substances" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq. and its implementing
regulations, (ii) any "extremely hazardous substance," "hazardous chemical" or
"toxic chemical" as those terms are defined by the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. ss.11001 et seq. and its implementing
regulations, (iii) any "hazardous waste," as defined under the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. ss.6901 et seq. and its implementing regulations (iv) any "pollutant," as
defined under the Water Pollution Control Act, 33 U.S.C. ss.1251 et seq. and its
implementing regulations as any of such Laws in clauses (i) through (iv) may be
amended from time to time, and (v) any material, substance or waste regulated
under any Laws or Court Orders that currently exist
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or that may be enacted, promulgated or issued in the future by any Governmental
Authority concerning protection of the environment, pollution, health or safety
or the public welfare.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology, licenses, trade secrets, computer software and other intellectual
property.
"Law" means any statute, law, ordinance, regulation, order, rule,
common law principles or consent agreements of any Governmental Authority,
including, without limitation, those covering environmental, energy, safety,
health, transportation, bribery, record keeping, zoning, antidiscrimination,
antitrust, wage and hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a fact or event which has had or is
reasonably likely to have a material adverse effect on the Assets, Business,
financial condition or results of operations of Sensec and its Subsidiaries
taken as a whole, Ensec and its Subsidiaries taken as a whole, or Sentech and
its Subsidiaries taken as a whole, as indicated by the context in which used,
and when used with respect to representations, warranties, conditions, covenants
or other provisions hereof means the individual effect of the situation to which
it relates and also the aggregate effect of all similar situations unless the
context indicates otherwise.
"Merger" shall mean the Ensec Merger and Sentech Merger, collectively.
"Parties" is defined above in the Preamble.
"Party Representatives" is defined in Section 8.4(b).
"Patents" means patents, patent applications, reissue patents, patents
of addition, divisions, renewals, continuations, continuations-in-part,
substitutions, additions and extensions of any of the foregoing.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust or other legal entity.
"Post-Signing Returns" is defined in Section 9.7.
"Proxy/Registration Statement" is defined in Section 8.1(a).
"Proxy Statement" is defined in Section 8.1(a).
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"Registration Statement" is defined in Section 8.1(a).
"Regulation" means any federal, state, local or foreign rule or
regulation.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Act Affiliates" is defined in Section 9.5.
"Sensec" is defined above in the Preamble.
"Sensec Assets" means the Assets of Sensec.
"Sensec Balance Sheet" is defined in Section 7.7.
"Sensec Balance Sheet Date" is defined in Section 7.7.
"Sensec Business" means the Business of Sensec.
"Sensec Common Stock" means the common stock, par value $0.001 per
share, of Sensec.
"Sensec Companies" mean Sensec and any Sensec Subsidiaries.
"Sensec Disclosure Documents" is defined in Section 7.7.
"Sensec/Ensec Parties" and "Sensec/Sentech Parties" are defined above
in the Preamble.
"Sensec knowledge" or "knowledge of Sensec" with reference to any item
means that which an executive officer of Sensec actually knows.
"Sensec Parties" means Sensec, Sentech Acquisition Corporation and
Ensec Acquisition Corporation
"Sensec Shares" means shares of Sensec Common Stock.
"Sensec Subsidiary" means any Subsidiary of Sensec.
"Sensec Warrants" means warrants to purchase Sensec Common Stock.
"Sentech" means SenTech EAS Corporation, a Florida corporation.
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"Sentech Assets" means the Assets of Sentech
"Sentech Balance Sheet" is defined in Section 6.7.
"Sentech Balance Sheet Date" is defined in Section 6.7.
"Sentech Benefit Plan" is defined in Section 6.16(a).
"Sentech Business" means the Business of Sentech.
"Sentech Certificates" is defined in Section 3.7(a).
"Sentech Certificate of Merger" is defined in Section 3.2.
"Sentech Common Shares" is defined in Section 3.6(a).
"Sentech Common Stock" means the common stock, par value $0.00024 per
share, of Sentech.
"Sentech Companies" means Sentech and any Sentech Subsidiaries.
"Sentech Conversion Number" is defined in Section 3.6(b).
"Sentech Disclosure Schedule" means the Disclosure Schedule containing
information relating to Sentech pursuant to Article V and other provisions
hereof that has been provided to the other Parties on the date hereof.
"Sentech Holder" means a recordholder, as of the Effective Time of an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Sentech Shares.
"Sentech's knowledge" or "knowledge of Sentech" with reference to any
item means that which an executive officer of Sentech actually knows.
"Sentech Merger" is defined above in the Background.
"Sentech Merger Certificate" is defined in Section 3.2.
"Sentech Merger Consideration" is defined in Section 3.5(c)
"Sentech Personnel" is defined in Section 6.21(a).
"Sentech Required Consents" is defined in Section 6.3.
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"Sentech SEC Reports" is defined in Section 6.7.
"Sentech Shares" is defined in Section 2.6(a).
"Sentech Stockholder Meeting" is defined in Section 10.2.
"Sentech Subsidiary" means any Subsidiary of Sentech.
"Sentech Surviving Corporation" is defined in Section 3.1.
"Sentech 10-KSB" is defined in Section 6.10.
"Sentech Warrants" means any warrants to purchase Sentech Common Stock
that are outstanding immediately prior to the Closing.
"Sentech Welfare Plan" is defined in Section 6.15(f).
"Subsidiary" means any corporation or other legal entity of which
Sensec, Ensec or Sentech, as the case may be (either above or through or
together with any other Subsidiary) owns, directly or indirectly, more than 50%
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of directors or other governing body of such
corporation or other entity.
"Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions, levies and
liabilities, including, without limitation, taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment, insurance, social security, business license,
occupation, business organization, stamp, environmental and property taxes,
together with all interest, penalties and additions imposed with respect to such
amounts. For purposes of this Agreement, "Taxes" also includes any obligations
under any agreements or arrangements with any Person with respect to the
liability for, or sharing of, Taxes (including pursuant to Treas. Reg. Section
1.1502-6 or comparable provisions of state, local or foreign Tax Law) and
including any liability for Taxes as a transferee or successor, by Contract or
otherwise.
"Tax Return" means any report, return, election, notice, estimate,
declaration, information statement and other forms and documents (including all
schedules, exhibits and other attachments thereto) relating to and filed or
required to be filed with a taxing authority in connection with any Taxes
(including, without limitation, estimated Taxes).
"Termination Date" means February 28, 1999.
"Trademarks" means registered trademarks, registered service marks,
trademark and service
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mark applications and unregistered trademarks and service marks.
"Transaction Documents" means this Agreement and the Employment
Agreement.
"Transactions" means the Ensec Merger, the Sentech Merger, the exchange
of Ensec Shares and the Sentech Shares for Sensec Shares, the assumption by
Sensec of the Existing Ensec Options and the Existing Sentech Options, the
exchange of Ensec Warrants and the Sentech Warrants for Sensec Warrants, and the
other transactions contemplated by the Transaction Documents.
"Wholly-Owned Subsidiary" means any Subsidiary in which all of the
stock or other equity interests is owned, directly or indirectly, by Sensec,
Ensec or Sentech, as the case may be.
ARTICLE II
THE ENSEC PLAN OF MERGER
2.1. THE ENSEC MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the DGCL and FBCA, the
Ensec Merger Subsidiary shall be merged with and into Ensec. Following the
Merger, Ensec shall continue as the surviving corporation (the "Ensec Surviving
Corporation") and shall continue its existence under the Laws of the State of
Florida, and the separate corporate existence of the Ensec Merger Subsidiary
shall cease.
2.2. EFFECTIVE TIME. As soon as practicable, but in any event within
one business day after the satisfaction or waiver of all conditions to the
Merger, Ensec and the Ensec Merger Subsidiary shall file with the Secretary of
State of the State of Florida a certificate of merger (the "Ensec Certificate of
Merger") in such form as is required by the FBCA. The Merger shall become
effective at the Effective Time.
2.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Ensec as in effect immediately prior to the Effective Time
shall be the initial Certificate of Incorporation of the Surviving Corporation.
The bylaws of Ensec as in effect immediately prior to the Effective Time shall
be the initial bylaws of the Surviving Corporation.
2.4. DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be Edward Mulhare, Chairman, Milan Resanovich, Thomas
Nicolette, Charles Finkel, and Flavio Ribeiro da Silva. The initial chief
executive officer of the Surviving Corporation shall be Charles Finkel. Such
persons shall hold such positions as directors and executive officers until
their successors are elected or appointed in accordance with the Certificate of
Incorporation and the bylaws of the Surviving Corporation.
2.5. CONVERSION OR CANCELLATION OF ENSEC SHARES.
(a) Each share of Ensec Common Stock (an "Ensec Share")
outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the
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part of the Ensec Holder thereof, be converted into the right to receive
0.2180149 (the "Ensec Conversion Number") Sensec Shares. Each Ensec Share that,
immediately prior to the Effective Time, is held by Ensec as treasury stock
shall be canceled, and no consideration shall be delivered with respect thereto.
(b) No fractional Sensec Shares shall be issued in the Merger.
Each Ensec Holder who would otherwise be entitled to receive a fractional share
shall be entitled to receive, in lieu thereof, an amount in cash determined by
multiplying $5.00 by the fraction of a Sensec Share to which such Ensec Holder
would otherwise have been entitled.
(c) The consideration to be received by the Ensec Holders in
respect of each Ensec Share pursuant to this Section 2.5 is hereinafter referred
to as the "Ensec Merger Consideration."
2.6. EXCHANGE OF ENSEC SHARES.
(a) Prior to the Effective Time, Sensec shall appoint an agent
(the "Exchange Agent") for the purpose of exchanging certificates that
immediately prior to the Effective Time represented Ensec Shares (the "Ensec
Certificates") for the Ensec Merger Consideration. Promptly after the Effective
Time, Sensec will send, or will cause the Exchange Agent to send, to each Ensec
Holder (other than Ensec and any Subsidiary of Ensec) a letter of transmittal
for use in such exchange. Sensec will deposit with the Exchange Agent in trust
for the Ensec Holder the aggregate Ensec Merger Consideration to be paid in
respect of the Ensec Shares.
(b) Each Ensec Holder, upon surrender to the Exchange Agent of
a Certificate or Certificates together with a properly completed letter of
transmittal covering such Certificates, will be entitled to receive the Ensec
Merger Consideration payable in respect of the Ensec Shares formerly represented
thereby, after giving effect to any required withholding Tax. Until so
surrendered, each Certificate shall, after the Effective Time, represent for all
purposes, only the right to receive such Ensec Merger Consideration. In no event
will a Ensec Holder be entitled to interest on the Ensec Merger Consideration.
(c) If any portion of the Ensec Merger Consideration is to be
paid to a Person other than the registered holder of the Ensec Shares formerly
represented by the Certificate or Certificates surrendered in exchange for the
Ensec Merger Consideration, it shall be a condition to such payment that the
Certificate or Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other Taxes required as
a result of such payment to a Person other than the registered holder of such
Ensec Shares or establish to the satisfaction of the Exchange Agent that such
Tax has been paid or is not payable.
(d) Any portion of the Ensec Merger Consideration made
available to the Exchange Agent pursuant to this Section 2.6 that remains
unclaimed by the Ensec Holders twelve
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(12) months after the Effective Time shall be returned to Sensec, upon demand,
and any such Person who has not exchanged his Certificate or Certificates for
the Ensec Merger Consideration in accordance with this Article II prior to that
time shall thereafter look only to Sensec for payment of the Ensec Merger
Consideration. Notwithstanding the foregoing, Sensec shall not be liable to any
Person for any amount paid to a public official pursuant to applicable abandoned
property Laws. Any amounts remaining unclaimed under this Article II two years
after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable Law, become the property of
Sensec free and clear of any claims or interest of any Person previously
entitled thereto.
(e) No dividends or other distributions with respect to
securities of Sensec constituting part of the Ensec Merger Consideration shall
be paid to the Ensec Holder of any unsurrendered Certificates until such
Certificates are surrendered as provided in this Article II. Upon such
surrender, there shall be paid, without interest, to the Person in whose name
the Certificates representing the securities of Sensec into which such Ensec
Shares were converted are registered, all dividends and other distributions
payable in respect of such securities on a date subsequent to, and in respect of
a record date after, the Effective Time, less the amount of withholding Taxes
which may be required thereon.
(f) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Sensec, the
posting by such person of a bond in such reasonable amount as Sensec may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the consideration provided for, and in accordance with the
procedures set forth, in this Article II and, if applicable, any unpaid
dividends and distributions with respect to securities of Sensec constituting
part of the Ensec Merger Consideration deliverable with respect thereof and any
cash in lieu of fractional shares, in each case pursuant to this Agreement.
2.7. OPTIONS AND WARRANTS.
(a) At the Effective Time, Sensec shall assume Ensec's rights
and obligations under each of the outstanding stock options previously granted
by Ensec to certain of its employees, directors and consultants that are
outstanding immediately prior to the Effective Time (each such stock option
existing immediately prior to the Effective Time is referred to herein as an
"Existing Ensec Option" and each such assumed stock option existing immediately
after the Effective Time is referred to herein as an "Assumed Ensec Option").
Under each Assumed Ensec Option, the optionee shall have the right to receive
from Sensec, in accordance with the terms and subject to the conditions of the
Existing Ensec Option, the Ensec Merger Consideration that such optionee would
have been entitled to receive had the optionee exercised his or her Existing
Ensec Option immediately prior to the Effective Time, but only in accordance
with the terms and conditions of the Existing Ensec Option (including payment of
the aggregate exercise price thereof). Except as provided in this Section
2.7(a), the Assumed Ensec Option shall not give the optionee any additional
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benefits that the holder thereof did not have under the Existing Ensec Option;
provided, however, that the terms of such Existing Ensec Options shall govern
the vesting thereof, including, if applicable, any vesting of Existing Ensec
Options as a result of the Merger. Each Assumed Ensec Option shall constitute a
continuation of the Existing Ensec Option, substituting Sensec for Ensec and, in
the case of employees, employment by an Sensec Company for employment by an
Ensec Company. Notwithstanding the foregoing, the terms of any Assumed Ensec
Option shall be such that the substitution of the Assumed Ensec Option for the
Existing Ensec Option would not constitute a modification of the Existing Ensec
Option within the meaning of Section 424(h)(3) of the Code and the Regulations
promulgated thereunder.
(b) If and to the extent required by the terms of the plans
governing the Existing Ensec Options or pursuant to the terms of any Existing
Ensec Option granted thereunder, Ensec shall use reasonable efforts to obtain
the consent of each holder of outstanding Existing Ensec Options to the
treatment of the Existing Ensec Options provided in Section 2.7(a).
(c) Each Ensec Warrant that is outstanding immediately prior
to the Effective Time and that does not expire at the Effective Time by the
terms thereof shall, by virtue of the Merger and pursuant to the terms of the
Ensec Warrant or with the consent of the majority of the holders thereof, be
converted into and exchanged for a Sensec Warrant exercisable for the Conversion
Number of Sensec Shares for each share of Ensec Common Stock for which the Ensec
Warrant is exercisable immediately prior to the Effective Time, at an exercise
price per Sensec Share that has been adjusted in accordance with the terms of
the Ensec Warrant converted hereunder as a result of the Merger. Except as
provided in this Section 2.7(c), the Sensec Warrants shall have the terms and
conditions of the Ensec Warrants converted hereunder. At the Effective Time, the
Sensec/Ensec Parties shall make available to any holders of Ensec Warrants
converted hereunder a new warrant evidencing the Sensec Warrant.
2.8. ADJUSTMENTS. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Ensec or Sensec shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period or
any similar event, this Article II shall be appropriately adjusted.
2.9. MERGER SUBSIDIARY CAPITAL STOCK. Each share of capital stock of
the Ensec Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the Merger, into one share of
common stock of the Surviving Corporation.
2.10. NO FURTHER TRANSFER OF SHARES. After the Effective Time, there
shall be no transfers of Ensec Shares that were outstanding immediately prior to
the Effective Time on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Ensec Surviving
Corporation for transfer, they shall be canceled and exchanged for the Ensec
Merger Consideration as provided in this Article II. At the Effective Time, the
stock ledger of Ensec shall be closed.
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2.11. DISSENTING SHARES. Notwithstanding Section 2.5, the Ensec Common
Shares that are issued and outstanding immediately prior to the Effective Time
and that are held by Ensec Holders who did not vote in favor of the Merger and
who comply with all of the relevant provisions of Section 607.1302 of the FBCA
(the "Dissenting Shares") shall not be converted into the right to receive the
Merger Consideration, unless and until such Ensec Holders shall have waived in
writing or failed to perfect or shall have effectively withdrawn or lost their
rights to appraisal under the FBCA; and any such Ensec Holder shall have only
such rights in respect of the Dissenting Shares owned by them as are provided by
Section 607.1302 of the FBCA. If any such Ensec Holder shall have waived in
writing or failed to perfect or shall have effectively withdrawn or lost such
right, such Ensec Holder's Dissenting Shares shall thereupon be deemed to have
been converted into and to have become exchangeable, as of the Effective Time,
for the right to receive the Merger Consideration without any interest thereon,
pursuant to the terms of Section 2.5. Prior to the Effective Time, Ensec will
not, except with the prior written consent of Sensec, voluntarily make any
payment with respect to, or settle or offer to settle, any claim made by the
stockholders owning the Dissenting Shares.
ARTICLE III
THE SENTECH PLAN OF MERGER
3.1. THE SENTECH MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the DGCL and FBCA, the
Sentech Merger Subsidiary shall be merged with and into Sentech. Following the
Merger, Sentech shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its existence under the Laws of the State of
Florida, and the separate corporate existence of the Sentech Merger Subsidiary
shall cease.
3.2. EFFECTIVE TIME. As soon as practicable, but in any event within
one business day after the satisfaction or waiver of all conditions to the
Merger, Sentech and the Sentech Merger Subsidiary shall file with the Secretary
of State of the State of Florida a certificate of merger (the "Sentech
Certificate of Merger") in such form as is required by the FBCA. The Merger
shall become effective at the Effective Time.
3.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Sentech as in effect immediately prior to the Effective Time
shall be the initial Certificate of Incorporation of the Surviving Corporation.
The bylaws of Sentech as in effect immediately prior to the Effective Time shall
be the initial bylaws of the Surviving Corporation.
3.4. DIRECTORS AND OFFICERS. The initial directors of the Sentech
Surviving Corporation shall be Edward Mulhare, Chairman, Milan Resanovich,
Thomas Nicolette, Charles Finkel, and Flavio Ribeiro da Silva. The initial chief
executive officer of the Sentech Surviving Corporation shall be Charles Finkel.
Such persons shall hold such positions as directors and executive officers until
their successors are elected or appointed in accordance with the Certificate
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of Incorporation and the bylaws of the Surviving Corporation.
3.5. CONVERSION OR CANCELLATION OF SENTECH SHARES.
(a) Each share of Sentech Common Stock (a "Sentech Share")
outstanding immediately prior to the Effective Time shall by virtue of the
Sentech Merger and without any action on the part of the Sentech Holder thereof,
be converted into the right to receive 0.4792299 (the "Sentech Conversion
Number") Sensec Shares. Each Sentech Common Share that, immediately prior to the
Effective Time, is held by Sentech as treasury stock shall be canceled, and no
consideration shall be delivered with respect thereto.
(b) No fractional Sensec Shares shall be issued in the Merger.
Each Sentech Holder who would otherwise be entitled to receive a fractional
share shall be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying $5.00 by the fraction of an Sensec Share to which such
Sentech Holder would otherwise have been entitled.
(c) The consideration to be received by the Sentech Holders in
respect of each Sentech Share pursuant to this Section 3.5 is hereinafter
referred to as the "Sentech Merger Consideration."
3.6. EXCHANGE OF SENTECH SHARES.
(a) Prior to the Effective Time, Sensec shall appoint the
Exchange Agent for the purpose of exchanging certificates that immediately prior
to the Effective Time represented Sentech Shares (the "Sentech Certificates")
for the Sentech Merger Consideration. Promptly after the Effective Time, Sensec
will send, or will cause the Exchange Agent to send, to each Sentech Holder
(other than Sentech and any Subsidiary of Sentech) a letter of transmittal for
use in such exchange. Sensec will deposit with the Exchange Agent in trust for
the Sentech Holders the aggregate Merger Consideration to be paid in respect of
the Sentech Shares.
(b) Each Sentech Holder, upon surrender to the Exchange Agent
of a Certificate or Certificates together with a properly completed letter of
transmittal covering such Certificates, will be entitled to receive the Sentech
Merger Consideration payable in respect of the Sentech Shares formerly
represented thereby, after giving effect to any required withholding Tax. Until
so surrendered, each Certificate shall, after the Effective Time, represent for
all purposes, only the right to receive such Sentech Merger Consideration. In no
event will a Sentech Holder be entitled to interest on the Sentech Merger
Consideration.
(c) If any portion of the Sentech Merger Consideration is to
be paid to a Person other than the registered holder of the Sentech Shares
formerly represented by the Certificate or Certificates surrendered in exchange
for the Sentech Merger Consideration, it shall be a condition to such payment
that the Certificate or Certificates so surrendered shall be properly endorsed
or otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to
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the Exchange Agent any transfer or other Taxes required as a result of such
payment to a Person other than the registered holder of such Sentech Shares or
establish to the satisfaction of the Exchange Agent that such Tax has been paid
or is not payable.
(d) Any portion of the Sentech Merger Consideration made
available to the Exchange Agent pursuant to this Section 3.6 that remains
unclaimed by the Sentech Holders twelve (12) months after the Effective Time
shall be returned to Sensec, upon demand, and any such Person who has not
exchanged his Certificate or Certificates for the Sentech Merger Consideration
in accordance with this Article II prior to that time shall thereafter look only
to Sensec for payment of the Sentech Merger Consideration. Notwithstanding the
foregoing, Sensec shall not be liable to any Person for any amount paid to a
public official pursuant to applicable abandoned property Laws. Any amounts
remaining unclaimed under this Article II two years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any governmental entity) shall, to the extent
permitted by applicable Law, become the property of Sensec free and clear of any
claims or interest of any Person previously entitled thereto.
(e) No dividends or other distributions with respect to
securities of Sensec constituting part of the Sentech Merger Consideration shall
be paid to the Sentech Holder of any unsurrendered Certificates until such
Certificates are surrendered as provided in this Article II. Upon such
surrender, there shall be paid, without interest, to the Person in whose name
the Certificates representing the securities of Sensec into which such Sentech
Shares were converted are registered, all dividends and other distributions
payable in respect of such securities on a date subsequent to, and in respect of
a record date after, the Effective Time, less the amount of withholding Taxes
which may be required thereon.
(f) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Sensec, the
posting by such person of a bond in such reasonable amount as Sensec may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the consideration provided for, and in accordance with the
procedures set forth, in this Article II and, if applicable, any unpaid
dividends and distributions with respect to securities of Sensec constituting
part of the Sentech Merger Consideration deliverable with respect thereof and
any cash in lieu of fractional shares, in each case pursuant to this Agreement.
3.7. OPTIONS AND WARRANTS.
(a) At the Effective Time, Sensec shall assume Sentech's
rights and obligations under each of the outstanding stock options previously
granted by Sentech to certain of its employees, directors and consultants that
are outstanding immediately prior to the Effective Time (each such stock option
existing immediately prior to the Effective Time is referred to herein as an
"Existing Sentech Option" and each such assumed stock option existing
immediately after the Effective Time is referred to herein as an "Assumed
Sentech Option"). Under each Assumed Sentech
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Option, the optionee shall have the right to receive from Sensec, in accordance
with the terms and subject to the conditions of the Existing Sentech Option, the
Sentech Merger Consideration that such optionee would have been entitled to
receive had the optionee exercised his or her Existing Sentech Option
immediately prior to the Effective Time, but only in accordance with the terms
and conditions of the Existing Sentech Option (including payment of the
aggregate exercise price thereof). Except as provided in this Section 3.7(a),
the Assumed Sentech Option shall not give the optionee any additional benefits
that the holder thereof did not have under the Existing Sentech Option;
provided, however, that the terms of such Existing Sentech Options shall govern
the vesting thereof, including, if applicable, any vesting of Existing Sentech
Options as a result of the Merger. Each Assumed Sentech Option shall constitute
a continuation of the Existing Sentech Option, substituting Sensec for Sentech
and, in the case of employees, employment by an Sensec Company for employment by
an Sentech Company. Notwithstanding the foregoing, the terms of any Assumed
Sentech Option shall be such that the substitution of the Assumed Sentech Option
for the Existing Sentech Option would not constitute a modification of the
Existing Sentech Option within the meaning of Section 424(h)(3) of the Code and
the Regulations promulgated thereunder.
(b) If and to the extent required by the terms of the plans
governing the Existing Sentech Options or pursuant to the terms of any Existing
Sentech Option granted thereunder, Sentech shall use reasonable efforts to
obtain the consent of each holder of outstanding Existing Sentech Options to the
treatment of the Existing Options provided in Section 3.7(a).
(c) Each Sentech Warrant that is outstanding immediately prior
to the Effective Time and that does not expire at the Effective Time by the
terms thereof shall, by virtue of the Merger and pursuant to the terms of the
Sentech Warrant or with the consent of the majority of the holders thereof, be
converted into and exchanged for a Sensec Warrant exercisable for the Conversion
Number of Sensec Shares for each share of Sentech Common Stock for which the
Sentech Warrant is exercisable immediately prior to the Effective Time, at an
exercise price per Sensec Share that has been adjusted in accordance with the
terms of the Sentech Warrant converted hereunder as a result of the Merger.
Except as provided in this Section 3.7(c), the Sensec Warrants shall have the
terms and conditions of the Sentech Warrants converted hereunder. At the
Effective Time, the Sensec/Sentech Parties shall make available to any holders
of Sentech Warrants converted hereunder a new warrant evidencing the Sensec
Warrant.
3.8. ADJUSTMENTS. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Sentech or Sensec shall occur by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period or any similar event, this Article II shall be appropriately
adjusted.
3.9. MERGER SUBSIDIARY CAPITAL STOCK. Each share of capital stock of
the Sentech Merger Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the Merger, into one share of
common stock of the Sentech Surviving Corporation.
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3.10. NO FURTHER TRANSFER OF SHARES. After the Effective Time, there
shall be no transfers of Sentech Shares that were outstanding immediately prior
to the Effective Time on the stock transfer books of the Sentech Surviving
Corporation. If, after the Effective Time, Certificates are presented to the
Sentech Surviving Corporation for transfer, they shall be canceled and exchanged
for the Sentech Merger Consideration as provided in this Article II. At the
Effective Time, the stock ledger of Sentech shall be closed.
3.11. DISSENTING SHARES. Notwithstanding Section 3.5, the Sentech
Common Shares that are issued and outstanding immediately prior to the Effective
Time and that are held by Sentech Holders who did not vote in favor of the
Merger and who comply with all of the relevant provisions of Section 607.1302 of
the FBCA (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, unless and until such Sentech Holders shall
have waived in writing or failed to perfect or shall have effectively withdrawn
or lost their rights to appraisal under the FBCA; and any such Sentech Holder
shall have only such rights in respect of the Dissenting Shares owned by them as
are provided by Section 607.1302 of the FBCA. If any such Sentech Holder shall
have waived in writing or failed to perfect or shall have effectively withdrawn
or lost such right, such Sentech Holder's Dissenting Shares shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive the Merger Consideration without any
interest thereon, pursuant to the terms of Section 3.5. Prior to the Effective
Time, Sentech will not, except with the prior written consent of Sensec,
voluntarily make any payment with respect to, or settle or offer to settle, any
claim made by the stockholders owning the Dissenting Shares.
ARTICLE IV
THE CLOSING
4.1. LOCATION, DATE. The closing for the Transactions (the "Closing")
shall be held at the offices of Gersten, Savage, Kaplowitz & Fredericks, LLP in
New York, New York at 9:00 a.m. (local time) as promptly as practicable (and in
any event within one business day) after satisfaction or waiver of the
conditions to the consummation of the Transactions set forth in Articles XII,
XIII and XIV. The date on which the Closing occurs is referred to herein as the
"Closing Date."
4.2. DELIVERIES. At the Closing,
(a) the Ensec Merger Subsidiary and Ensec shall deliver or
cause to be delivered to the Secretary of State of the State of Florida a duly
executed Certificate of Merger as required under the FBCA and the Parties shall
take all such other and further actions as may be required by the FBCA and any
other applicable Law to make the Ensec Merger effective upon the terms and
subject to the conditions hereof; and
(b) the Sentech Merger Subsidiary and Sentech shall deliver or
cause to be delivered to the Secretary of State of the State of Florida a duly
executed Certificate of Merger as
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required under the FBCA and the Parties shall take all such other and further
actions as may be required by the FBCA and any other applicable Law to make the
Sentech Merger effective upon the terms and subject to the conditions hereof;
and
(c) the Parties shall also deliver to each other the
respective agreements and other documents and instruments specified with respect
to them in Articles XII, XIII, XIV and XV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ENSEC
Ensec hereby represents and warrants to the Sensec/Sentech Parties as
follows, except as otherwise set forth in the Ensec Disclosure Schedule (items
disclosed in one Section of such Schedule shall apply to all other Sections
unless specified otherwise):
5.1. CORPORATE. Each Ensec Company is a corporation duly organized,
validly existing and in good standing under the Laws under which it was
incorporated. Each Ensec Company is qualified to do business as a foreign
corporation in any jurisdiction where it is required to be so qualified, except
where the failure to so qualify would not have a Material Adverse Effect. The
Charter Documents and bylaws of each Ensec Company (all of which have been
delivered or made available to Sensec) have been duly adopted and are current,
correct and complete. Each Ensec Company has all necessary corporate power and
authority to own, lease and operate its part of the Ensec Assets and to carry on
its part of the Ensec Business as it is now being conducted.
5.2. AUTHORIZATION. Ensec has the requisite corporate power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by Ensec have been duly authorized by all necessary
corporate action, other than the approval of this Agreement and consummation of
the Ensec Merger is subject to the approval of the holders of a majority of the
outstanding Ensec Common Shares, which are the only consents or approvals of
holders of Ensec capital stock required for the consummation of the
Transactions. Each Transaction Document executed and delivered by Ensec as of
the date hereof has been duly executed and delivered by Ensec and constitutes a
valid and binding obligation of Ensec, enforceable against Ensec in accordance
with its terms. Any Transaction Document executed and delivered by Ensec after
the date hereof will be duly executed and delivered by Ensec and will constitute
a valid and binding obligation of Ensec, enforceable against Ensec in accordance
with its terms, except as otherwise limited by bankruptcy, insolvency,
reorganization and other laws affecting creditors rights generally, and except
that the remedy of specified performance or other equitable relief is available
only at the discretion of the court before which enforcement is sought.
5.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with
(i) the Securities Act and the Exchange Act and (ii) the filing of the Ensec
Certificate of Merger with the Secretary of State of the State of Florida and
for any items specified in the Ensec Disclosure Schedule (the "Ensec Required
Consents"), neither the execution and delivery by Ensec of the
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respective Transaction Documents to which it is or will be a party, nor the
performance of the Transactions to be performed by it, will require any filing,
consent or approval under or constitute a Default, or result in a loss of
material benefit under, (a) any Law or Court Order to which any Ensec Company is
subject, (b) the Charter Documents or bylaws of any Ensec Company, (c) any
customer Contract (other than letters of intent and agreements in principle) or
any other Contracts to which any Ensec Company is a party or by which any of the
Ensec Assets may be subject, except for Defaults which would not have a Material
Adverse Effect.
5.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Ensec consists of (a) 20,000,000 shares of Ensec Common Stock, and (b)
3,000,000 shares of Preferred Stock, par value $0.01 per share. Of such
authorized capital stock, the only issued and outstanding shares on the date
hereof are 6,016,250 Ensec Common Shares. Except as listed in the Ensec
Disclosure Schedule, there are no existing options, warrants, calls, commitments
or other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of Ensec. The Ensec Disclosure Schedule sets forth, as of the date
hereof, as to each option or warrant, the holder, date of grant, exercise price
and number of shares subject thereto. All of the issued and outstanding Ensec
Common Shares are validly issued fully paid and non-assessable. Following the
Effective Time, no options, warrants, calls, commitments or other rights of any
character (including conversion or preemptive rights) will entitle any Person to
acquire any securities of the Ensec Surviving Corporation or any subsidiary
thereof.
5.5. [Reserved]
5.6. PROXY STATEMENT. None of the information supplied or to be
supplied by or on behalf of any Ensec Company specifically for inclusion or
incorporation by reference in the Registration Statement will (except to the
extent revised or superseded by amendments or supplements contemplated hereby),
at the time the Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by or on behalf
of any Ensec Company specifically for inclusion or incorporation by reference in
the Proxy Statement will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the date it (or any such
amendment or supplement) is mailed to the stockholders of Ensec and at the time
of the Ensec Stockholder Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Registration Statement and the
Proxy Statement (except for information relating solely to any Sensec Company or
any Sentech Company) will comply in all material respects with the requirements
of the Securities Act and the Exchange Act and the Regulations promulgated
thereunder.
5.7. ENSEC SEC REPORTS; FINANCIAL STATEMENTS. Ensec has filed all
required
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forms, reports, statements, schedules and other documents with the SEC since
January 1, 1997, including its (a) Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1996 and 1997, (b) all proxy statements relating to
Ensec's meetings of stockholders (whether annual or special) held since January
1, 1997, and (c) all other reports or registration statements filed by Ensec
with the SEC since January 1, 1997 (collectively, the "Ensec SEC Reports"). Each
of such Ensec SEC Reports, at the time it was filed, complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, and with the forms and Regulations of the SEC promulgated thereunder, and
did not contain at the time filed any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The financial statements, including all related
notes and schedules, contained in the Ensec SEC Reports (or incorporated by
reference therein) fairly present the consolidated financial position of Ensec
as at the respective dates thereof and the consolidated results of operations
and cash flows of Ensec for the periods indicated in accordance with GAAP
applied on a consistent basis throughout the periods involved (except for
changes in accounting principles disclosed in the notes thereto) and subject in
the case of interim financial statements to normal year-end adjustments and the
absence of notes. For purposes of this Agreement, the balance sheet of Ensec as
of June 30, 1998 is referred to as the "Ensec Balance Sheet" and the date
thereof is referred to as the "Ensec Balance Sheet Date."
5.8. TAXES.
(a) Except as set forth in the Ensec Disclosure Schedule,
Ensec and each of its Subsidiaries (i) have filed (or, in the case of Tax
Returns not yet due, will file) with the appropriate governmental agencies all
material Tax Returns required to be filed on or before the Effective Time and
all such Tax Returns filed were true, correct and complete in all material
respects, and (ii) have paid (or, in the case of Taxes not yet due, will pay),
all Taxes shown on such Tax Returns.
(b) Except as set forth in the Ensec Disclosure Schedule, each
Ensec Company has (i) duly paid or caused to be paid all material Taxes and all
Taxes shown on Tax Returns that are or were due, except to the extent that a
sufficient reserve for Taxes has been reflected on the Ensec Balance Sheet and
(ii) provided a sufficient reserve on the Ensec Balance Sheet for the payment of
all Taxes not yet due and payable.
(c) Except as set forth in the Ensec Disclosure Schedule, no
deficiency in respect of any Taxes which has been assessed against an Ensec
Company remains unpaid, except for Taxes being contested in good faith, and
Ensec has no knowledge of any unassessed Tax deficiencies or of any audits or
investigations pending or threatened against an Ensec Company with respect to
any Taxes.
(d) Except as set forth in the Ensec Disclosure Schedule, no
Ensec Company has extended or waived the application of any applicable statute
of limitations of any jurisdiction regarding the assessment or collection of any
Tax or any Tax Return.
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(e) Except as set forth in the Ensec Disclosure Schedule,
there are no liens for Taxes upon any assets of any Ensec Company except for
liens for current Taxes not yet due.
(f) Except as set forth in the Ensec Disclosure Schedule, each
Ensec Company has to its knowledge (i) complied with all material provisions of
the Code relating to the withholding and payment of Taxes and (ii) has made all
deposits required by applicable Law to be made with respect to employees'
withholding and other payroll, employment or other withholding or related Taxes.
(g) Except as set forth in the Ensec Disclosure Schedule, no
Ensec Company is a party to any contract, agreement, plan or arrangement that,
individually or in the aggregate, or when taken together with any payment that
may be made under this Agreement or any agreements contemplated hereby, could
give rise to the payment of any "excess parachute payment" within the meaning of
Section 280G of the Code. Ensec is not, and has not been within the past five
years, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(h) Except as set forth in the Ensec Disclosure Schedule, no
Ensec Company is a party to any agreement relating to the allocating or sharing
of the payment of, or liability for, Taxes for any period (or portion thereof).
(i) To Ensec's knowledge, except for the group of which Ensec
is presently the ultimate parent, no Ensec Company has ever been a member of an
affiliated group of corporations (within the meaning of Section 1504 of the
Code).
5.9. TITLE TO ASSETS AND RELATED MATTERS. Each Ensec Company has good
and marketable title to its part of the Ensec Assets, free from any Encumbrances
except (a) those Encumbrances specified on Section 5.9 of the Ensec Disclosure
Schedule or any Encumbrance in favor of any Ensec Company, (b) items described
in any notes to the consolidated financial statements of Ensec contained in
Ensec's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997
(the "Ensec 10-KSB") included in the Ensec SEC Reports, (c) minor matters that
would not have a Material Adverse Effect, (d) constitutional and statutory liens
arising from the obligation to pay for the provision of materials or services
not yet in Default and Taxes not yet due and (e) Ensec Assets transferred among
the Ensec Companies.
5.10. REAL PROPERTY. All material real estate leased by any Ensec
Company as of the date hereof and used in the operation of the Ensec Business
are disclosed in the Ensec SEC Reports. Other than as disclosed in the Ensec SEC
Reports or on Section 5.10 of the Ensec Disclosure Schedule, as of the date
hereof, none of the Ensec Companies owns any real property.
5.11. SUBSIDIARIES. Except as set forth on Section 5.11 of the Ensec
Disclosure Schedule and except for its subsidiaries set forth on Exhibit 21.1 of
the Ensec 10-KSB, as of the date hereof none of the Ensec Companies owns,
directly or indirectly, any interest or investment (whether
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equity or debt) in any corporation, partnership, limited liability company,
business trust, joint venture or other legal entity. Ensec (or another Ensec
Company) owns all of the issued and outstanding shares of capital stock of each
Ensec 10-KSB") included in the Ensec SEC Reports, (c) minor matters that
Subsidiary, free and clear of any Encumbrances, other than as set forth in
Section 5.11 of the Ensec Disclosure Schedule or Encumbrances in favor of any
Ensec Company. Except with respect to Wholly-Owned Subsidiaries of Ensec, there
are no existing options, warrants, calls, commitments or other rights of any
character (including conversion or preemptive rights) relating to the
acquisition or voting of any issued or unissued capital stock or other
securities of any Ensec Subsidiary. All of the shares of capital stock of each
Ensec Subsidiary are duly and validly authorized and issued, fully paid and
non-assessable.
5.12. LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL
PERMITS.
(a) Except as set forth on Section 5.12 of the Ensec
Disclosure Schedule or in the Ensec SEC Reports, there is no Litigation that is
pending or, to Ensec's knowledge, threatened against any Ensec Company that
would have a Material Adverse Effect. Except as described in the Ensec SEC
Reports, Ensec is and has been in compliance with all applicable Laws, except
where the failure to be in compliance would not have a Material Adverse Effect.
Except as described in the Ensec SEC Reports, there has been no Default under
any Laws applicable to any Ensec Company, including Environmental Laws, except
for any Defaults that would not have a Material Adverse Effect. There has been
no Default with respect to any Court Order applicable to any Ensec Company.
Except as set forth on Section 5.12 of the Ensec Disclosure Schedule or except
as described in the Ensec SEC Reports, no Ensec Company has received any written
notice and, to the knowledge of any Ensec Company, no other communication has
been received to the effect that it is not in compliance with any applicable
Laws, and Ensec has no reason to believe that any presently existing
circumstances are likely to result in violations of any applicable Laws, except
to the extent that such failures to comply or violations would not have a
Material Adverse Effect.
(b) To Ensec's Knowledge, there is no Environmental Condition
at any property presently or formerly owned or leased by an Ensec Company which
is reasonably likely to have a Material Adverse Effect.
(c) The Ensec Companies have all material consents, permits,
franchises, licenses, concessions, registrations, certificates of occupancy,
approvals and other authorizations of Governmental Authorities (collectively,
the "Governmental Permits") required in connection with the operation of their
respective businesses as now being conducted, all of which are in full force and
effect, except where the failure to obtain any such Governmental Permit or of
any such Governmental Permit to be in full force and effect, would not have a
Material Adverse Effect. Each Ensec Company has complied, in all material
respects, with all of its Governmental Permits, except where the failure to so
comply would not have a Material Adverse Effect.
5.13. CONTRACTS AND COMMITMENTS. The Ensec SEC Reports or Section 5.13
of
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the Ensec Disclosure Schedule describes:
(a) To Ensec's knowledge, customer Contracts (excluding
letters of intent and agreements in principle) involving any Ensec Company in
amounts in excess of $60,000.
(b) Other than Contracts listed as Exhibits to the Ensec SEC
Reports, (i) all employment, consulting, management, severance or agency
Contracts providing for annual payments of at least $60,000 (y) with any
executive officers or directors of Ensec, or (z) allowing the other party to
terminate and receive payment based on the execution of this Agreement and
consummation of the Transactions, and (ii) any employment agreements with any
Person to whom any Ensec Company makes annual salary payments in excess of
$60,000.
(c) All Contracts limiting the freedom of any Ensec Company to
compete in any line of business, or with any Person, or in any geographic area
or market.
Each Contract providing for payments in excess of $60,000 to which any Ensec
Company is a party (i) is legal, valid, binding and enforceable against Ensec or
the applicable Subsidiary except as otherwise limited by bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally, and except
that the remedy of specific performance or other equitable relief is available
only at the discretion of the court before which enforcement is sought, and (ii)
neither Ensec nor the applicable Subsidiary, nor to Ensec's knowledge, any other
party, is in Default under any such Contract, other than in the case of (i) and
(ii) above where the failure to be so would not have a Material Adverse Effect.
5.14. EMPLOYEE RELATIONS. No Ensec Company is (a) a party to, involved
in or, to Ensec's knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement, and no Ensec Company has experienced any work stoppage during the
last three years.
5.15. ERISA.
(a) The Ensec Disclosure Schedule contains a complete list of
all Benefit Plans sponsored or maintained by any Ensec Company or under which
any Ensec Company may be obligated for its employees, directors or independent
contractors ("Ensec Benefit Plans"). Ensec has delivered or made available to
Sensec and Sentech (i) accurate and complete copies of all Ensec Benefit Plan
documents and of any summary plan descriptions, summary annual reports and
insurance contracts relating thereto, (ii) accurate and complete detailed
summaries of all unwritten Ensec Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Ensec Benefit Plans for which financial statements or actuarial
reports are required or have been prepared and (iv) accurate and complete copies
of all annual reports for all Ensec Benefit Plans (for which annual reports are
required) prepared within the last two years.
(b) All Ensec Benefit Plans conform in all material respects
to, and are being
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administered and operated in material compliance with, the requirements of
ERISA, the Code and all other applicable Laws, including applicable Laws of
foreign jurisdictions. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Ensec Benefit Plans, that could subject any Ensec Company
to any material penalty or tax imposed under the Code or ERISA.
(c) Except as set forth on the Ensec Disclosure Schedule, any
Ensec Benefit Plan that is intended to be qualified under Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified, and such determination remains
in effect and has not been revoked. Nothing has occurred since the date of any
such determination that is reasonably likely to affect adversely such
qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Ensec Benefit Plan.
(d) Except as set forth on the Ensec Disclosure Schedule, (i)
no Ensec Company has a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA) and (ii) no Ensec
Company, nor any entity that has been treated as a single employer with any
Ensec Company under Sections 414(b), (c), (m) or (o) of the Code, has any
liability, contingent or otherwise, under Title IV of ERISA or Section 412 of
the Code.
(e) There are no pending or, to the knowledge of Ensec,
threatened claims by or on behalf of any Ensec Benefit Plans, or by or on behalf
of any individual participants or beneficiaries of any Ensec Benefit Plans,
alleging any breach of fiduciary duty on the part of any Ensec Company or any of
the officers, directors or employees of any Ensec Company under ERISA or any
other applicable Regulations, or claiming benefit payments other than those made
in the ordinary operation of such plans, or alleging any violation of any other
applicable Laws. To Ensec's knowledge, the Ensec Benefit Plans are not the
subject of any investigation, audit or action by the Internal Revenue Service,
the Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC").
Each Ensec Company has made all required contributions under the Ensec Benefit
Plans including the payment of any premiums payable to the PBGC and other
insurance premiums.
(f) With respect to any Ensec Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (an "Ensec
Welfare Plan"), (i) each Ensec Welfare Plan for which contributions are claimed
as deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
an Ensec Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, and (iii) any Ensec Benefit Plan that is a group
health plan (within the meaning of Section 4980B(g)(2) of the Code) complies,
and in each and every case has complied, with all of the material requirements
of Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the applicable provisions of the Social Security Act.
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(g) Except as set forth on the Ensec Disclosure Schedule or
for any Ensec Benefit Plan listed as an exhibit to the Ensec 10-KSB, the
execution of this Agreement and the performance of the Transactions will not
(either alone or in combination with the occurrence of any additional or
subsequent events) constitute an event under any Ensec Benefit Plan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any current or former employee,
director or consultant of any Ensec Company.
5.16. PATENTS, TRADEMARKS, ETC. Except as disclosed in the Ensec SEC
Reports, to Ensec's knowledge, no Ensec Company infringes upon or unlawfully or
wrongfully uses any Intellectual Property owned or claimed by another Person and
no Person infringes on or wrongfully uses any Intellectual Property owned or
claimed by Ensec, except for those situations that would not have a Material
Adverse Effect. The Ensec Companies own or have valid rights to use all
Intellectual Property used in the conduct of their business except where the
failure to have valid rights to use such Intellectual Property will not have a
Material Adverse Effect, free and clear of all Encumbrances, other than
Encumbrances which would not have a Material Adverse Effect.
5.17. ABSENCE OF CERTAIN CHANGES. Since the Ensec Balance Sheet Date,
the Ensec Companies have conducted the Ensec Business in the ordinary course,
and except as described in the Ensec Disclosure Schedule or in the Ensec SEC
Reports, as of the date hereof, there has not been:
(a) any Material Adverse Effect on the Ensec Business or, in
the aggregate, Liabilities of the Ensec Companies;
(b) any distribution or payment declared or made in respect of
Ensec's capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become
payable to any current director or officer of any Ensec Company, except for
merit and seniority increases for employees made in the ordinary course of
business, nor any material change in any existing employment, severance,
consulting arrangements or any Ensec Benefit Plan;
(d) any sale, assignment or transfer of any Ensec Assets, or
any additions to or transactions involving any Ensec Assets, other than those
made in the ordinary course of business or those solely involving the Ensec
Companies;
(e) other than in the ordinary course of business, any waiver
or release of any material claim or right or cancellation of any material debt
held by any Ensec Company;
(f) any change in practice with respect to Taxes, or any
election, change of any election, or revocation of any election with respect to
Taxes, or any settlement or compromise of any dispute involving a Tax liability;
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(g) (i) any creation, assumption or maintenance of any
long-term debt or any short-term debt for borrowed money other than under
existing notes payable, lines of credit or other credit facility or in the
ordinary course of business or with respect to its Wholly-Owned Subsidiaries;
(ii) any assumption, granting of guarantees, endorsements or otherwise becoming
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person except its Wholly-Owned Subsidiaries; or (iii)
any loans, advances or capital contributions to, or investments in, any other
Person except its Wholly-Owned Subsidiaries;
(h) any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(i) other than in the ordinary course of business, any
authorization, recommendation, proposal or announcement of an intention to
authorize, recommend or propose, or enter into any Contract with respect to, any
(i) plan of liquidation or dissolution, (ii) acquisition of a material amount of
assets or securities, (iii) disposition or Encumbrance of a material amount of
assets or securities, (iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting or Tax procedure or practice.
5.18. CORPORATE RECORDS. The minute books of Ensec contain accurate,
complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders.
5.19. FINDER'S FEES. No Person is or will be entitled to any
commission, finder's fee or other payment in connection with the Transactions
based on arrangements made by or on behalf of Ensec.
5.20. REORGANIZATION. No Ensec Company has or, as of the Closing Date,
will have taken any action or failed to take any action which action or failure
would result in the failure of the Ensec Merger to qualify as a reorganization
within the meaning of Code Section 368(a). Ensec has no knowledge of any fact or
circumstance that is reasonably likely to prevent the Ensec Merger from
qualifying as a reorganization within the meaning of Code Section 368(a).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SENTECH
Sentech hereby represents and warrants to the Sensec/Ensec Parties as
follows, except as otherwise set forth in the Sentech Disclosure Schedule (items
disclosed in one Section of such Schedule shall apply to all other Sections
unless specified otherwise):
6.1. CORPORATE. Each Sentech Company is a corporation duly organized,
validly
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existing and in good standing under the Laws under which it was incorporated.
Each Sentech Company is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of each Sentech Company (all of which have been delivered or made
available to Sensec and Ensec) have been duly adopted and are current, correct
and complete. Each Sentech Company has all necessary corporate power and
authority to own, lease and operate its part of the Sentech Assets and to carry
on its part of the Sentech Business as it is now being conducted.
6.2. AUTHORIZATION. Sentech has the requisite corporate power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by Sentech have been duly authorized by all necessary
corporate action, other than the approval of this Agreement and consummation of
the Sentech Merger is subject to the approval of the holders of a majority of
the outstanding Sentech Common Shares, which are the only consents or approvals
of holders of Sentech capital stock required for the consummation of the
Transactions. Each Transaction Document executed and delivered by Sentech as of
the date hereof has been duly executed and delivered by Sentech and constitutes
a valid and binding obligation of Sentech, enforceable against Sentech in
accordance with its terms. Any Transaction Document executed and delivered by
Sentech after the date hereof will be duly executed and delivered by Sentech and
will constitute a valid and binding obligation of Sentech, enforceable against
Sentech in accordance with its terms, except as otherwise limited by bankruptcy,
insolvency reorganization and other laws affecting creditors rights generally,
and except that the remedy of specified performance or other equitable relief is
available only at the discretion of the court before which enforcement is
sought.
6.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with
(i) the Securities Act and the Exchange Act and (ii) the filing of the Sentech
Certificate of Merger with the Secretary of State of the State of Florida and
for any items specified in the Sentech Disclosure Schedule (the "Sentech
Required Consents"), neither the execution and delivery by Sentech of the
respective Transaction Documents to which it is or will be a party, nor the
performance of the Transactions to be performed by it, will require any filing,
consent or approval under or constitute a Default, or result in a loss of
material benefit under, (a) any Law or Court Order to which any Sentech Company
is subject, (b) the Charter Documents or bylaws of any Sentech Company, (c) any
other Contracts to which any Sentech Company is a party or by which any of the
Sentech Assets may be subject, except for Defaults which would not have a
Material Adverse Effect.
6.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Sentech consists of 20,833,333 shares of Sentech Common Stock, par
value $0.00024 per share. Of such authorized capital stock, the only issued and
outstanding shares on the date hereof are 1,746,381 Sentech Common Shares.
Except as listed in the Sentech Disclosure Schedule, there are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of Sentech. The Sentech
Disclosure Schedule sets forth, as of the date hereof, as
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to each option or warrant, the holder, date of grant, exercise price and number
of shares subject thereto. All of the issued and outstanding Sentech Common
Shares are validly issued, fully paid and non-assessable. Following the
Effective Time, no options, warrants, calls, commitments or other rights of any
character (including conversion or preemptive rights) will entitle any Person to
acquire any securities of the Sentech Surviving Corporation or any subsidiary
thereof.
6.5. [Reserved]
6.6. PROXY STATEMENT. None of the information supplied or to be
supplied by or on behalf of any Sentech Company specifically for inclusion or
incorporation by reference in the Registration Statement will (except to the
extent revised or superseded by amendments or supplements contemplated hereby),
at the time the Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by or on behalf
of any Sentech Company specifically for inclusion or incorporation by reference
in the Proxy Statement will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the date it (or any such
amendment or supplement) is mailed to the stockholders of Sentech and at the
time of the Sentech Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement and the Proxy Statement (except for information relating solely to any
Sensec Company or any Ensec Company) will comply in all material respects with
the requirements of the Securities Act and the Exchange Act and the Regulations
promulgated thereunder.
6.7. SENTECH SEC REPORTS; FINANCIAL STATEMENTS. Sentech has filed all
required forms, reports, statements, schedules and other documents with the SEC
since January 1, 1998, including its (a) Annual Reports on Form 10-KSB for the
fiscal year ended December 31, 1997, (b) all proxy statements relating to
Sentech's meetings of stockholders (whether annual or special) held since
January 1, 1998, and (c) all other reports or registration statements filed by
Sentech with the SEC since January 1, 1998 (collectively, the "Sentech SEC
Reports"). Each of such Sentech SEC Reports, at the time it was filed, complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, and with the forms and Regulations of the SEC promulgated
thereunder, and did not contain at the time filed any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The financial
statements, including all related notes and schedules, contained in the Sentech
SEC Reports (or incorporated by reference therein) fairly present the
consolidated financial position of Sentech as at the respective dates thereof
and the consolidated results of operations and cash flows of Sentech for the
periods indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except for changes in accounting principles
disclosed in the notes thereto) and subject in the case of interim financial
statements to normal year-end adjustments and the absence
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of notes. For purposes of this Agreement, the balance sheet of Sentech as of
June 30, 1998 is referred to as the "Sentech Balance Sheet" and the date thereof
is referred to as the "Sentech Balance Sheet Date."
6.8. TAXES.
(a) Except as set forth in the Sentech Disclosure Schedule,
Sentech and each of its Subsidiaries (i) have filed (or, in the case of Tax
Returns not yet due, will file) with the appropriate governmental agencies all
material Tax Returns required to be filed on or before the Effective Time and
all such Tax Returns filed were true, correct and complete in all material
respects, and (ii) have paid (or, in the case of Taxes not yet due, will pay),
all Taxes shown on such Tax Returns.
(b) Except as set forth in the Sentech Disclosure Schedule,
each Sentech Company has (i) duly paid or caused to be paid all material Taxes
and all Taxes shown on Tax Returns that are or were due, except to the extent
that a sufficient reserve for Taxes has been reflected on the Sentech Balance
Sheet and (ii) provided a sufficient reserve on the Sentech Balance Sheet for
the payment of all Taxes not yet due and payable.
(c) Except as set forth in the Sentech Disclosure Schedule, no
deficiency in respect of any Taxes which has been assessed against an Sentech
Company remains unpaid, except for Taxes being contested in good faith, and
Sentech has no knowledge of any unassessed Tax deficiencies or of any audits or
investigations pending or threatened against an Sentech Company with respect to
any Taxes.
(d) Except as set forth in the Sentech Disclosure Schedule, no
Sentech Company has extended or waived the application of any applicable statute
of limitations of any jurisdiction regarding the assessment or collection of any
Tax or any Tax Return.
(e) Except as set forth in the Sentech Disclosure Schedule,
there are no liens for Taxes upon any assets of any Sentech Company except for
liens for current Taxes not yet due.
(f) Except as set forth in the Sentech Disclosure Schedule,
each Sentech Company has to its knowledge (i) complied with all material
provisions of the Code relating to the withholding and payment of Taxes and (ii)
has made all deposits required by applicable Law to be made with respect to
employees' withholding and other payroll, employment or other withholding or
related Taxes.
(g) Except as set forth in the Sentech Disclosure Schedule, no
Sentech Company is a party to any contract, agreement, plan or arrangement that,
individually or in the aggregate, or when taken together with any payment that
may be made under this Agreement or any agreements contemplated hereby, could
give rise to the payment of any "excess parachute payment" within the meaning of
Section 280G of the Code. Sentech is not, and has not been within the past five
years,
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a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(h) Except as set forth in the Sentech Disclosure Schedule, no
Sentech Company is a party to any agreement relating to the allocating or
sharing of the payment of, or liability for, Taxes for any period (or portion
thereof).
(i) To Sentech's knowledge, except for the group of which
Sentech is presently the ultimate parent, no Sentech Company has ever been a
member of an affiliated group of corporations (within the meaning of Section
1504 of the Code).
6.9. TITLE TO ASSETS AND RELATED MATTERS. Each Sentech Company has good
and marketable title to its part of the Sentech Assets, free from any
Encumbrances except (a) those Encumbrances specified on Section 6.9 of the
Sentech Disclosure Schedule or any Encumbrance in favor of any Sentech Company,
(b) items described in any notes to the consolidated financial statements of
Sentech contained in Sentech's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 (the "Sentech 10-KSB") included in the Sentech SEC
Reports, (c) minor matters that would not have a Material Adverse Effect, (d)
constitutional and statutory liens arising from the obligation to pay for the
provision of materials or services not yet in Default and Taxes not yet due and
(e) Sentech Assets transferred among the Sentech Companies.
6.10. REAL PROPERTY. All material real estate leased by any Sentech
Company as of the date hereof and used in the operation of the Sentech Business
are disclosed in the Sentech SEC Reports. As of the date hereof, none of the
Sentech Companies owns any real property.
6.11. SUBSIDIARIES. Except as set forth on Section 6.11 of the Sentech
Disclosure Schedule and except for its subsidiaries set forth in the Sentech
10-KSB, as of the date hereof none of the Sentech Companies owns, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, limited liability company, business trust, joint
venture or other legal entity. Sentech (or another Sentech Company) owns all of
the issued and outstanding shares of capital stock of each Sentech Subsidiary,
free and clear of any Encumbrances, other than as set forth in Section 6.11 of
the Sentech Disclosure Schedule or Encumbrances in favor of any Sentech Company.
Except with respect to Wholly-Owned Subsidiaries of Sentech, there are no
existing options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition or
voting of any issued or unissued capital stock or other securities of any
Sentech Subsidiary. All of the shares of capital stock of each Sentech
Subsidiary are duly and validly authorized and issued, fully paid and
non-assessable.
6.12. LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL
PERMITS.
(a) Except as set forth on Section 4.13 of the Sentech
Disclosure Schedule or in the Sentech SEC Reports, there is no Litigation that
is pending or, to Sentech's knowledge,
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threatened against any Sentech Company that would have a Material Adverse
Effect. Except as disclosed in the Sentech SEC Reports, Sentech is and has been
in compliance with all applicable Laws, except where the failure to be in
compliance would not have a Material Adverse Effect. Except as disclosed in the
Sentech SEC Reports, there has been no Default under any Laws applicable to any
Sentech Company, including Environmental Laws, except for any Defaults that
would not have a Material Adverse Effect. There has been no Default with respect
to any Court Order applicable to any Sentech Company. Except as set forth on
Section 4.13 of the Sentech Disclosure Schedule, and except as disclosed in the
Sentech SEC Reports, no Sentech Company has received any written notice and, to
the knowledge of any Sentech Company, no other communication has been received
to the effect that it is not in compliance with any applicable Laws, and Sentech
has no reason to believe that any presently existing circumstances are likely to
result in violations of any applicable Laws, except to the extent that such
failures to comply or violations would not have a Material Adverse Effect.
(b) To Sentech's knowledge, there is no Environmental
Condition at any property presently or formerly owned or leased by an Sentech
Company which is reasonably likely to have a Material Adverse Effect.
(c) The Sentech Companies have all Governmental Permits
required in connection with the operation of their respective businesses as now
being conducted, all of which are in full force and effect, except where the
failure to obtain any such Governmental Permit or of any such Governmental
Permit to be in full force and effect, would not have a Material Adverse Effect.
Each Sentech Company has complied, in all material respects, with all of its
Governmental Permits, except where the failure to so comply would not have a
Material Adverse Effect.
6.13. CONTRACTS AND COMMITMENTS. The Sentech SEC Reports or Section
6.13 of the Sentech Disclosure Schedule describes:
(a) To Sentech's knowledge, customer Contracts (excluding
letters of intent and agreements in principle) involving any Sentech Company in
amounts in excess of $60,000.
(b) Other than Contracts listed as Exhibits to the Sentech SEC
Reports, (i) all employment, consulting, management, severance or agency
Contracts providing for annual payments of at least $60,000 (y) with any
executive officers or directors of Sentech, or (z) allowing the other party to
terminate and receive payment based on the execution of this Agreement and
consummation of the Transactions, and (ii) any employment agreements with any
Person to whom any Sentech Company makes annual salary payments in excess of
$60,000.
(c) All Contracts limiting the freedom of any Sentech Company
to compete in any line of business, or with any Person, or in any geographic
area or market.
Each Contract providing for payments in excess of $60,000 to which any Sentech
Company is a party (i) is legal, valid, binding and enforceable against Sentech
or the applicable Subsidiary except
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as otherwise limited by bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally, and except that the remedy of specific
performance or other equitable relief is available only at the discretion of the
court before which enforcement is sought, and to Sentech's knowledge, against
each other party thereto, and is in full force and effect and (ii) neither
Sentech nor the applicable Subsidiary, nor to Sentech's knowledge, any other
party, is in Default under any such Contract, other than in the case of (i) and
(ii) above where the failure to be so would not have a Material Adverse Effect.
6.14. EMPLOYEE RELATIONS. No Sentech Company is (a) a party to,
involved in or, to Sentech's knowledge, threatened by, any labor dispute or
unfair labor practice charge, or (b) currently negotiating any collective
bargaining agreement, and no Sentech Company has experienced any work stoppage
during the last three years.
6.15. ERISA.
(a) The Sentech Disclosure Schedule contains a complete list
of all Benefit Plans sponsored or maintained by any Sentech Company or under
which any Sentech Company may be obligated for its employees, directors or
independent contractors ("Sentech Benefit Plans"). Sentech has delivered or made
available to Sensec and Ensec (i) accurate and complete copies of all Sentech
Benefit Plan documents and of any summary plan descriptions, summary annual
reports and insurance contracts relating thereto, (ii) accurate and complete
detailed summaries of all unwritten Sentech Benefit Plans, (iii) accurate and
complete copies of the most recent financial statements and actuarial reports
with respect to all Sentech Benefit Plans for which financial statements or
actuarial reports are required or have been prepared and (iv) accurate and
complete copies of all annual reports for all Sentech Benefit Plans (for which
annual reports are required) prepared within the last two years.
(b) All Sentech Benefit Plans conform in all material respects
to, and are being administered and operated in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws, including
applicable Laws of foreign jurisdictions. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Sentech Benefit Plans, that could subject any
Sentech Company to any material penalty or tax imposed under the Code or ERISA.
(c) Except as set forth on the Sentech Disclosure Schedule,
any Sentech Benefit Plan that is intended to be qualified under Section 401(a)
of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition of excise
taxes or income taxes on unrelated business income under the Code or ERISA with
respect to any Sentech Benefit Plan.
(d) Except as set forth on the Sentech Disclosure Schedule,
(i) no Sentech
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Company has a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA) and (ii) no Sentech
Company, nor any entity that has been treated as a single employer with any
Sentech Company under Sections 414(b), (c), (m) or (o) of the Code, has any
liability, contingent or otherwise, under Title IV of ERISA or Section 412 of
the Code.
(e) There are no pending or, to the knowledge of Sentech,
threatened claims by or on behalf of any Sentech Benefit Plans, or by or on
behalf of any individual participants or beneficiaries of any Sentech Benefit
Plans, alleging any breach of fiduciary duty on the part of any Sentech Company
or any of the officers, directors or employees of any Sentech Company under
ERISA or any other applicable Regulations, or claiming benefit payments other
than those made in the ordinary operation of such plans, or alleging any
violation of any other applicable Laws. To Sentech's knowledge, the Sentech
Benefit Plans are not the subject of any investigation, audit or action by the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC"). Each Sentech Company has made all required
contributions under the Sentech Benefit Plans including the payment of any
premiums payable to the PBGC and other insurance premiums.
(f) With respect to any Sentech Benefit Plan that is an
employee welfare benefit plan (within the meaning of Section 3(1) of ERISA) (an
"Sentech Welfare Plan"), (i) each Sentech Welfare Plan for which contributions
are claimed as deductions under any provision of the Code is in material
compliance with all applicable requirements pertaining to such deduction, (ii)
with respect to any welfare benefit fund (within the meaning of Section 419 of
the Code) related to an Sentech Welfare Plan, there is no disqualified benefit
(within the meaning of Section 4976(b) of the Code) that would result in the
imposition of a tax under Section 4976(a) of the Code, and (iii) any Sentech
Benefit Plan that is a group health plan (within the meaning of Section
4980B(g)(2) of the Code) complies, and in each and every case has complied, with
all of the material requirements of Section 4980B of the Code, ERISA, Title XXII
of the Public Health Service Act and the applicable provisions of the Social
Security Act.
(g) Except as set forth on the Sentech Disclosure Schedule or
for any Sentech Benefit Plan listed as an exhibit to the Sentech 10-KSB, the
execution of this Agreement and the performance of the Transactions will not
(either alone or in combination with the occurrence of any additional or
subsequent events) constitute an event under any Sentech Benefit Plan that will
or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any current or former
employee, director or consultant of any Sentech Company.
6.16. PATENTS, TRADEMARKS, ETC. Except as disclosed in the Sentech SEC
Reports, to Sentech's knowledge, no Sentech Company infringes upon or unlawfully
or wrongfully uses any Intellectual Property owned or claimed by another Person
and no Person infringes on or wrongfully uses any Intellectual Property owned or
claimed by Sentech, except for those situations that would not have a Material
Adverse Effect. The Sentech Companies own or have valid rights to use all
Intellectual Property used in the conduct of their business except where the
failure to have valid
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rights to use such Intellectual Property will not have a Material Adverse
Effect, free and clear of all Encumbrances, other than Encumbrances which would
not have a Material Adverse Effect.
6.17. ABSENCE OF CERTAIN CHANGES. Since the Sentech Balance Sheet Date,
the Sentech Companies have conducted the Sentech Business in the ordinary
course, and except as described in the Sentech Disclosure Schedule or the
Sentech SEC reports, as of the date hereof, there has not been:
(a) any Material Adverse Effect on the Sentech Business or, in
the aggregate, Liabilities of the Sentech Companies;
(b) any distribution or payment declared or made in respect of
Sentech's capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become
payable to any current director or officer of any Sentech Company, except for
merit and seniority increases for employees made in the ordinary course of
business, nor any material change in any existing employment, severance,
consulting arrangements or any Sentech Benefit Plan;
(d) any sale, assignment or transfer of any Sentech Assets, or
any additions to or transactions involving any Sentech Assets, other than those
made in the ordinary course of business or those solely involving the Sentech
Companies;
(e) other than in the ordinary course of business, any waiver
or release of any material claim or right or cancellation of any material debt
held by any Sentech Company;
(f) any change in practice with respect to Taxes, or any
election, change of any election, or revocation of any election with respect to
Taxes, or any settlement or compromise of any dispute involving a Tax liability;
(g) (i) any creation, assumption or maintenance of any
long-term debt or any short-term debt for borrowed money other than under
existing notes payable, lines of credit or other credit facility or in the
ordinary course of business or with respect to its Wholly-Owned Subsidiaries;
(ii) any assumption, granting of guarantees, endorsements or otherwise becoming
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person except its Wholly-Owned Subsidiaries; or (iii)
any loans, advances or capital contributions to, or investments in, any other
Person except its Wholly-Owned Subsidiaries;
(h) any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(i) other than in the ordinary course of business, any
authorization,
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recommendation, proposal or announcement of an intention to authorize, recommend
or propose, or enter into any Contract with respect to, any (i) plan of
liquidation or dissolution, (ii) acquisition of a material amount of assets or
securities, (iii) disposition or Encumbrance of a material amount of assets or
securities, (iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting or Tax procedure or practice.
6.18. CORPORATE RECORDS. The minute books of Sentech contain accurate,
complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders.
6.19. FINDER'S FEES. No Person is or will be entitled to any
commission, finder's fee or other payment in connection with the Transactions
based on arrangements made by or on behalf of Sentech.
6.20. REORGANIZATION. No Sentech Company has or, as of the Closing
Date, will have taken any action or failed to take any action which action or
failure would result in the failure of the Sentech Merger to qualify as a
reorganization within the meaning of Code Section 368(a). Sentech has no
knowledge of any fact or circumstance that is reasonably likely to prevent the
Sentech Merger from qualifying as a reorganization within the meaning of Code
Section 368(a).
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SENSEC
Sensec hereby represents and warrants to Ensec and Sentech as follows,
except as otherwise set forth in the Sensec Disclosure Schedule (items disclosed
in one Section of such Schedule shall apply to all other Sections unless the
context indicates otherwise):
7.1. CORPORATE. Each Sensec Company is a corporation duly organized,
validly existing and in good standing under the Laws under which it was
incorporated. Each Sensec Company is qualified to do business as a foreign
corporation in any jurisdiction where it is required to be so qualified, except
where the failure to so qualify would not have a Material Adverse Effect. The
Charter Documents and bylaws of Sensec and of each Sensec Company (which have
been delivered to Ensec and Sentech) have been duly adopted and are current,
correct and complete. Each Sensec Company has all necessary corporate power and
authority to own, lease and operate its part of the Sensec Assets and to carry
on its part of the Sensec Business as it is now being conducted.
7.2. AUTHORIZATION. Each Sensec Party has the requisite corporate power
and authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by each Sensec Party have been duly authorized by all
necessary corporate action. Each Transaction Document executed and delivered by
any Sensec Party as of the date hereof has been duly executed and delivered by
such Sensec Party and constitutes a valid and binding obligation of each Sensec
Party, enforceable
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against each Sensec Party in accordance with its terms. Any Transaction Document
executed and delivered by any Sensec Party after the date hereof will be duly
executed and delivered by such Sensec Party and will constitute a valid and
binding obligation of such Sensec Party, enforceable against such Sensec Party
in accordance with its terms.
7.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with
the (i) the Securities Act and the Exchange Act and (ii) the filing of the Ensec
Certificate of Merger and Sentech Certificate of Merger with the Secretary of
State of the State of Florida, neither the execution and delivery by any Sensec
Party of the respective Transaction Documents to which it is or will be a party,
nor the performance of the Transactions to be performed by it, will require any
filing, consent or approval under or constitute a Default, or result in a loss
of material benefit under, (a) any Law or Court Order to which any Sensec
Company is subject, (b) the Charter Documents or bylaws of any Sensec Company or
(c) any Contract or other document to which any Sensec Company is a party or by
which any of the Sensec Assets may be subject, except Defaults which would not
have a Material Adverse Effect.
7.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Sensec consists of (a) 20,000,000 shares of Sensec Common Stock $0.001
par value per share, and (b) 1,000,000 shares of Sensec preferred stock, $0.001
par value per share. As of the date hereof, there are no issued or outstanding
capital stock of Sensec. As of the date hereof, there are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition of any issued or
unissued capital stock or other securities of Sensec other than the issuance of
Sensec Common Stock upon the consummation of the Transactions. The shares of
Sensec to be issued in connection with the Ensec Merger, Sentech Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, and shall be registered under
Section 12(g) of the Exchange Act. The total authorized capital stock of the
Ensec Merger Subsidiary consists of 1,000 shares of common stock, par value $.01
per share. All of the issued and outstanding shares of the such capital stock
are validly issued, fully paid and non-assessable, and, on the date hereof, are
held by Sensec. The total authorized capital stock of the Sentech Merger
Subsidiary consists of 1,000 shares of common stock, par value $.01 per share.
All of the issued and outstanding shares of such capital stock are validly
issued, fully paid and non-assessable, and, on the date hereof, are held by
Sensec.
7.5. [Reserved]
7.6. PROXY STATEMENT. None of the information supplied or to be
supplied by or on behalf of any Sensec Company specifically for inclusion or
incorporation by reference in the Registration Statement will (except to the
extent revised or superseded by amendments or supplements contemplated hereby),
at the time the Registration Statement becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the information supplied or to
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be supplied by or on behalf of any Sensec Company specifically for inclusion or
incorporation by reference in the Proxy Statement will (except to the extent
revised or superseded by amendments or supplements contemplated hereby), at the
date it (or any such amendment of supplement) is mailed to the stockholders of
Ensec and Sentech and at the time of the Ensec Stockholder Meeting and Sentech
Stockholder meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement and the Proxy Statement (except
for information relating solely to any Ensec Company or any Sentech Company)
will comply in all material respects with the requirements of the Securities Act
and the Exchange Act and the Regulations promulgated thereunder.
7.7. REORGANIZATION. No Sensec Company has or, as of the Closing Date,
will have taken any action or failed to take any action which action or failure
would result in the failure of either the Ensec Merger or Sentech Merger to
qualify as a reorganization within the meaning of Code Section 368(a). Sensec
has no knowledge of any fact or circumstance that is reasonably likely to
prevent either the Ensec Merger or Sentech Merger from qualifying as a
reorganization within the meaning of Code Section 368(a).
7.8. OWNERSHIP OF MERGER SUBSIDIARY; NO PRIOR ACTIVITIES. Each of the
Ensec Merger Subsidiary and the Sentech Merger Subsidiary is a Wholly-Owned
Subsidiary of Sensec created solely for the purpose of effecting the Merger. As
of the date hereof and the Effective Time, except for Liabilities incurred in
connection with its incorporation or organization and the Transactions and
except for this Agreement and the other Transaction Documents, neither Sensec
the Ensec Merger Subsidiary or the Sentech Merger Subsidiary has, nor will have,
directly or indirectly, through any Subsidiary or Affiliate of Sensec, any
material Liabilities, engaged in any material business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any Person.
ARTICLE VIII
COVENANTS OF THE PARTIES
8.1. PROXY/REGISTRATION STATEMENT. Sensec, Ensec and Sentech will
prepare and file with the SEC as soon as reasonably practicable after the date
hereof a proxy statement to be filed under the Exchange Act by Sensec and to be
distributed by Ensec and Sentech in connection with the Ensec Stockholder
Meeting and Sentech Stockholder Meeting, respectively (the "Proxy Statement"
and, together with the Registration Statement, the "Proxy/Registration
Statement"). Sensec will file a Registration Statement on Form S-4 under the
Securities Act in connection with the Ensec Merger and Sentech Merger for
purposes of registering the Sensec Shares and the Sensec Warrants (and the
shares of Sensec Common Stock issuable upon exercise of the Sensec Warrants) to
be issued in the Merger pursuant to Article II and Article III hereof (the
"Registration Statement") and Ensec shall cooperate with Sensec to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after such filing. The Parties shall also take such
action as may be reasonably required to cause the Sensec Shares and the Sensec
Warrants issuable
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pursuant to the Ensec Merger and Sentech Merger (and the shares of Sensec Common
Stock issuable upon exercise of the Sensec Warrants) to be registered or to
obtain an exemption from registration under applicable state "blue sky" or
securities Laws. Each Party will furnish to the other Party all information
concerning itself and its Subsidiaries as the other Party or its counsel may
reasonably request and that is required or customary for inclusion in the
Proxy/Registration Statement.
8.2. NO SOLICITATION.
(a) From and after the date hereof, Ensec, without the prior
written consent of Sensec and Sentech, will not, and will not authorize or
permit any of its Subsidiaries or its Party Representatives to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any inquiries or
the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) from any Person, or engage in
any discussion or negotiations relating thereto or accept any Acquisition
Proposal; provided, however, that notwithstanding any other provision hereof,
Ensec may at any time prior to the time Ensec's stockholders shall have voted to
approve this Agreement, engage in discussions or negotiations with a third party
who (without any solicitation, initiation, encouragement, discussion or
negotiation, directly or indirectly, by or with any Ensec Company or its Party
Representatives after the date hereof) seeks to initiate such discussions or
negotiations and may furnish such third party information concerning Ensec and
its Business and Assets if, and only to the extent that, (i)(x) the third party
has first made an Acquisition Proposal that is (as determined in good faith by
the Ensec Board of Directors after consultation with its legal and financial
advisor) financially superior to the Transactions and has demonstrated that the
funds necessary for the Acquisition Proposal are reasonably likely to be
available and the Acquisition Proposal is reasonably capable of consummation in
accordance with its terms (as determined in good faith in each case by Ensec's
Board of Directors after consultation with its legal and financial advisors) and
(y) Ensec's Board of Directors shall conclude in good faith, after considering
applicable provisions of applicable Law, on the basis of advice of its counsel,
that such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law and (ii) prior to
furnishing such information to or entering into discussions or negotiations with
such Person, Ensec (x) provides prompt notice to Sensec and Sentech to the
effect that it is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained in
the Confidentiality Agreement. Ensec shall immediately cease and terminate any
existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons conducted heretofore by Ensec or its Party
Representatives with respect to the foregoing. Ensec shall not release any third
party from, or waive any provision of, any standstill agreement to which it is a
party or any confidentiality agreement between it and another Person who has
made an Acquisition Proposal, unless such Person has made an Acquisition
Proposal meeting the criteria set forth in clause (a)(i)(x) above and Ensec's
Board of Directors shall conclude in good faith, after considering applicable
provisions of applicable Law, on the basis of advice of its counsel, that such
action is necessary for the Board of Directors to act in a manner consistent
with its fiduciary duties under
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applicable Law. Ensec shall immediately notify Sensec and Sentech orally (with a
prompt written confirmation) of any such inquiries, offers or proposals
(including the terms and conditions of any such proposal and the identity of the
Person making it and shall provide copies of any such written inquiries, offers
or proposals), shall keep Sensec and Sentech informed of the status and details
of any such inquiry, offer or proposal (and agrees that any material
modification of the terms of an inquiry or proposal shall constitute a new
inquiry or proposal), and shall give Sensec and Sentech two (2) business days'
advance notice of any agreement to be entered into with, or any information to
be supplied to, any Person making such inquiry, offer or proposal (no such
agreement, other than a confidentiality agreement as set forth in this Section,
to be executed or agreed prior to the termination of this Agreement in
accordance with its terms). As used herein, "Acquisition Proposal" shall mean a
bona fide proposal or offer (other than by Sensec) for a tender or exchange
offer, merger, consolidation or other business combination involving Ensec or
Sentech as the case may be or any Subsidiary thereof, or any proposal to acquire
in any manner a substantial equity interest in, or a substantial amount of the
assets of, Ensec or Sentech as the case may be or any such Subsidiary.
(b) From and after the date hereof, Sentech, without the prior
written consent of Sensec, will not, and will not authorize or permit any of its
Subsidiaries or its Party Representatives to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing information) or take any
other action to facilitate knowingly any inquiries or the making of any proposal
which constitutes or may reasonably be expected to lead to an Acquisition
Proposal (as defined below) from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, Sentech may at any
time prior to the time Sentech's stockholders shall have voted to approve this
Agreement, engage in discussions or negotiations with a third party who (without
any solicitation, initiation, encouragement, discussion or negotiation, directly
or indirectly, by or with any Sentech Company or its Party Representatives after
the date hereof) seeks to initiate such discussions or negotiations and may
furnish such third party information concerning Sentech and its Business and
Assets if, and only to the extent that, (i)(x) the third party has first made an
Acquisition Proposal that is (as determined in good faith by the Sentech Board
of Directors after consultation with its legal and financial advisor)
financially superior to the Transactions and has demonstrated that the funds
necessary for the Acquisition Proposal are reasonably likely to be available and
the Acquisition Proposal is reasonably capable of consummation in accordance
with its terms (as determined in good faith in each case by Sentech's Board of
Directors after consultation with its legal and financial advisors) and (y)
Sentech's Board of Directors shall conclude in good faith, after considering
applicable provisions of applicable Law, on the basis of advice of its counsel,
that such action is necessary for the Board of Directors to act in a manner
consistent with its fiduciary duties under applicable Law and (ii) prior to
furnishing such information to or entering into discussions or negotiations with
such Person, Sentech (x) provides prompt notice to Sensec and Ensec to the
effect that it is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained in
the Confidentiality Agreement. Sentech shall immediately cease and terminate any
existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons
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conducted heretofore by Sentech or its Party Representatives with respect to the
foregoing. Sentech shall not release any third party from, or waive any
provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made an
Acquisition Proposal, unless such Person has made an Acquisition Proposal
meeting the criteria set forth in clause (a)(i)(x) above and Sentech's Board of
Directors shall conclude in good faith, after considering applicable provisions
of applicable Law, on the basis of advice of its counsel, that such action is
necessary for the Board of Directors to act in a manner consistent with its
fiduciary duties under applicable Law. Sentech shall immediately notify Sensec
and Ensec orally (with a prompt written confirmation) of any such inquiries,
offers or proposals (including the terms and conditions of any such proposal and
the identity of the Person making it and shall provide copies of any such
written inquiries, offers or proposals), shall keep Sensec and Ensec informed of
the status and details of any such inquiry, offer or proposal (and agrees that
any material modification of the terms of an inquiry or proposal shall
constitute a new inquiry or proposal) , and shall give Sensec and Ensec two (2)
business days' advance notice of any agreement to be entered into with, or any
information to be supplied to, any Person making such inquiry, offer or proposal
(no such agreement, other than a confidentiality agreement as set forth in this
Section, to be executed or agreed prior to the termination of this Agreement in
accordance with its terms).
8.3. NOTIFICATION OF CERTAIN MATTERS. Each of Sensec, Ensec and Sentech
shall give prompt notice to each other of the following:
(a) the occurrence or nonoccurrence of any event whose
occurrence or nonoccurrence would be likely to cause either (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, or (ii) directly or indirectly, any Material Adverse Effect;
(b) any material failure of such Party, or any officer,
director, employee or agent of any thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; and
(c) any facts relating to such Party which would make it
necessary or advisable to amend the Proxy Statement or the Registration
Statement in order to make the statements therein not misleading or to comply
with applicable Law; provided, however, that the delivery of any notice pursuant
to this Section 8.3 shall not limit or otherwise affect the remedies available
hereunder to the Party receiving such notice.
8.4. ACCESS TO INFORMATION.
(a) From the date hereof to the Effective Time, Sensec, Ensec
and Sentech shall, and shall cause its respective Subsidiaries, and its and
their officers, directors, employees, auditors, counsel and agents to afford the
officers, employees, auditors, counsel, financial advisors and agents of the
other Party complete access at all reasonable times to such Party's and its
Subsidiaries' officers, employees, auditors, counsel, agents, properties,
offices and other facilities and to all of
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their respective books and records, and shall furnish the other with all
financial, operating and other data and information as such other Party may
reasonably request.
(b) All information so received from the other Party shall be
deemed received pursuant to the confidentiality agreement heretofore executed
and delivered by Sensec, Sentech and Ensec (the "Confidentiality Agreement"),
and each such Party shall, and shall cause its Subsidiaries and each of its and
their respective officers, directors, employees, auditors, counsel, financial
advisors and agents ("Party Representatives"), to comply with the provisions of
the Confidentiality Agreement with respect to such information. The provisions
of the Confidentiality Agreement are hereby incorporated herein by reference
with the same effect as if fully set forth herein.
8.5. PUBLIC ANNOUNCEMENTS. Sensec, Ensec and Sentech (a) shall use all
reasonable efforts to develop a joint communications plan and each Party shall
use all reasonable efforts to ensure that all press releases and other public
statements with respect to the Transactions shall be consistent with such joint
communications plan or, to the extent inconsistent therewith, shall have
received the prior written approval of the other and (b) before issuing any
press release or otherwise making any public statements with respect to the
Transactions, will consult with each other as to its form and substance and
shall not issue any such press release or make any such public statement prior
to such consultation, except for each of (a) and (b) above as may be required by
Law (it being agreed that the Parties hereto are entitled to disclose all
requisite information concerning the Transactions in any filings required with
the SEC) or the rules and regulations of the National Association of Securities
Dealers, Inc.
8.6. COOPERATION. Upon the terms and subject to the conditions hereof,
each of the Parties shall use its commercially reasonable efforts to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper or advisable to consummate as promptly as practicable the
Transactions and shall use its commercially reasonable efforts to obtain all
Ensec Required Consents and Sentech required consents, and to effect all
necessary filings under the Securities Act and the Exchange Act. Without
limiting the generality of the foregoing, each Party shall use all commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to fulfill
the conditions under Articles XII, XIII, XIV and XV to the extent that the
fulfillment thereof is within a Party's control.
8.7. REORGANIZATION. From and after the date hereof and until the
Effective Time, neither Sensec, Ensec or Sentech, nor any of their respective
Subsidiaries shall knowingly take any action, or knowingly fail to take any
action, that would jeopardize qualification of either the Ensec Merger or
Sentech Merger as a reorganization within the meaning of Section 368(a) of the
Code.
ARTICLE IX
COVENANTS OF ENSEC
9.1. OPERATION OF THE BUSINESS. Except as set forth on Section 9.1 of
the Ensec Disclosure Schedule, as contemplated by this Agreement or as expressly
agreed to in writing by
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Sensec and Sentech, during the period from the date of this Agreement to the
Effective Time, Ensec and its Subsidiaries will conduct their operations only in
the ordinary course of business consistent with sound financial, operational and
regulatory practice, and will take no action which would materially adversely
affect their ability to consummate the Transactions. Without limiting the
generality of the foregoing, except as otherwise expressly provided in this
Agreement or except as disclosed in the Ensec Disclosure Schedule, prior to the
Effective Time, neither Ensec nor any of its Subsidiaries will, without the
prior written consent of Sensec and Sentech:
(a) amend its Charter Documents or bylaws (or similar
organizational documents);
(b) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any shares
of its capital stock or any other securities, other than pursuant to and in
accordance with the terms of any Existing Options or Ensec Warrants listed on
the Ensec Disclosure Schedule;
(c) recapitalize, split, combine or reclassify any shares of
its capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any of its or its
Subsidiaries' securities or modify any of the terms of any such securities;
(d) (i) create, incur, assume or permit to exist any long-term
debt or any short-term debt for borrowed money other than under existing notes
payable, lines of credit or other credit facilities or in the ordinary course of
business, or with respect to its Wholly-Owned Subsidiaries in the ordinary
course of business; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except its Wholly-Owned Subsidiaries in the ordinary course
of business or as otherwise may be contractually required and disclosed in the
Ensec Disclosure Schedule; or (iii) make any loans, advances or capital
contributions to, or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(e) (i) amend any Ensec Benefit Plan or (ii) except in the
ordinary course of business consistent with usual practice or established policy
(a) increase in any manner the rate of compensation of any of its directors,
officers or other employees everywhere, except for increases in the ordinary
course of business; (b) pay or agree to pay any bonus, pension, retirement
allowance, severance or other employee benefit except as required under
currently existing Ensec Benefit Plans disclosed in the Ensec Disclosure
Schedule or in the ordinary course of business; or (c) amend, terminate or enter
into any employment, consulting, severance, change in control or similar
agreements or arrangements with any of its directors, officers or other
employees;
(f) enter into any material agreement, commitment or contract,
except agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business;
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(g) other than in the ordinary course of business, authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets or securities,
(iii) disposition or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or
practice;
(i) take any action the taking of which, or knowingly omit to
take any action the omission of which, would cause any of the representations
and warranties herein to fail to be true and correct in all material respects as
of the date of such action or omission as though made at and as of the date of
such action or omission;
(j) compromise, settle or otherwise modify any material claim
or litigation not identified in the Ensec Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
9.2. ENSEC STOCKHOLDER MEETING. Ensec shall cause a meeting of its
stockholders (the "Ensec Stockholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of voting on the adoption of this
Agreement and the Merger as required by the FBCA. Subject to their fiduciary
duties, the directors of Ensec shall recommend such adoption of this Agreement
and the Merger by Ensec's stockholders. In connection with such meeting, Ensec
(a) will mail to its stockholders as promptly as practicable the Proxy Statement
and all other proxy materials for such meeting, (b) will use all reasonable
efforts to obtain the necessary approvals by its stockholders of this Agreement
and the Transactions, and (c) will otherwise comply with all legal requirements
applicable to such meeting.
9.3. MAINTENANCE OF THE ASSETS. Ensec shall, and shall cause each other
Ensec Company to, use its reasonable best efforts to continue to maintain and
service the Ensec Assets consistent with past practice. Ensec shall not, and
shall cause each other Ensec Company not to, directly or indirectly, sell or
encumber all or any part of the Ensec Assets, other than sales in the ordinary
course of business or sales to or Encumbrances in favor of any other Ensec
Company, or initiate or participate in any discussions or negotiations or enter
into any agreement to do any of the foregoing.
9.4. EMPLOYEES AND BUSINESS RELATIONS. Ensec shall, and shall cause
each other Ensec Company to, use commercially reasonable efforts to keep
available the services of its current employees and agents and to maintain its
relations and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
9.5. RULE 145 AFFILIATES. Prior to the Effective Time, Ensec shall
identify in a letter
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to Sensec and Sentech all Persons who might, at the time of the Ensec
Stockholder Meeting, be deemed to be "affiliates" of Sensec for the purposes of
Rule 145 under the Securities Act (the "Securities Act Affiliates"). Ensec shall
use commercially reasonable efforts to cause each Person who is identified as a
possible Securities Act Affiliate to enter into prior to the Effective Time a
lock-up agreement in form and substance as determined by Ensec and Sentech.
9.6. EXPENSES. Subject to Section 11.2, Ensec shall pay all of the
legal, accounting and other expenses incurred by any Ensec Company in connection
with the Transactions.
9.7. CERTAIN TAX MATTERS. From the date hereof until the Effective
Time, (a) Ensec and each of its Subsidiaries will prepare and file, in the
manner required by applicable Law, all Tax Returns (the "Post-Signing Returns")
required to be filed under applicable Law; (b) Ensec and each of its
Subsidiaries will timely pay all Taxes shown as due and payable on such
Post-Signing Returns that are so filed; (c) Ensec and each of its Subsidiaries
will make provision for all Taxes payable by Ensec and/or any such Subsidiary
under applicable Law for which no Post-Signing Return is due prior to the
Effective Time; and (d) Ensec will promptly notify Sensec and Sentech in writing
of any action, suit, proceeding, claim or audit pending against or with respect
to Ensec or any of its Subsidiaries in respect of any Tax that is not disclosed
on the Ensec Disclosure Schedule.
9.8. EMPLOYMENT ARRANGEMENTS. Ensec will use commercially reasonable
efforts to cause Charles Finkel to enter into an employment agreement in form
and substance as the Parties shall agree, containing the terms set forth
opposite such Person's name in such Section 9.8 of the Ensec Disclosure
Schedule.
9.9. STATE ANTI-TAKEOVER LAW. If any "business combination,"
"moratorium," "control share," "fair price," "interested shareholder,"
"affiliated transaction" or other anti-takeover statute or regulation under the
FBCA (i) prohibits or restricts Ensec's ability to perform its obligations under
this Agreement or any party's ability to consummate the Ensec Merger or the
other transactions contemplated hereby or thereby, or (ii) would have the effect
of invalidating or voiding this Agreement or any provision hereof, then Ensec
shall use its best efforts to obtain any necessary consents or approvals so that
the foregoing shall not apply.
ARTICLE X
COVENANTS OF SENTECH
10.1. OPERATION OF THE BUSINESS. Except as set forth on Section 10.1 of
the Sentech Disclosure Schedule, as contemplated by this Agreement or as
expressly agreed to in writing by Sensec and Ensec, during the period from the
date of this Agreement to the Effective Time, Sentech and its Subsidiaries will
conduct their operations only in the ordinary course of business consistent with
sound financial, operational and regulatory practice, and will take no action
which would materially adversely affect their ability to consummate the
Transactions. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement or except as disclosed in the
Sentech Disclosure Schedule, prior to the Effective Time, neither Sentech nor
any
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of its Subsidiaries will, without the prior written consent of Sensec and Ensec:
(a) amend its Charter Documents or bylaws (or similar
organizational documents);
(b) authorize for issuance, issue, sell, deliver, grant any
options for, or otherwise agree or commit to issue, sell or deliver any shares
of its capital stock or any other securities, other than pursuant to and in
accordance with the terms of any Existing Options or Sentech Warrants listed on
the Sentech Disclosure Schedule;
(c) recapitalize, split, combine or reclassify any shares of
its capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any of its or its
Subsidiaries' securities or modify any of the terms of any such securities;
(d) (i) create, incur, assume or permit to exist any long-term
debt or any short-term debt for borrowed money other than under existing notes
payable, lines of credit or other credit facilities or in the ordinary course of
business, or with respect to its Wholly-Owned Subsidiaries in the ordinary
course of business; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except its Wholly-Owned Subsidiaries in the ordinary course
of business or as otherwise may be contractually required and disclosed in the
Sentech Disclosure Schedule; or (iii) make any loans, advances or capital
contributions to, or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(e) (i) amend any Sentech Benefit Plan or (ii) except in the
ordinary course of business consistent with usual practice or established policy
(a) increase in any manner the rate of compensation of any of its directors,
officers or other employees everywhere, except for increases in the ordinary
course of business; (b) pay or agree to pay any bonus, pension, retirement
allowance, severance or other employee benefit except as required under
currently existing Sentech Benefit Plans disclosed in the Sentech Disclosure
Schedule or in the ordinary course of business; or (c) amend, terminate or enter
into any employment, consulting, severance, change in control or similar
agreements or arrangements with any of its directors, officers or other
employees;
(f) enter into any material agreement, commitment or contract,
except agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business;
(g) other than in the ordinary course of business, authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets or securities,
(iii) disposition or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its capitalization;
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(h) change any material accounting or Tax procedure or
practice;
(i) take any action the taking of which, or knowingly omit to
take any action the omission of which, would cause any of the representations
and warranties herein to fail to be true and correct in all material respects as
of the date of such action or omission as though made at and as of the date of
such action or omission;
(j) compromise, settle or otherwise modify any material claim
or litigation not identified in the Sentech Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
10.2. SENTECH STOCKHOLDER MEETING. Sentech shall cause a meeting of its
stockholders (the "Sentech Stockholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of voting on the adoption of this
Agreement and the Merger as required by the FBCA. Subject to their fiduciary
duties, the directors of Sentech shall recommend such adoption of this Agreement
and the Merger by Sentech's stockholders. In connection with such meeting,
Sentech (a) will mail to its stockholders as promptly as practicable the Proxy
Statement and all other proxy materials for such meeting, (b) will use all
reasonable efforts to obtain the necessary approvals by its stockholders of this
Agreement and the Transactions, and (c) will otherwise comply with all legal
requirements applicable to such meeting.
10.3. MAINTENANCE OF THE ASSETS. Sentech shall, and shall cause each
other Sentech Company to, use its reasonable best efforts to continue to
maintain and service the Sentech Assets consistent with past practice. Sentech
shall not, and shall cause each other Sentech Company not to, directly or
indirectly, sell or encumber all or any part of the Sentech Assets, other than
sales in the ordinary course of business or sales to or Encumbrances in favor of
any other Sentech Company, or initiate or participate in any discussions or
negotiations or enter into any agreement to do any of the foregoing.
10.4. EMPLOYEES AND BUSINESS RELATIONS. Sentech shall, and shall cause
each other Sentech Company to, use commercially reasonable efforts to keep
available the services of its current employees and agents and to maintain its
relations and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
10.5. RULE 145 AFFILIATES. Prior to the Effective Time, Sentech shall
identify in a letter to Sensec and Ensec all Persons who might, at the time of
the Sentech Stockholder Meeting, be deemed to be Securities Act Affiliates.
Sentech shall use commercially reasonable efforts to cause each Person who is
identified as a possible Securities Act Affiliate to enter into prior to the
Effective Time a lock-up agreement in form and substance as determined by Ensec
and Sentech.
10.6. EXPENSES. Subject to Section 11.2, Sentech shall pay all of the
legal, accounting
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and other expenses incurred by any Sentech Company in connection with the
Transactions.
10.7. CERTAIN TAX MATTERS. From the date hereof until the Effective
Time, (a) Sentech and each of its Subsidiaries will prepare and file, in the
manner required by applicable Law, all Post-Signing Returns required to be filed
under applicable Law; (b) Sentech and each of its Subsidiaries will timely pay
all Taxes shown as due and payable on such Post-Signing Returns that are so
filed; (c) Sentech and each of its Subsidiaries will make provision for all
Taxes payable by Sentech and/or any such Subsidiary under applicable Law for
which no Post-Signing Return is due prior to the Effective Time; and (d) Sentech
will promptly notify Sensec and Ensec in writing of any action, suit,
proceeding, claim or audit pending against or with respect to Sentech or any of
its Subsidiaries in respect of any Tax that is not disclosed on the Sentech
Disclosure Schedule.
10.8. STATE ANTI-TAKEOVER LAW. If any "business combination,"
"moratorium," "control share," "fair price," "interested shareholder,"
"affiliated transaction" or other anti-takeover statute or regulation under the
FBCA (i) prohibits or restricts Sentech's ability to perform its obligations
under this Agreement or any party's ability to consummate the Sentech Merger or
the other transactions contemplated hereby or thereby, or (ii) would have the
effect of invalidating or voiding this Agreement or any provision hereof or
thereof, then Sentech shall use its best efforts to obtain any necessary
consents or approvals so that the foregoing shall not apply.
ARTICLE XI
COVENANTS OF SENSEC
11.1. APPOINTMENT TO THE BOARD OF DIRECTORS OF SENSEC. At the Effective
Time, the Sensec Board of Directors shall be Edward Mulhare, Milan Resanovich,
Thomas Nicolette, Charles Finkel, and Flavio Ribeiro da Silva.
11.2. EXPENSES. Sensec shall pay all of the legal, accounting and other
expenses incurred by any Sensec Company in connection with the Transactions,
including fees of Sensec's transfer agent, fees of the Exchange Agent and fees,
SEC filing fees and printing and mailing costs payable with respect to the
Proxy/Registration Statement.
11.3. INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE. For a period
of six years after the Effective Time, Sensec shall cause the Ensec Surviving
Corporation and the Sentech Surviving Corporation to (a) maintain in effect the
current provisions regarding indemnification of officers and directors contained
in the Charter Documents and bylaws of Ensec and Sentech, respectively, and in
any indemnification agreements of Ensec and Sentech, respectively, and (b)
indemnify the directors and officers of Ensec and Sentech, respectively, to the
fullest extent to which Ensec and Sentech respectively is permitted to indemnify
such officers and directors under its Charter Documents and bylaws and
applicable Law. For a period of six years after the Effective Time, Sensec shall
cause the Surviving Corporation to maintain in effect the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by Ensec and Sentech respectively (provided that the Surviving
Corporation may substitute therefor
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policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured in
any material respect) with respect to claims arising from facts or events which
occurred on or before the Effective Time, provided that in no event shall
Surviving Corporation be required to pay an annual premium of more than the
annual premium currently paid by either Ensec or Sentech, whichever is greater.
11.4. INTERIM FINANCIAL REPORT. Sensec shall provide within 20 days
after the end of the first full monthly period following the Closing a financial
report regarding the combined operation of Sensec, Ensec and Sentech
respectively that satisfies the requirements of Financial Reporting Release No.
1, ASR 135.
ARTICLE XII
CONDITIONS PRECEDENT AND CONCURRENT
TO OBLIGATIONS OF ALL PARTIES
The respective obligations of each Party to consummate the Merger and
the other Transactions shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions:
12.1. LEGALITY. All required governmental approvals shall have been
obtained and any applicable waiting periods, shall have expired. No Law or Court
Order shall have been enacted, entered, promulgated or enforced by any court or
governmental entity that is in effect and that has the effect of making the
Merger illegal or otherwise prohibiting the consummation of the Merger and no
legal action shall be pending or threatened which is reasonably likely to have a
Material Adverse Effect on Party.
12.2. REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities 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.
12.3. APPROVAL BY SENTECH STOCKHOLDERS AND ENSEC STOCKHOLDERS.
This Agreement shall have been approved and adopted by the stockholders of Ensec
in accordance with the FBCA and its Charter Documents, and by the stockholders
of Sentech in accordance with the FBCA and its Charter Documents.
12.4. CONCURRENT MERGERS. The Ensec Merger is a condition concurrent to
the Sentech Merger and the Sentech Merger is a condition concurrent to the Ensec
Merger.
12.5. TAX OPINIONS. Ensec shall have received an opinion of Ensec's
counsel and Sentech shall have received an opinion of Sentech's counsel, each in
form and substance reasonably satisfactory to Sensec, each dated as of the
Closing Date, to the effect that the Ensec Merger and the Sentech Merger,
respectively, will constitute a reorganization within the meaning of Code
Section 368(a). In rendering such tax opinions, such counsel may require and
rely upon reasonably requested
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representations contained in certificates of Sensec, Ensec, the Ensec Merger
Subsidiary, Sentech and the Sentech Merger Subsidiary.
ARTICLE XIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF ENSEC
The obligations of Ensec to consummate the Merger and the Transactions
shall be subject to the satisfaction or waiver, on or before the Effective Time,
of each of the following conditions:
13.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sensec/Ensec Parties contained in this Agreement shall be true
and correct on the date hereof and (except to the extent such representations
and warranties speak as of an earlier date) shall also be true and correct on
and as of the Closing Date, except for changes contemplated by this Agreement,
with the same force and effect as if made on and as of the Closing Date;
provided, however, that for purposes of this Section 13.1 only, such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct (without regard to materiality qualifiers contained therein),
individually or in the aggregate, results or would reasonably be expected to
result in a Material Adverse Effect on Sensec or Sentech.
13.2. AGREEMENTS, CONDITIONS AND COVENANTS. The Sensec/Ensec Parties
shall have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by them on or before the Effective Time.
13.3. CERTIFICATES. Ensec shall have received a certificate of an
executive officer of Sensec to the effect set forth in Sections 13.1 and 13.2.
13.4. MATERIAL ADVERSE EFFECT. There shall have been no Material
Adverse Effect on the Sentech Companies taken as a whole or the Sensec Companies
taken as a whole.
13.5. ANCILLARY DOCUMENTS. Each Sensec Party shall have tendered
executed copies of the respective Transaction Documents to which it is intended
to be a party.
13.6. BOARD RECOMMENDATION. The Board of Directors of Ensec will have
(a) approved and adopted this Agreement, including the Ensec Merger and the
other Transactions, and determined that the Ensec Merger is fair to the
stockholders of Ensec, and (b) subject to fiduciary obligations of the Ensec
Board of Directors, resolved to recommend approval and adoption of this
Agreement, including the Ensec Merger and the other Transactions, by the
stockholders of Ensec.
13.7. FAIRNESS OPINION. An investment banking firm reasonably
acceptable to the Parties will have delivered to Ensec's Board of Directors its
opinion to the effect that on the date of the opinion the Ensec Merger
Consideration is fair to the holders of Ensec Common Shares from a financial
point of view.
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ARTICLE XIV
CONDITIONS PRECEDENT TO OBLIGATIONS OF SENTECH
The obligations of Sentech to consummate the Sentech Merger and the
Transactions shall be subject to the satisfaction or waiver, on or before the
Effective Time, of each of the following conditions:
14.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Sensec/Sentech Parties contained in this Agreement shall be
true and correct on the date hereof and (except to the extent such
representations and warranties speak as of an earlier date) shall also be true
and correct on and as of the Closing Date, except for changes contemplated by
this Agreement, with the same force and effect as if made on and as of the
Closing Date; provided, however, that for purposes of this Section 14.1 only,
such representations and warranties shall be deemed to be true and correct
unless the failure or failures of such representations and warranties to be so
true and correct (without regard to materiality qualifiers contained therein),
individually or in the aggregate, results or would reasonably be expected to
result in a Material Adverse Effect on Sensec or Ensec.
14.2. AGREEMENTS, CONDITIONS AND COVENANTS. The Sensec/Sentech Parties
shall have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by them on or before the Effective Time.
14.3. CERTIFICATES. Sentech shall have received a certificate of an
executive officer of Sensec to the effect set forth in Sections 14.1 and 14.2.
14.4. MATERIAL ADVERSE EFFECT. There shall have been no Material
Adverse Effect on the Ensec Companies taken as a whole or the Sensec Companies
taken as a whole.
14.5. ANCILLARY DOCUMENTS. Each Sensec Party shall have tendered
executed copies of the respective Transaction Documents to which it is intended
to be a party.
14.6. BOARD RECOMMENDATION. The Board of Directors of Sentech will have
(a) approved and adopted this Agreement, including the Sentech Merger and the
other Transactions, and determined that the Sentech Merger is fair to the
stockholders of Sentech, and (b) subject to fiduciary obligations of the Sentech
Board of Directors, resolved to recommend approval and adoption of this
Agreement, including the Sentech Merger and the other Transactions, by the
stockholders of Sentech.
14.7. FAIRNESS OPINION. An investment banking firm reasonably
acceptable to the Parties will have delivered to Sentech's Board of Directors
its opinion to the effect that on the date of the opinion the Sentech Merger
Consideration is fair to the holders of Sentech Common Shares from a financial
point of view.
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ARTICLE XV
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SENSEC PARTIES
The obligations of the Sensec/Ensec Parties to consummate the Ensec
Merger and the Transactions and the obligations of the Sensec/Sentech Parties to
consummate the Sentech Merger and the Transactions shall be subject to the
satisfaction or waiver, on or before the Effective Time, of each of the
following conditions:
15.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Ensec and Sentech contained in this Agreement shall be true and
correct on the date hereof and (except to the extent such representations and
warranties speak as of an earlier date) shall also be true and correct on and as
of the Closing Date, except for changes contemplated by this Agreement, with the
same force and effect as if made on and as of the Closing Date; provided,
however, that for purposes of this Section 15.1 only, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct (without regard
to materiality qualifiers contained therein), individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect
on Ensec or Sentech, respectively.
15.2. AGREEMENTS, CONDITIONS AND COVENANTS. Each of Ensec and Sentech
shall have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by it on or before the Effective Time.
15.3. CERTIFICATES. Sensec shall have received a certificate of an
executive officer of each of Ensec and Sentech to the effect set forth in
Sections 15.1 and 15.2, respectively.
15.4. REQUIRED CONSENTS. Ensec and Sentech shall have obtained all
consents from third parties listed in Section 5.3 of the Ensec Disclosure
Schedule and Section 6.3 of the Sentech Disclosure Schedule, respectively, and
all other consents the absence of which would result in a Material Adverse
Effect on Ensec and Sentech, respectively.
15.5. MATERIAL ADVERSE EFFECT. There shall have been no Material
Adverse Effect on the Ensec Companies taken as a whole or the Sentech Companies
taken as a whole.
15.6. ANCILLARY DOCUMENTS. Each of Ensec and Sentech shall have
tendered executed copies of the Transaction Documents to which it is intended to
be a party.
15.7. EMPLOYMENT AGREEMENT. Charles Finkel shall have entered into an
Employment Agreement as contemplated by Section 9.8.
15.8. BOARD RECOMMENDATION. The Board of Directors of Sensec will have
approved and adopted this Agreement, including the Ensec Merger, the Sentech
Merger and the other
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Transactions, and determined that each of the Ensec Merger and Sentech Merger is
fair to Sensec
ARTICLE XVI
TERMINATION
16.1. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time before the Effective Time, in each case as authorized by the respective
Boards of Directors of the Parties:
(a) By mutual written consent of each of Ensec and Sentech;
(b) By Ensec or Sentech if the Merger shall not have been
consummated on or before the Termination Date; provided, however, that the right
to terminate this Agreement under this Section 16.1(b) shall not be available to
any Party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By Ensec or Sentech if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a Court Order (which Court Order the Parties shall use commercially
reasonable efforts to lift) that permanently restrains, enjoins or otherwise
prohibits the Transactions, and such Court Order shall have become final and
nonappealable;
(d) By Sentech if Ensec shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or warranty made by Ensec shall have been
incorrect in any material respect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice thereof, and in
either case, any such breaches, failures or misrepresentations, individually or
in the aggregate, results or would reasonably be expected to result in a failure
to satisfy a condition to Ensec's obligations to consummate the transactions
contemplated hereby;
(e) By Ensec if Sentech shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or warranty made by it shall have been incorrect
in any material respect when made, and such breach, failure or misrepresentation
is not cured within 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a failure to satisfy a
condition to Sentech's obligations to consummate the transactions contemplated
hereby;
(f) By Ensec if at the Ensec Stockholder Meeting (including
any adjournment thereof) this Agreement and the Ensec Merger shall fail to be
approved and adopted by the affirmative vote of the stockholders of Ensec as
required under the FBCA;
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(g) By Sentech if at the Sentech Stockholder Meeting
(including any adjournment thereof) this Agreement and the Sentech Merger shall
fail to be approved and adopted by the affirmative vote of the stockholders of
Sentech as required under the FBCA;
(h) By Ensec, prior to the approval of this Agreement by the
stockholders of Ensec, upon five days notice to Sentech, if, as a result of an
Acquisition Proposal received by Ensec from a Person other than a Party to this
Agreement or any of its Affiliates, the Board of Directors of Ensec determines
in good faith that its fiduciary obligations under applicable Law require that
such Acquisition Proposal be accepted; provided, however, that (i) immediately
following such termination Ensec executes with such third party a definitive
agreement to implement such Acquisition Proposal, (ii) the Board of Directors of
Ensec shall have concluded in good faith, after considering applicable
provisions of applicable Law and after giving effect to all concessions which
may be offered by Sentech pursuant to clause (iii) below, on the basis of advice
of counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable Law, and (iii)
prior to any such termination, (x) Ensec shall have provided Sentech with five
days' notice of the terms of the proposal and otherwise complied with Section
8.2(a) hereof (including making the finding contemplated by Section 8.2(a)(x)
hereof) and (y) Ensec shall, and shall cause its financial and legal advisors
to, negotiate with Sentech to make such adjustments in the terms and conditions
of this Agreement as would enable Ensec to proceed with the Transactions;
(i) By Sentech, prior to the approval of this Agreement by the
stockholders of Sentech, upon five days notice to Ensec, if, as a result of an
Acquisition Proposal received by Sentech from a Person other than a Party to
this Agreement or any of its Affiliates, the Board of Directors of Sentech
determines in good faith that its fiduciary obligations under applicable Law
require that such Acquisition Proposal be accepted; provided, however, that (i)
immediately following such termination Sentech executes with such third party a
definitive agreement to implement such Acquisition Proposal, (ii) the Board of
Directors of Sentech shall have concluded in good faith, after considering
applicable provisions of applicable Law and after giving effect to all
concessions which may be offered by Ensec pursuant to clause (iii) below, on the
basis of advice of counsel, that such action is necessary for the Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable Law, and (iii) prior to any such termination, (x) Sentech shall have
provided Ensec with five days' notice of the terms of the proposal and otherwise
complied with Section 8.2(b) hereof (including making the finding contemplated
by Section 8.2(b)(i)(x) hereof) and (y) Sentech shall, and shall cause its
financial and legal advisors to, negotiate with Ensec to make such adjustments
in the terms and conditions of this Agreement as would enable Sentech to proceed
with the Transactions.
(j) By Ensec if the Board of Directors of Sentech shall
withdraw, modify or change its recommendation of this Agreement or the Sentech
Merger or shall have failed to reaffirm its recommendation within five business
days of Ensec's request that it do so or shall have recommended or issued a
neutral recommendation (or taken no position) with respect to any Acquisition
Proposal.
54
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(j) By Sentech if the Board of Directors of Ensec shall
withdraw, modify or change its recommendation of this Agreement or the Ensec
Merger or shall have failed to reaffirm its recommendation within five business
days of Sentech's request that it do so or shall have recommended or issued a
neutral recommendation (or taken no position) with respect to any Acquisition
Proposal.
16.2. EFFECT OF TERMINATION.
(a) If this Agreement is terminated pursuant to Section
16.1(a), (b) or (c), this Agreement shall be terminated and there shall be no
liability on the part of any of the Parties; notwithstanding the foregoing,
nothing herein shall relieve any Party from liability for any willful breach
hereof; provided that the provisions of Sections 8.3, 8.4(b), 9.6, 10.6, 11.2
and this Section 16.2 shall survive the termination hereof.
(b) If this Agreement is terminated by Sentech pursuant to
Section 16.1(d) or (j) or by Ensec pursuant to Section 16.1(f), (h) or (k), then
Ensec shall reimburse Sentech for its reasonable out-of-pocket expenses in
connection with the Transactions, including, without limitation, attorneys',
accountants' and investment bankers' fees and expenses ("Transaction Fees") up
to an aggregate of $50,000.
(c) If this Agreement is terminated by Ensec pursuant to
Section 16.1(e) or (j) or by Sentech pursuant to Section 16.1(g), (i) or (l),
then Sentech shall reimburse Ensec for its Transaction Fees up to an aggregate
of $50,000.
Ensec acknowledges that the agreements contained in this Section 16.2 are an
integral part of the Transactions, and that, without these agreements, Sensec
would not enter into this Agreement; accordingly, if Ensec fails to promptly pay
the amount due pursuant to this Section 16.2, and, in order to obtain such
payment, Sensec commences a suit which results in a judgment against Ensec for
the fee set forth in this Section 16.2, Ensec shall pay to Sensec its costs and
expenses (including reasonable attorneys' fees) in connection with such suit,
together with interest on the amount of the fee at a rate equal to the prime
rate of Citibank, N.A. at the time of payment from the date such fee was
required to be paid.
ARTICLE XVII
GENERAL MATTERS
17.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties in this Agreement shall terminate at the Effective Time or upon
the termination of this Agreement pursuant to Section 16.1.
17.2. CONTENTS OF AGREEMENT. This Agreement and the Confidentiality
Agreement, together with the other Transaction Documents, set forth the entire
understanding of the Parties hereto with respect to the Transactions and
supersede all prior agreements or understandings among
55
<PAGE>
the Parties regarding those matters.
17.3. AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This Agreement
may be amended, modified or supplemented only by a written instrument duly
executed by each of the Parties hereto. If any provision of this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective heirs, legal representatives, successors and permitted assigns
of the Parties hereto. No Party hereto shall assign this Agreement or any right,
benefit or obligation hereunder. Any term or provision of this Agreement may be
waived at any time by the Party entitled to the benefit thereof by a written
instrument duly executed by such Party. The Parties hereto shall execute and
deliver any and all documents and take any and all other actions that may be
deemed reasonably necessary by their respective counsel to complete the
Transactions. Nothing in this Agreement is intended or will be construed to
confer on any Person other than the Parties hereto any rights or benefits
hereunder.
17.4. INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including," "includes" or similar words has the inclusive
meaning frequently identified with the phrase "but not limited to" and (e)
references to "hereunder" or "herein" relate to this Agreement. The section and
other headings contained in this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, Disclosure Schedule
and Exhibit references are to this Agreement unless otherwise specified. The
Exhibits and Schedules referred to in this Agreement will be deemed to be a part
of this Agreement. Each accounting term used herein that is not specifically
defined herein shall have the meaning given to it under GAAP.
17.5. NOTICES. All notices that are required or permitted hereunder
shall be in writing and shall be sufficient if personally delivered or sent by
mail, facsimile message or Federal Express or other delivery service. Any
notices shall be deemed given upon receipt at the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
Party hereto:
If to Ensec:
Ensec International
One World Trade Center, 33rd Floor
New York, New York 10048
Fax (212) 524-0606
Attn: Charles Finkel
with a required copy to:
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<PAGE>
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Blvd., Suite 1900
Fort Lauderdale, FL 33301
Fax (954) 766-7800
Attn: Joel D. Mayersohn, Esq.
If to Sentech:
Sentech EAS Corp.
484 S.W. 12th Ave
Deerfield Beach, Florida 33442-3108
Fax (954) 426-8389
Attn: Ronald L. Meggison, Jr.
with a required copy to:
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street, 9th Floor
New York, New York 10022
Fax (212) 980-5192
Attn: Jay M. Kaplowitz, Esq.
If to Sensec, the Ensec Merger Subsidiary or the Sentech
Merger Subsidiary, to each of Ensec and Sentech as provided above.
17.6. GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with the Laws of the State of Florida without regard to its
provisions concerning conflict of laws.
17.7. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
17.8. WAIVERS. Compliance with the provisions of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the Party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
17.9. MODIFICATION. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all of the Parties hereto and that specifically refers to this Agreement.
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17.10. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or equity.
17.11. WAIVER OF JURY TRIAL. Each party acknowledges and agrees that
any controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement, or the Transactions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each party understands and has considered the implications of this
waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has
been induced to enter into this Agreement by, among other things, the mutual
waivers and certifications in this Section 17.11.
17.12. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
[Signatures on following page]
58
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IN WITNESS WHEREOF, this Agreement has been executed by the Parties
hereto as of the day and year first written above.
SENSEC INTERNATIONAL, INC.
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
ENSEC ACQUISITION CORPORATION
By: /s/ Charles Finkel
----------------------------------
Charles Finkel
Chairman of the Board
SENTECH ACQUISITION CORPORATION
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
ENSEC INTERNATIONAL, INC.
By: /s/ Charles Finkel
----------------------------------
Charles Finkel
Chairman of the Board and
Chief Executive Officer
SENTECH EAS CORPORATION
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
59
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
("Amendment") is made as of December 2, 1998 by and among Sensec International,
Inc. a Delaware corporation ("Sensec"), Ensec Acquisition Corporation, a Florida
Corporation (the "Ensec Merger Subsidiary" and together with Sensec, the
"Sensec/Ensec Parties"), Ensec International, Inc., a Florida corporation
("Ensec"), Sentech Acquisition Corporation, a Florida corporation (the "Sentech
Merger Subsidiary" and together with Sensec, the "Sensec/Sentech Parties"), and
SenTech EAS Corporation, a Florida corporation ("Sentech") to amend the
Agreement and Plan of Merger dated October 28, 1998 ("Merger Agreement").
Sensec, Ensec Merger Subsidiary, Sentech Merger Subsidiary, Ensec and Sentech
are collectively referred to herein as the "Parties"). Certain other Capitalized
terms used herein are defined in the Merger Agreement.
1. Section 3.5(a) of the Merger Agreement is amended to read as
follows:
3.5. CONVERSION OR CANCELLATION OF SENTECH SHARES.
(a) Each share of Sentech Common Stock (a "Sentech
Share") outstanding immediately prior to the Effective Time shall by
virtue of the Sentech Merger and without any action on the part of the
Sentech Holder thereof, be converted into the right to receive
0.4965541 (the "Sentech Conversion Number") Sensec Shares. Each Sentech
Common Share that, immediately prior to the Effective Time, is held by
Sentech as treasury stock shall be canceled, and no consideration shall
be delivered with respect thereto.
2. All other terms and provisions of the Merger Agreement shall remain
the same.
3. This Amendment may be executed in counterparts.
[Signatures on following page]
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IN WITNESS WHEREOF, this Amendment has been executed by the Parties
hereto as of the day and year first written above.
SENSEC INTERNATIONAL, INC.
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
ENSEC ACQUISITION CORPORATION
By: /s/ Charles Finkel
----------------------------------
Charles Finkel
Chairman of the Board
SENTECH ACQUISITION CORPORATION
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
ENSEC INTERNATIONAL, INC.
By: /s/ Charles Finkel
----------------------------------
Charles Finkel
Chairman of the Board and
Chief Executive Officer
SENTECH EAS CORPORATION
By: /s/ Edward Mulhare
----------------------------------
Edward Mulhare
Chairman of the Board
61
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SENSEC INTERNATIONAL, INC.
* * * *
FIRST: The name of the corporation is Sensec International, Inc.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose or purposes of the corporation shall be to engage
in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the corporation is
authorized to issue is twenty-one million (21,000,000),
divided into classes as follows:
A. Twenty million (20,000,000) shares of Common Stock,
$.001 par value per share, and
B. One million (1,000,000) shares of Preferred Stock,
$.001 par value per share, to be issued in series
(hereinafter called the "Preferred Stock").
The following is a statement of the designations,
powers, preferences and rights, and the
qualifications, limitations or restrictions with
respect to the Preferred Stock of the Corporation:
The shares of Preferred Stock may be issued in one or
more series, and each series shall be so designated
as to distinguish the shares thereof from the shares
of all other series. Authority is hereby expressly
granted to the Board of Directors of the Corporation
to fix, subject to the provisions herein set forth,
before the issuance of any shares of a particular
series, the number, designations, and relative
rights, preferences, and limitations of the shares of
such series including (1) voting rights, if any,
which may include the right to vote together as a
single class with the Common Stock and any other
series of the Preferred Stock with the number of
votes per share accorded to shares of such series
being the same as or different from that accorded to
such other shares, (2) the dividend rate per annum,
if any, and the terms and conditions pertaining to
dividends and whether such dividends shall be
cumulative, (3) the amount or amounts
<PAGE>
payable upon such voluntary or involuntary
liquidation, (4) the redemption price or prices, if
any, and the terms and conditions of the redemption,
(5) sinking fund provisions, if any, for the
redemption or purchase of such shares, (6) the terms
and conditions on which such shares are convertible,
in the event the shares are to have conversion
rights, and (7) any other rights, preferences and
limitations pertaining to such series which may be
fixed by the Board of Directors pursuant to the
Delaware General Corporation Law.
FIFTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to
make, alter or repeal the by-laws of the corporation without
any action on the part of the stockholders.
SIXTH: A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived any improper
personal benefit. Neither any amendment nor repeal of this
Article, nor the adoption of any provision of this Certificate
of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim
that, but for this Article, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent
provision.
SEVENTH: The name and address of the sole incorporator is: James G.
Smith, Esq., c/o Gersten, Savage, Kaplowitz & Fredericks, LLP,
101 East 52nd Street, New York, New York 10022.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hands this 2nd day of
November, 1998.
/s/ James G. Smith
----------------------------
James G. Smith, Incorporator
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
2
<PAGE>
BYLAWS
OF
GLOBAL SECURITY TECHNOLOGIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
Section 1.1. DELAWARE OFFICE. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware.
Section 1.2. OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's headquarters or at such other
locations outside the State of Delaware as may from time to time be designated
by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. ANNUAL MEETINGS. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board or a
majority of the members of the Board of Directors.
Section 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Certificate of Incorporation or
these Bylaws, the written notice of any meeting shall be given not less than ten
or more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation.
<PAGE>
Section 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.5. QUORUM. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, at each meeting of stockholders
the presence in person or by proxy of the holders of shares of stock having a
majority of the votes which could be cast by the holders of all outstanding
shares of stock entitled to vote at the meeting shall be necessary and
sufficient to constitute a quorum. In the absence of a quorum, the stockholders
so present may, by majority vote, adjourn the meeting from time to time in the
manner provided in Section 2.4 of these Bylaws until a quorum shall attend.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 2.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, or in his or her absence by the Chief
Executive Officer, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation, by
a chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 2.7. VOTING.
(a) Except as otherwise provided by law, the Certificate of
Incorporation, or these Bylaws, any corporate action, other than the election of
Directors, the affirmative vote of the majority of shares entitled to vote on
that matter and represented either in person or by proxy at a meeting of
stockholders at which a quorum is present shall be the act of the stockholders
of the Corporation.
(b) Unless otherwise provided for in the Certificate of
Incorporation of the Corporation, Directors will be elected by a plurality of
the votes cast by the shares, present in person or by proxy, entitled to vote in
the election at a meeting at which a quorum is present and each stockholder
entitled to vote has the right to vote the number of shares owned by him for
each Director to be elected. Stockholders shall not have any cumulative voting
rights.
(c) Except as otherwise provided by statute, the Certificate
of Incorporation, or
2
<PAGE>
these Bylaws, at each meeting of stockholders, each stockholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
Section 2.8 PROXIES. Each stockholder entitled to vote or to express
consent or dissent without a meeting, may do so either in person or by proxy, so
long as such proxy is executed in writing by the stockholder himself, or by his
attorney-in-fact thereunto duly authorized in writing. Every proxy shall be
revocable at will unless the proxy conspicuously states that it is irrevocable
and the proxy is coupled with an interest. A telegram, telex, cablegram, or
similar transmission by the stockholder, or as a photographic, photostatic,
facsimile, shall be treated as a valid proxy, and treated as a substitution of
the original proxy, so long as such transmission is a complete reproduction
executed by the stockholder or by his attorney-in-fact. No proxy shall be valid
after the expiration of three years from the date of its execution, unless
otherwise provided in the proxy. Such instrument shall be exhibited to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Section 2.9 ACTION WITHOUT A MEETING. Unless otherwise provided for in
the Certificate of Incorporation of the Corporation, any action to be taken at
any annual or special stockholders' meeting, may be taken without a meeting,
without prior notice and without a vote if a written consent or consents is/are
signed by the stockholders of the Corporation having not less than the minimum
number of votes necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereat were present and voted is delivered by hand
or by certified or registered mail, return receipt requested, to the Corporation
to its principal place of business or an officer or agent of the Corporation
having custody of the books in which proceedings of stockholders' meetings are
recorded.
Section 2.10. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors and which record date: (i) in the case of
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more than
sixty nor less than ten days before the date of such meeting and (ii) in the
case of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held and (ii) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any
3
<PAGE>
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 2.11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock ledger
shall be the only evidence as to which stockholders are entitled to examine the
stock ledger, the list of stockholders or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
Section 2.12. CONDUCT OF MEETINGS. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
Section 2.13. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
The Board of Directors by resolution may appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act, or if all inspectors or alternates who have been appointed are
unable to act, at a meeting of stockholders, the chairman of the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
discharging his or her duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best of
his or her ability. The
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inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware. The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
Section 3.2. NUMBER, TERM OF OFFICE, QUALIFICATIONS. The Board of
Directors shall consist of not less than three or more than ten members, the
exact number to be determined from time to time by resolution of the Board of
Directors. The Board of Directors shall consist initially of five (5) directors.
The number of directors may be changed from time to time by resolution duly
adopted by the Board of Directors or the stockholders, except as provided by law
or the Certificate of Incorporation. The Board of Directors shall be divided
into three classes, designated Class I, Class II and Class III. Initially, Class
I directors shall be elected for a one-year term, Class II directors for a
two-year term and Class III directors for a three-year term. At any annual
meeting of stockholders held after the initial election of all Classes of
directors, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so the number of directors in each class is as nearly equal as possible,
and any additional director of any class elected to fill a vacancy 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. A director shall hold office until the annual
meeting for the year in which such director's term expires and until such
director's successor shall be elected and shall qualify, subject, however to
prior death, resignation, retirement, disqualification or removal from office.
Except as provided in Section 3.4 of this Article, directors shall be elected by
the holders of record of a plurality of the votes cast at Annual Meetings of
Stockholders. Directors need not be stockholders or residents of the State of
Delaware.
Section 3.3. RESIGNATION. Any Director may resign at any time upon
written notice to the Board of Directors, the Chief Executive Officer or the
Secretary of the Corporation. Such resignation shall be effective upon receipt
unless the notice specifies a later time for that resignation to become
effective.
Section 3.4. VACANCIES. Any newly created directorship resulting from
an increase in the authorized number of Directors or any vacancy occurring in
the Board of Directors by reason of death, resignation, retirement,
disqualification, removal from office or any other cause may be filled by the
affirmative vote of the remaining members of the Board of Directors, though less
than a
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quorum of the Board of Directors, and each Director so elected shall hold office
until the expiration of the term of office of the Director whom he or she has
replaced or until his or her successor is elected and qualified. If there are no
Directors in office, then an election of Directors may be held in the manner
provided by statute. No decrease in the number of Directors constituting the
whole Board shall shorten the term of any incumbent Director.
Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board of Directors may from time to time determine, and if
so determined notices thereof need not be given.
Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, the Chief Executive
Officer, the Secretary, or by any two members of the Board of Directors. Notice
of the date, time and place of a special meeting of the Board of Directors shall
be delivered by the person or persons calling the meeting personally, by
facsimile or by telephone to each Director or sent by first-class mail or
telegram, charges prepaid, addressed to each Director at that Directors' address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or telegraph, it shall be delivered at least forty-eight hours before
the time of the holding of the special meeting. If by facsimile transmission,
such notice shall be transmitted at least twenty-four hours before the time of
holding of the special meeting. Any oral notice given personally or by telephone
may be communicated either to the Director or to a person at the office of the
Director who the person giving the notice has reason to believe will promptly
communicate it to the Director. The notice need not specify the purpose or
purposes of the special meeting or the place of the special meeting, if the
meeting is to be held at the principal office of the Corporation.
Section 3.7. TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Bylaw shall constitute presence in person at such meeting.
Section 3.8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all
meetings of the Board of Directors a majority of the whole Board of Directors
shall constitute a quorum for the transaction of business. Except in cases in
which the Certificate of Incorporation or these Bylaws otherwise provide, the
vote of a majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. A majority of the Directors
present, whether or not a quorum, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four hours. If the
meeting is adjourned for more than twenty-four hours, then notice of the time
and place of the adjourned meeting shall be given to the Directors who were not
present at the time of the adjournment in the manner specified in Section 3.6.
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Section 3.9. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
Section 3.10. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or such committee.
Section 3.11. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 3.11 shall not be construed to preclude any
Director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
Section 3.12 REMOVAL. One or more or all the Directors of the
Corporation may be removed with or without cause at any time by the
stockholders, at a special meeting of the stockholders called for that purpose,
unless the Certificate of Incorporation provides that Directors may only be
removed for cause.
ARTICLE IV
COMMITTEES
Section 4.1. COMMITTEES. The Board of Directors may designate from
among its members one or more standing or special committees, each committee to
consist of one or more of the Directors of the Corporation. The Board of
Directors may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of the committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
permitted by law and to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it.
Section 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article III of these Bylaws.
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Section 4.3. MINUTES OF MEETINGS. All committees appointed in
accordance with Section 4.1 shall keep regular minutes of their meetings and
shall cause them to be recorded in books kept for that purpose in the office of
the Corporation.
ARTICLE V
OFFICERS
Section 5.1. DESIGNATIONS. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a Secretary, Chief Financial
Officer, and, at the discretion of the Board of Directors, a President, one or
more Vice-Presidents (one or more of whom may be Executive Vice-Presidents), a
Treasurer, Assistant Secretaries and Assistant Treasurers. The Board of
Directors shall appoint all officers. Any two or more offices may be held by the
same individual.
Section 5.2. 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 of Directors held after each annual meeting of the
stockholders. Each officer shall hold office until a successor shall have been
appointed and qualified, or until such officer's earlier death, resignation or
removal.
Section 5.3. POWERS AND DUTIES. If the Board appoints persons to fill
the following positions, such officers shall have the power and duties set forth
below:
(a) THE CHAIRMAN: The Chairman shall have general control and
management of the Board of Directors and may also be the chief executive officer
of the Corporation. He or she shall preside at all meetings of the Board of
Directors at which he or she is present. He or she shall have such other powers
and perform such other duties as from time to time may be conferred or imposed
upon him or her by the Board of Directors.
(b) THE CHIEF EXECUTIVE OFFICER: The Chief Executive Officer
of the Corporation shall be generally responsible for the proper conduct of the
business of the Corporation. He or she shall possess power to sign all
certificates, contracts and other instruments of the Corporation. In the absence
of the Chairman, he or she shall preside at all meetings of the stockholders and
Board of Directors. He or she shall perform all such other duties as are
incident to his or her office or are properly required of him or her by the
Board of Directors.
(c) THE PRESIDENT: The President of the Corporation shall be
generally responsible for the day to day operations of the business of the
Corporation. He or she shall possess power to sign all certificates, contracts
and other instruments of the Corporation. In the absence of the Chairman and the
Chief Executive Officer, he or she shall preside at all meetings of the
stockholders and Board of Directors. He or she shall perform all such other
duties as are incident to his or her office or are properly required of him or
her by the Chief Executive Officer or the Board of Directors.
(d) VICE PRESIDENT: Each Vice-President shall have such
powers and discharge
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such duties as may be assigned to him or her from time to time by the President
or the Board of Directors.
(e) SECRETARY AND ASSISTANT SECRETARIES: The secretary shall
issue notices for all meetings, shall keep minutes of all meetings, shall have
charge of the seal and the corporate books, and shall make such reports and
perform such other duties as are incident to his or her office, or are properly
required of him or her by the Board of Directors. The Assistant Secretary, or
Assistant Secretaries in order designated by the Board of Directors, shall
perform all of the duties of the Secretary during the absence or disability of
the Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
(f) CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep or cause to be kept adequate and correct books and records of accounts of
the properties and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any Director. The chief financial officer shall
(1) deposit corporate funds and other valuables in the Corporation's name and to
its credit with depositories designated by the Board of Directors; (2) make
disbursements of corporate funds as authorized by the Board of Directors; (3)
render a statement of the corporation's financial condition and an account of
all transactions conducted as chief financial officer whenever requested by the
President or the Board of Directors; and (4) have other powers and perform other
duties as prescribed by the President or the Board of Directors or the Bylaws.
Unless the Board of Directors has elected a separate treasurer, the chief
financial officer shall be deemed to be the treasurer for purposes of giving any
reports or executing any certificates or other documents.
Section 5.4. DELEGATION. In the case of the absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
such officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any Director or other
person whom it may in its sole discretion select.
Section 5.5. VACANCIES. Vacancies in any office arising from any cause
may be filled by the Board of Directors at any regular or special meeting of the
Board. The appointee shall hold office for the unexpired term and until his or
her successor is duly elected and qualified.
Section 5.6. OTHER OFFICERS. The Board of Directors, or a duly
appointed officer to whom such authority has been delegated by Board resolution,
may appoint such other officers and agents as it shall deem necessary or
expedient, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors.
Section 5.7. RESIGNATION. An officer may resign at any time by
delivering notice to the Corporation. Such notice shall be effective when
delivered unless the notice specifies a later effective date. Any such
resignation shall not affect the Corporation's contract rights, if any, with the
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officer.
Section 5.8. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 5.9. BONDS. The Board of Directors may, by resolution, require
any and all of the officers to give bonds to the Corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the duties of
their respective offices, and to comply with such other conditions as may from
time to time be required by the Board of Directors.
ARTICLE VI
STOCK
Section 6.1. ISSUANCE OF SHARES. No shares of the Corporation shall be
issued unless authorized by the Board of Directors or a duly constituted
committee thereof. Such authorization shall include the number of shares to be
issued, the consideration to be received and a statement regarding the adequacy
of the consideration.
Section 6.2. CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the Corporation by the Chairman
of the Board of Directors, if any, or the Chief Executive Officer or a Vice
President, and by the Chief Financial Officer, or the Secretary or an Assistant
Secretary, of the Corporation certifying the number of shares owned by him or
her in the Corporation. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 6.3. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or his or her legal representative, to give the
Corporation indemnification or a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 6.4. TRANSFERS OF STOCK.
(a) Transfers of stock shall be made only upon the stock
transfer records of the Corporation, which records shall be kept at the
registered office of the Corporation or at its principal place of business, or
at the office of its transfer agent or registrar. The Board of Directors may, by
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resolution, open a share register in any state of the United States, and may
employ an agent or agents to keep such register and to record transfers of
shares therein.
(b) Shares of certificated stock shall be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificates or an assignment separate from the
certificate, or by a written power of attorney to sell, assign and transfer the
same, signed by the holder of said certificate. No shares of certificated stock
shall be transferred on the records of the Corporation until the outstanding
certificates therefor have been surrendered to the Corporation or to its
transfer agent or registrar.
Section 6.5. SHARES OF ANOTHER CORPORATION. Shares owned by the
Corporation in another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the Board of Directors may determine or, in the
absence of such determination, by the Chief Executive Officer of the
Corporation.
ARTICLE VII
INDEMNIFICATION
Section 7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person for whom he or
she is the legal representative, 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, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person. Notwithstanding the preceding sentence, the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
Section 7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition; provided, however, that the payment of
expenses incurred by a Director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
Director or officer to repay all amounts advanced if it should be ultimately
determined that the Director or officer is not entitled to be indemnified under
this Article VII or otherwise.
Section 7.3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article VII is not paid in full within sixty days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such
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action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 7.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article VII shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or
Directors or otherwise.
Section 7.5. OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit enterprise.
Section 7.6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 8.2. SEAL. The corporate seal shall have the name of the
Corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, Directors or members of a
committee of Directors need be specified in any written waiver of notice.
Section 8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its Directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (i) the material facts as to his or
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her relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts as
to his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders. Common or interested Directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
Section 8.5. BOOKS AND RECORDS. The Corporation shall maintain
appropriate accounting records and shall keep as permanent records minutes of
all meetings of its stockholders 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 addition, the Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of its stockholders, giving
the names and addresses of all stockholders in alphabetical order by class of
shares showing the number and class of the shares held by each. Any books,
records and minutes may be in written form or any other form capable of being
converted into written form within a reasonable time.
Section 8.6. AMENDMENT OF BYLAWS. In furtherance and not in limitation
of the powers conferred upon it by law, the Board of Directors is expressly
authorized to adopt, repeal or amend the Bylaws of the Corporation by the vote
of a majority of the entire Board of Directors. The Bylaws of the Corporation
shall be subject to alteration or repeal, and new by-laws may be made, by a
majority vote of the stockholders at the time entitled to vote in the election
of Directors even though these Bylaws may also be altered, amended or repealed
by the Board of Directors.
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INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this registration statement on
Form S-4 of our report, which contains an explanatory paragraph relating to
Ensec International, Inc.'s ability to continue as a going concern, dated March
11, 1999 on our audit of the consolidated financial statements of Ensec
International, Inc. as of December 31, 1998 and for the year then ended. We also
consent to the reference to our firm under the caption "Experts."
/s/ Rothstein, Kass & Co., P.C.
-------------------------------
Rothstein, Kass & Co., P.C.
Rosedale, New Jersey
June 23, 1999
<PAGE>
INDEPENDENT AUDITORS CONSENT
We consent to the use of our report dated January 29, 1999 in
this Registration Statement of Global Security Technologies, Inc. on Form S-4,
and to the reference to us under the heading "Experts" in the Prospectus which
is part of this Registration Statement
/s/ Spear Safer Harmon & Co.
----------------------------
Spear Safer Harmon & Co.
Miami, Florida
June 24, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We have issued our report dated April 8, 1998, accompanying the financial
statements of Ensec International, Inc. and Subsidiaries contained in the
Registration Statement and Prospectus on Form S-4. 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
------------------------------------
Grant Thornton, LLP
Weston, Florida
June 23, 1999
