As filed with the Securities and Exchange Commission on May 29, 1996
Registration No. 333-3720
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ENCON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3069270
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ALAN L. FREIDMAN, PRESIDENT
ENCON SYSTEMS, INC.
86 SOUTH STREET
HOPKINTON, MASSACHUSETTS 01748
(508) 435-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND
NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
PAUL D. BROUDE, ESQUIRE
O'CONNOR, BROUDE & ARONSON
950 WINTER STREET, SUITE 2300
WALTHAM, MASSACHUSETTS 02154
(617) 890-6600
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class Maximum Maximum Amount of
of Securities to Be Amount to Offering Price Aggregate Registration
Registered Be Registered Per Unit (1) Offering Price(1) Fee
- ---------------------- ------------- --------------- ----------------- ---------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value
per share(2) ......... 2,826,650 $ 2.125 $ 6,006,631.25 $ 2,071.25(3)
</TABLE>
(1) Estimated solely for calculation of the amount of the registration fee.
All shares of Common Stock are being offered by the Selling
Stockholders who are not restricted as to the price or prices at which
such securities may be sold. It is anticipated that such securities
will be offered at prices approximating fluctuating market prices.
Therefore, pursuant to Rule 457 of the Securities Act of 1933, as
amended, the registration fee has been calculated based upon the
average of $1.875 per share and $2.375 per share, the closing bid and
asked prices of the Company's Common Stock on April 11, 1996, as
reported by the NASDAQ SmallCap Stock Market.
(2) Pursuant to Rule 416 there are also registered hereunder such
additional indeterminate number of shares of Common Stock that may
become issuable pursuant to antidilution adjustments, stock splits,
stock dividends and similar adjustments.
(3) The filing fee was paid to the Commission on April 17, 1996.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 29, 1996
PROSPECTUS
ENCON SYSTEMS, INC.
2,826,650 SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE
This Prospectus relates to 2,826,650 shares (the "Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), of ENCON Systems, Inc., a
Delaware corporation (the "Company"), for reoffer or resale from time to time by
the Selling Stockholders (the "Selling Stockholders"). See "Selling
Stockholders." 1,243,556 of the shares of Common Stock registered hereunder were
issued to certain investors in the Company's 1995 Private Placement (the "1995
Private Placement"), 908,094 shares of the Common Stock registered hereunder
were issued to certain investors in the Company's 1996 Private Placement (the
"1996 Private Placement")., and the remaining 675,000 shares of Common Stock
were issued in connection with a merger by the Company (the "Merger"). All of
the shares have been registered pursuant to the terms of either certain
registration rights agreements or a merger agreement between the Company and the
Selling Stockholders.
This offering (the "Offering") is not being underwritten. The shares of
Common Stock being offered hereunder may be sold by the Selling Stockholders
and/or their registered representatives from time to time at prices to be
determined at the time of such sales. There is no minimum required purchase and
there is no arrangement to have funds received by such Selling Stockholders
and/or their registered representatives placed in an escrow, trust or similar
account or arrangement, unless the proceeds come from a purchaser residing in a
state in which the sale of those securities has not yet been qualified. See
"Plan of Distribution."
The Selling Stockholders and any broker-dealer who acts in connection
with the sale of Shares hereunder may be deemed to be "underwriters" as that
term is defined in the Securities Act of 1933, as amended (the "Securities
Act"), and any commission received by them and profit on any resale of the
Shares as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. The Selling Stockholders will pay or assume brokerage
commissions or underwriting discounts incurred in connection with the sale of
their Shares, which commissions or discounts will not be paid or assumed by the
Company. The Company will not receive any part of the proceeds of any sale of
Common Stock by the Selling Stockholders. The Company is paying all of the other
expenses of registering the securities offered hereby under the Securities Act
estimated to be $26,000 for filing, legal, accounting and miscellaneous fees and
expenses, and has agreed to indemnify the Selling Stockholders in certain
circumstances against certain liabilities, including liabilities under the
Securities Act. See "Plan of Distribution."
The Company's Common Stock is traded on the NASDAQ SmallCap Stock
Market ("NASDAQ") and on the Boston Stock Exchange under the symbols "NCON" and
"ECN," respectively. The shares of Common Stock to be offered for sale pursuant
to this Prospectus may be offered for sale on NASDAQ or in privately negotiated
transactions. On May 24, 1996, the closing bid price of the Company's Common
Stock on NASDAQ was $1.125 per share.
THESE SECURITIES INVOLVE CERTAIN RISKS TO THE
PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED
HEREBY. SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Selling
Public(1) Commissions(2) Stockholders(2)(3)
<S> <C> <C> <C>
Per Share of Common Stock .... $ 1.3125 -0- $3,709,978
Total(3) ..................... $ 1.3125 -0- $3,709,978
</TABLE>
(1) Estimated prices solely for the purpose of this Prospectus based on the
closing bid and asked prices for the Common Stock of $1.125 and $1.50,
as reported on NASDAQ on May 24, 1996.
(2) The Selling Stockholders will be responsible for any commissions for
the sale of the shares offered in this Prospectus. The distribution of
the shares by the Selling Stockholders may be effected in one or more
transactions that may take place on NASDAQ, including ordinary broker's
transactions, privately negotiated transactions, or through sales to
one or more dealers for the resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by
the Selling Stockholders in connection with such sales.
(3) Offering expenses estimated at $26,000 are payable by the Company
pursuant to its agreement with the Selling Stockholders. See "Selling
Stockholders."
THE DATE OF THIS PROSPECTUS IS __________ __, 1996.
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. THE
COMMON STOCK SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD TO LOSE THEIR
ENTIRE INVESTMENT. PURCHASERS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING THE FOLLOWING FACTORS:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS CONTAINS AN EXPLANATORY PARAGRAPH
REGARDING THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The Company's financial statements for the years ended December 31,
1995 ("Fiscal 1995") and 1994 were prepared on the assumption that the Company
will continue as going concern and do not include any adjustments which would
result if the Company would cease as a going concern. The Company incurred a net
loss of $4,575,542 for Fiscal 1995, and had a working capital deficit of
$1,471,695 and an accumulated deficit of $4,693,224. As a result of its
financial condition, the Company is in default of its financial covenants with
its lenders. The Company is currently negotiating with its lenders for a waiver
of these defaults. The Company's working capital at December 31, 1995 plus
projected cash flows from ongoing operations will not be sufficient to meet
current obligations as presently structured. The Company's continuation as a
going concern is dependent on its ability to generate sufficient cash flow to
meet its obligations on a timely basis, to obtain additional financing or
refinancing as may be required, and to attain profitable operations and a
positive cash flow. No assurance can be given that sufficient funding will be
available when needed or that the Company will be able to achieve a profitable
level of operations and a positive cash flow. The report of the Company's
independent public accountants on the Company's financial statements as at, and
for Fiscal 1995, includes an explanatory paragraph that refers to the
conditions, as described above, that raise substantial doubt about the Company's
ability to continue as a going concern.
NET LOSS FOR FISCAL 1995; NO ASSURANCE OF FUTURE PROFITS
The Company reported a net loss of approximately $4,575,000 for Fiscal
1995 as compared to net income of approximately $496,000 for the year ended
December 31, 1994 ("Fiscal 1994"). The Company also reported a net loss of
approximately $523,000 for the three months ended March 31, 1996 as compared to
net income of approximately $125,000 for the same period in 1995. In addition,
at December 31, 1995 and March 31, 1996, the Company had negative working
capital of $1,471,695 and $632,937, and accumulated deficit of $4,693,224 and
$5,216,015, respectively. No assurance can be given that the Company will be
profitable or attain improved operating results in future fiscal years.
-2-
RAPID EXPANSION AND MANAGEMENT OF GROWTH
The Company has experienced rapid growth as a result of the number and
size of acquisitions completed by the Company since July 1993. The Company
completed three acquisitions in each of 1993 and 1994 and one in 1995.
The Company's growth and pace of acquisitions has placed, and will
continue to place, a substantial strain on the Company's management,
operational, financial and accounting resources. The successful management of
this growth will require the Company to continue to implement and improve its
financial and management information systems and to train, motivate and manage
its employees. No assurance can be given that the Company will be able to
identify, consummate or integrate acquisitions without substantial delays, costs
or other problems. Once integrated, acquisitions may not achieve sales,
profitability and asset productivity commensurate with the Company's other
operations. In addition, acquisitions involve several other risks, including
adverse short-term effects on the Company's reported operating results,
writedowns of goodwill and other intangibles, the diversion of management's
attention, the dependence on retention, hiring and training of key personnel,
the amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities. The Company's failure to manage growth
effectively would have a material adverse effect on the Company's results of
operations and its ability to execute its business strategy.
DEPENDENCE ON DSM PROGRAMS AND RELIANCE ON MAJOR UTILITIES
For Fiscal 1995 and the three months ended March 31, 1996 (the "First
Quarter 1996") sales to customers of Public Service Electric & Gas Company
("PSE&G") and Florida Power and Light and Florida Power in Florida
(collectively, "Florida Power") in connection with their demand side management
("DSM") programs accounted for approximately 15% and 8%, and 14% and 3%,
respectively, of the Company's net sales and revenues. For Fiscal 1994 and the
year ended December 31, 1993, sales to customers of Consolidated Edison of New
York ("Con Ed") and Ontario Hydro ("Ontario Hydro") in connection with their DSM
programs accounted for an aggregate of approximately 42% and 64%, respectively,
of the Company's net sales and revenues. The Company anticipates that sales
related to DSM programs will continue to represent a significant, but
diminishing, portion of the Company's net sales and revenues for the foreseeable
future.
TERMINATION OR MODIFICATION OF DSM PROGRAMS
DSM programs provide, among other things, rebates or reimbursements to
utility customers for projects that are designed to reduce electricity
consumption. The termination, elimination, suspension or modification of DSM
programs in a manner which significantly reduces or curtails inducements for the
installation of energy efficient products, would have a material adverse effect
on the Company's business. In addition, a change in pricing structure relating
to energy products eligible for rebate or reimbursement by electric utilities
sponsoring DSM programs, or actions by regulatory authorities which limit or
impair the ability of utilities to take into account the cost of
-3-
DSM programs in their rate structures, could have a material adverse effect on
the Company's business. Further, certain DSM programs have annual or other
limitations on the amounts available for rebates or reimbursements thereunder,
which may limit or otherwise restrict the Company's sales to customers of a
particular utility.
RELIANCE ON MATERIAL CONTRACTS
The Company periodically enters into large, one-time energy savings
contracts from which it has derived significant revenues and profits. Prior to
December 31, 1995, the Company accounted for revenue and costs for construction
of these contracts on the completed contract method of accounting. Under this
method of accounting, revenue and costs for contracts are recognized when
contracts are completed. Due to the varying lengths of time required to complete
certain large contracts, the operating results of the Company under the
completed contract method of accounting could vary substantially from quarter to
quarter and from year to year. Effective December 31, 1995, the Company adopted
the percentage of completion method of accounting for construction projects that
last for more than thirty days. The Company believes that it is appropriate to
change from the completed contract method of accounting to the percentage of
completion method of accounting as a result of the Company's acquisition of
Enera Inc. ("Enera") on December 30, 1994. Enera is primarily engaged in long
term contracts. The financial statements for Fiscal 1994 have been restated to
apply the newly adopted method of accounting retroactively.
RECENT CHANGES IN ONTARIO HYDRO DSM PROGRAM
Ontario Hydro recently eliminated the Guaranteed Energy Performance
Program ("GEPP") for new participants. The Company is currently obligated to
complete its performance under three outstanding GEPP contracts that have
remaining terms that range from two to six years. Although no assurance can be
given, management believes that the elimination by Ontario Hydro of its DSM
program will not adversely affect the Company's operations in Canada.
NEED FOR ADDITIONAL FINANCING; SUBSTANTIALLY ALL ASSETS PLEDGED
Based upon the Company's current plans, the Company anticipates that it
may require additional financing to meet its current plans for operations. No
assurance can be given that additional financing will be available to the
Company in the future on favorable terms, if at all. If the Company should
require, but be unable to obtain, such additional financing, the Company's
ability to maintain its current level of operations could be materially and
adversely affected. In addition, the Company has revolving lines of credit and
term loan facilities with financial institutions, pursuant to which the Company
has pledged substantially all of its assets. The cancellation by these lenders
of the Company's credit facilities would have a material adverse effect on the
Company's operations and financial condition.
-4-
POSSIBLE DELISTING OF SECURITIES FROM NASDAQ MARKET
Although the Company's Common Stock meets the current listing
requirements of, and are included on, the NASDAQ SmallCap Market ("NASDAQ"), for
continued inclusion on NASDAQ (i) the Company will have to maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus, (ii) the
minimum bid price of the Common Stock will have to be $1.00 per share, (iii) at
least 100,000 shares must be in a public float valued at $1,000,000 or more,
(iv) the Common Stock will have to have at least two active market makers, and
(v) the Common Stock will have to be held by at least 300 holders. If the
Company is unable to satisfy NASDAQ's maintenance requirements, its securities
may be delisted from NASDAQ. In such event, trading if any, in the Common Stock
would thereafter be conducted in the over-the-counter markets in the so-called
"pink sheets" or the NASD's "Electronic Bulletin Board," if eligible.
Consequently, the liquidity of the Company's securities could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of the transactions, reductions in security
analysts' and the news media's coverage of the Company, and lower prices for the
Company's securities than might otherwise be attained.
Additionally, if the Company's securities were to be delisted from
NASDAQ, they could become subject to Rule 15g-9 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which imposes additional sales
practice requirements on broker-dealers which sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with net worths in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may adversely affect the ability of
broker-dealers to sell the Company's securities and may adversely affect the
ability of purchasers to sell any of the securities acquired hereby in the
secondary market.
CAPITAL INTENSIVE BUSINESS
The Company's participation in DSM programs is capital intensive and
requires significant working capital. In order for the Company to participate in
DSM programs, it is generally required to purchase inventory and hire
contractors prior to receiving payment from the utilities in whose programs the
Company participates. Thus, the number of installation, replacement or retrofit
jobs the Company may be able to complete at any time is affected by the
utilities' payment policies, which may cause delays in the Company's ability to
complete orders. Generally, the Company has received payment from utilities
within approximately 120 to 150 days from the date the Company submits its
invoice to the utilities. No assurance can be given that the utilities' payment
policies will not change.
-5-
AGREEMENTS WITH INDEPENDENT SALES REPRESENTATIVES
The Company utilizes several Independent Sales Representative
Agreements (the "Sales Agreements") with each of its independent sales
representatives. Each of the Sales Agreements precludes the independent sales
representatives from competing with the Company and from disclosing confidential
information, among other requirements. No assurance can be given that each
independent sales representative will agree to enter into a Sales Agreement and
actually refrain from competing with the Company or disclosing confidential
information. The Company considers its relationships with its current
independent sales representatives to be satisfactory.
COMPETITION
The Company faces direct competition from energy service companies,
electrical contractors and retrofitting companies for customers in the
utilities' DSM programs and for non-DSM project customers. The Company believes
that its participation in DSM and non-DSM programs depends in part on its
ability to purchase the necessary energy efficient products to complete
installation orders at lower costs than its competitors due to volume discounts
obtained by the Company. No assurance can be given that the Utilities sponsoring
DSM programs or the Company's suppliers will maintain their respective present
pricing structures, or that changes in such pricing would not impair the
Company's ability to compete in the DSM and non-DSM markets. See "Risk Factors
Dependence on DSM Programs and Reliance on Major Utilities."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent on the efforts and abilities of
Alan L. Freidman, its Chief Executive Officer, and Robin E. Read, its President.
Messrs. Freidman and Read are employed by the Company under employment
agreements expiring on December 31, 1997 and December 31, 1996, respectively.
Each of these agreements include non-disclosure and non-competition provisions.
The loss of the services of either one of these individuals could have a
material adverse effect on the Company's business. The Company maintains
key-person life insurance on the life of Mr. Freidman in the amount of
$1,000,000, and the Company is currently in the process of obtaining similar
key-person life insurance on the life of Mr. Read.
NO DIVIDENDS
Since inception, the Company has not paid any dividends to its
stockholders and does not plan to declare or pay dividends in the foreseeable
future. The Company intends to retain any earnings to finance the operations of
the Company. The declaration of dividends in the future will be at the election
of the Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, general economic conditions
and other pertinent factors. The Company's current bank loan arrangements with
Fleet Bank (formerly known as Shawmut Bank, N.A.) ("Fleet") prohibit the payment
of cash dividends on the Company's securities without Fleet's written consent.
-6-
POTENTIAL LIABILITY FOR HAZARDOUS WASTE
The Company disposes of certain hazardous materials in connection with
its replacement of certain lighting products. The disposal of these materials is
subject to stringent federal, state and local regulations. Although the Company
believes that it is currently in compliance with such laws and regulations,
current or future laws and regulations may require the Company to make
expenditures for compliance with chemical exposure, waste treatment or disposal
regulations. No assurance can be given that the operations, business or assets
of the Company will not be materially adversely affected by the interpretation
and enforcement of current or future environmental laws and regulations.
RISKS ASSOCIATED WITH CANADIAN SALES
Sales to customers located in Canada comprised approximately 30%, 50%,
56% and 33% of the Company's net sales and revenues for the First Quarter 1996,
and Fiscal 1995, 1994 and 1993, respectively. The Company intends to increase
its sales efforts in Canada. A strengthening in the dollar relative to the
currency in Canada might require the Company to increase the prices of its
products as stated in Canadian currency, which could adversely affect the
Company's sales in Canada. To the extent the Company does not raise its prices
to reflect a change in the exchange rate, the overall profitability of the
Company's business would be adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 24, 1996 the Company had 5,166,728 shares of Common Stock
outstanding (excluding 197,000 Special Shares, each of which is convertible at
any time into one share of Common Stock), of which 4,893,720 shares are or will
be freely tradeable upon the effectiveness of the registration statement of
which this Prospectus is a part, and 273,008 shares, 124,164 of which are owned
by certain of the Company's executive officers and directors, are freely
tradeable or currently eligible for sale under Rule 144 ("Rule 144") of the
Securities Act. The 124,164 shares of Common Stock owned by certain of the
Company's executive officers and directors are subject to the volume trading
limitations under Rule 144.
Ordinarily, under Rule 144, a person holding restricted securities for
a period of two years may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal to
the greater of one percent of the Company's then outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits sales by a person who is not an affiliate of the Company
and who has satisfied a three-year holding period to sell without any quantity
limitation. Future sales under Rule 144 may have a depressive effect on the
public market price of the Common Stock.
The Company has reserved an aggregate of 1,425,000 shares of Common
Stock for issuance to employees, officers, directors and consultants pursuant to
its 1991 Stock Option Plan, 1992 Stock Option Plan, 1994 Stock Option Plan, and
1995 Stock Option Plan (the "Plans"). To date, options
-7-
to purchase 1,045,071 shares have been granted under the Plans, none of which
have been exercised. The Company has also reserved for issuance (i) 511,641
shares of Common Stock upon exercise of the IPO Warrants; (ii) 115,948 shares of
Common Stock upon exercise of the Underwriters' Warrants and the IPO Warrants
underlying the units included in the Underwriter's Warrants; (iii) 43,500 shares
of Common Stock upon exercise of the Placement Agent Warrants, subject to
adjustment; (iv) 100,000 shares of Common Stock upon exercise of the warrants
issued to Arnhold & S. Bleichroeder, Inc. in connection with its services as the
Company's financial advisor, subject to adjustment; (v) 197,000 shares of Common
Stock issuable upon exchange of 197,000 presently issued shares of special
stock, no par value, of Encon Systems Canada, a Canadian subsidiary of the
Company; (vii) 124,356 shares of Common Stock upon exercise of 124,356 warrants
issued to Cruttenden Roth Incorporated ("Cruttenden") in connection with its
services in the Company's 1995 Private Placement, subject to adjustment; and
(viii) 90,809 shares of Common Stock upon exercise of 90,809 warrants issued to
Cruttenden in connection with its services in the Company's 1996 Private
Placement, subject to adjustment.
The existence of outstanding options and warrants may affect the price
at which the Company's Common Stock may be sold. In addition, the exercise of
any such options or warrants may further dilute the net tangible book value of
the Common Stock, and the holders of such options and warrants may exercise them
at a time when the Company would otherwise be able to obtain additional equity
capital on terms more favorable to the Company.
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value. The Preferred Stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion and redemption rights and sinking fund
provisions. No Preferred Stock is currently outstanding. The issuance of any
Preferred Stock could adversely affect the rights of the holders of Common Stock
and reduce the value of the Common Stock. In particular, specific rights granted
to future holders of Preferred Stock could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company by its then owners.
LIMITED PUBLIC TRADING MARKET
The Company's Common Stock commenced listing on the NASDAQ SmallCap
Market System on January 15, 1993 under the symbol "BULB." As of June 14, 1993,
the Common Stock NASDAQ symbol was changed to "NCON." From April 14, 1992 to
June 11, 1993, the Company's Common Stock was listed on the BSE under the symbol
"BLB." As of June 14, 1993, the Common Stock BSE symbol was changed to "ECN."
Trading of the Company's securities has been limited, and no assurance can be
given that an active public trading market for the Common Stock will develop or,
if developed, be sustained.
-8-
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW
Pursuant to the Company's Certificate of Incorporation, as amended, as
authorized under applicable Delaware law, directors of the Company are not
liable for monetary damages for breach of fiduciary duty, except in connection
with a breach of duty of loyalty, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or for any transaction
in which a director has derived an improper personal benefit. In addition, the
Company's by-laws provide that the Company must indemnify its officers and
directors to the fullest extent permitted by Delaware law for all expenses
incurred in settlement of any actions against such persons in connection with
their having served as officers or directors of the Company. See
"Indemnification."
DELAWARE ANTI-TAKEOVER LAW
The Company, as a Delaware corporation, is subject to the General
Corporation Law of the State of Delaware, including Section 203, an
anti-takeover law enacted in 1988. In general, the law restricts the ability of
a public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder. As a result,
potential acquirors of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company's securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such transactions.
-9-
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copies thereof may be
obtained, at prescribed rates, at the public reference facilities maintained by
the Commission at the Public Reference Section, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company's Common Stock is listed for trading on NASDAQ. Reports and
other information concerning the Company can be inspected at the offices of The
NASDAQ Stock Market located at 1735 K Street, N.W. Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3 under the
Securities Act, covering the Common Stock included in this Prospectus. This
Prospectus does not contain all the information set forth in or annexed to
exhibits to the Registration Statement filed by the Company with the Commission
and reference is made to such Registration Statement and the exhibits thereto
for the complete text thereof. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed as part thereof, copies of which may be
obtained at prescribed rates upon request to the Commission in Washington, D.C.
Any statements contained herein concerning the provisions of any documents are
not necessarily complete, and, in each instance, such statements are qualified
in their entirety by reference to such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER BY THE SELLING STOCKHOLDERS TO SELL ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE SELLING
STOCKHOLDERS TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-10-
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been previously filed by the
Company with the Commission under the Exchange Act, are incorporated by
reference in this Prospectus:
(1) Annual Report on Form 10-KSB for Fiscal 1995;
(2) Quarterly Report on Form 10-QSB for the three months ended
March 31, 1996;
(3) Current Report on Form 8-K, filed November 24, 1995, as
amended by a Current Report on Form 8-K/A, filed January 25,
1996; and
(4) Description of the Company's Common Stock in the Company's
Form 8-A Registration Statement and amendment thereto,
declared effective on April 14, 1992.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Offering described herein shall be deemed to be
incorporated by reference into this Prospectus from the respective dates those
documents are filed.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement or this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents which have been incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Maureen Petrides, Public Relations, ENCON Systems, Inc., 86 South
Street, Hopkinton, Massachusetts 01748, telephone: (508) 435-7700.
-11-
RECENT DEVELOPMENTS
No material changes in the Company's affairs have occurred since the
end of Fiscal 1995 which have not been described in a report on an Annual Report
on Form 10-KSB, a Quarterly Report on Form 10-QSB or a Current Report on Form
8-K filed by the Company under the Exchange Act, except as follows:
1. On December 21, 1995, the Company completed the 1995 Private
Placement pursuant to which 1,243,556 shares of the Company's Common Stock were
sold to accredited investors at a price per share of $1.50 for an aggregate
offering amount of $1,865,334.
2. On February 9, 1996, the Company completed the 1996 Private
Placement pursuant to which 908,094 shares of the Company's Common Stock were
sold to accredited investors at a price per share of $1.50 for an aggregate
offering amount of $1,362,141.
With respect to the 1995 and 1996 Private Placements, in the event that
the Discounted Average Market Price of the Common Stock, as hereinafter defined,
is less than $1.50 per share on the date of this Prospectus, the Company has
agreed to issue additional shares of its Common Stock to each of the investors
in the 1995 and 1996 Private Placements in accordance with a formula provided in
the subscription agreements for such Placements. Pursuant to the formula, the
number of additional shares of Common Stock to be issued to each investor shall
be determined by dividing (i) the aggregate consideration paid by such investor
to the Company in the applicable Private Placement by (ii) seventy-five percent
(75%) of the average closing bid price of the Common Stock for the twenty (20)
consecutive business days immediately preceding the date that the registration
statement of which this Prospectus is a part is declared effective by the
Commission (the "Discounted Average Market Price"), and then subtracting from
the resulting quotient the amount of shares that were actually issued to such
investor.
In the event that an adjustment is made in accordance with the
foregoing, the Company has also agreed to increase in a similar manner the
number of shares issuable upon exercise of the warrants issued to Cruttenden
Roth Incorporated, the Company's placement agent in both the 1995 and 1996
Private Placements.
-12-
THE COMPANY
THE COMPANY'S BUSINESS
The Company is an energy management company that designs and implements
a full range of energy efficient systems for commercial, industrial and
institutional facilities, and residential customers in the United States and
Canada. The Company provides an array of energy efficient systems and related
services with the goal of reducing customers' energy costs. The Company works
closely with its customers to install or retrofit energy efficient systems and
equipment. Some of the systems that the Company designs and installs include
lighting fixtures, environmental control systems, energy efficient motors,
heating, ventilation and air conditioning ("HVAC") systems, variable speed motor
drives, and other specialized equipment. Many of these systems are designed with
software to control the systems on an ongoing basis. In 1996, the Company
intends to expand the products and services available to its customers into home
automation technologies and security systems. In February 1996, as part of this
marketing strategy, the Company through its subsidiary, Kemper Management
Services, Inc. ("Kemper") signed a letter of intent to enter into a joint
venture with Precision Power, Inc., a subsidiary of United Illuminating Company,
to sell, install and manage security systems to residential and small commercial
customers.
The Company's energy efficient systems allow many of its business
customers to participate in DSM programs offered by utilities to encourage
energy conservation and reduce costs. The Company also provides energy efficient
systems and services to end-users outside the context of DSM programs. These
non-incentive based projects are typically larger and more sophisticated than
those undertaken in connection with utility-sponsored DSM programs.
The Company currently participates in DSM programs sponsored by Public
Service of Colorado in Colorado, United Illuminating Company, Yankee Gas and
Southern Connecticut Gas in Connecticut, Commonwealth Gas, Commonwealth Electric
and New England Power Services in Massachusetts, Con Ed in New York, PSE&G in
New Jersey, Texas Utilities Electric Company in Texas, Florida Power in Florida,
MidAmerican Energy Company and Interstate Power Company in Iowa, Potomac
Electric Power in Washington, D.C., and Ontario Hydro in Ontario. The Company is
also currently bidding in Hawaii for DSM programs sponsored by Kauai Electric.
See "Risk Factors - Dependence on DSM Programs and Reliance on Major Utilities."
GENERAL
The Company was incorporated as a Rhode Island corporation on December
1, 1989, commenced operations in January 1990 and was reincorporated as a
Delaware corporation on January 21, 1992. The Company's principal executive
offices are located at 86 South Street, Hopkinton, Massachusetts 01748-2213 and
its telephone number is (508) 435-7700. On June 11, 1993, the Company changed
its name from "Mr. Bulb Co." to "ENCON Systems, Inc." As used in this
Prospectus, except as the context may otherwise require, the "Company" refers to
ENCON Systems, Inc., formerly Mr. Bulb Co., a Delaware corporation, its wholly
owned U.S. subsidiaries,
-13-
Elray Services, Inc. and Kemper, and its Canadian subsidiaries, Enera, 1111576
Ontario Inc., Encon Systems Canada Inc., BFR Industries Ltd., EEP Distribution
Services of Canada, Inc., and CLM Lighting Solutions of Canada, Inc., the last
three of which are currently not operating, and its Rhode Island predecessor.
-14-
USE OF PROCEEDS
The Company will not receive any part of the proceeds of any sale or
transactions made by the Selling Stockholders.
The Company has agreed to pay all of the costs and fees relating to the
registration of the shares of Common Stock covered by this Prospectus. The
Company will not pay any discounts, concessions or commissions payable to
underwriters, dealers or agents incident to the offering of the shares of Common
Stock covered by this Prospectus.
SELLING STOCKHOLDERS
The following table sets forth, as of May 24, 1996, the number of
shares beneficially owned prior to the Offering, the number of shares of Common
Stock offered hereby, and the number of shares beneficially owned after the
offering (assuming sale of all shares of Common Stock being offered hereby) by
the Selling Stockholders.
<TABLE>
<CAPTION>
Common Percentage of
Stock Common Stock Common Stock
Beneficially Common Beneficially Beneficially
Owned Stock Owned After Owned After
Prior to Being Completion of Completion of
Selling Stockholders(1) Offering Offered Offering Offering
- ----------------------- -------- ------- -------- --------
<S> <C> <C> <C> <C>
Eric Adickes 6,667 6,667 0 0
A.I.M. Overseas Ltd. 200,000 200,000 0 0
Michael Stuart Allen 13,333 13,333 0 0
Dr. Lyle E. Allred and
Margaret C. Allred, JTWROS 6,000 6,000 0 0
John Anders(2)(3) 66,176 66,176 0 0
Irene Ansher and Bernard Ansher, JTWROS 21,500 21,500 0 0
Arthur Asch 25,000 25,000 0 0
Richard Asciutto 3,200 3,200 0 0
Joan N. Becich 13,367 13,367 0 0
Dan Berns 13,334 13,334 0 0
K.C. Box, Inc. 10,000 10,000 0 0
Robert L. and Beverly M. Breese, JTWROS 6,667 6,667 0 0
Ron Bressinger 10,000 10,000 0 0
Richard M. Brooks 10,000 10,000 0 0
Douglas Cahill(2)(4) 165,441 165,441 0 0
Andrew A. Ceavatta, Trustee
f/b/o Ceavatta Trust 16,667 16,667 0 0
Clark Church 6,667 6,667 0 0
Clarex Limited 100,000 100,000 0 0
David Cohen 6,667 6,667 0 0
Lawrence J. Corneck 35,800 35,800 0 0
Kelly R. Crew 8,500 8,500 0 0
Charles R. Cricks and
Doris L. Cricks, JTWROS 6,667 6,667 0 0
</TABLE>
-15-
<TABLE>
<CAPTION>
Common Percentage of
Stock Common Stock Common Stock
Beneficially Common Beneficially Beneficially
Owned Stock Owned After toOwned After to
Prior to Being Completion of Completion of
Selling Stockholders(1) Offering Offered Offering Offering
<S> <C> <C> <C> <C>
Edward F. DeJoy, Jr. 6,666 6,666 0 0
Stephen M. Delano 6,667 6,667 0 0
Diego Di Benedetto 5,934 5,934 0 0
Robert L. Edwards 8,500 8,500 0 0
Equipont Partners L.P. 66,667 66,667 0 0
Audrey Fields, Trustee f/b/o The
Audrey Fields Trust 31,750 31,750 0 0
Cerritos Ford 16,666 16,666 0 0
Fred Frank and Theresa A. Frank, JTWROS 10,000 10,000 0 0
David M. Furr 16,666 16,666 0 0
Mark Gilder and Judy Gilder, JTWROS 13,334 13,334 0 0
Marvin A. Ginsburg 6,667 6,667 0 0
Frederick I. Goldstein 10,000 10,000 0 0
Regina Grauzinis 11,000 11,000 0 0
Ronald William Gregoire 16,666 16,666 0 0
G.B. Builders & Developers, Inc.
Money Purchase Pension Plan 7,000 7,000 0 0
Paul F. Gutierrez 20,000 20,000 0 0
Andrew Harrison 16,666 16,666 0 0
Timothy G. Hassell(5) 32,407 32,407 0 0
Perry L. Hirsch 10,000 10,000 0 0
Kai Jacobson 5,334 5,334 0 0
Don Jaffe 28,387 28,387 0 0
Dorothy Jaffe 33,335 33,335 0 0
DLJSC IRA f/b/o Carl F. Jefferson 9,000 9,000 0 0
Clifford L. Johnson and Alva
F. Johnson Intervivos Trust 6,667 6,667 0 0
Clifford L. Johnson and Alva F. Johnson, JTWROS 6,667 6,667 0 0
Earl R. Jones and Sandra L. Jones, Trustees
f/b/o The Earl and Sandra Jones Trust 10,000 10,000 0 0
David Scott Jones and
Katherine Ann Bowen-Jones, JTWROS 8,000 8,000 0 0
Fred Karp and Karen Karp, JTWROS 16,667 16,667 0 0
John S. Keister and Josephine J. Keister, JTWROS 8,000 8,000 0 0
Robert C. Kemper(2)(6) 416,912 416,912 0 0
Kensington Partners, L.P. 75,000 75,000 0 0
Robert T. Kirk 70,000 70,000 0 0
Frank M. Koerber 4,500 4,500 0 0
Deepak Krishan 6,667 6,667 0 0
Tristan E.G. Krogius 8,000 8,000 0 0
Yeong-Hwa Liang and Lien-Ping Liang, Trustee
f/b/o Liang Family Trust 16,667 16,667 0 0
Lincoln Trust Company, Trustee
for Anthony S. Reed Standardized
Profit Sharing Plan 20,000 20,000 0 0
</TABLE>
-16-
<TABLE>
<CAPTION>
Common Percentage of
Stock Common Stock Common Stock
Beneficially Common Beneficially Beneficially
Owned Stock Owned After Owned After
Prior to Being Completion of Completion of
Selling Stockholders(1) Offering Offered Offering Offering
<S> <C> <C> <C> <C>
Linden Group Profit Sharing Plan 6,667 6,667 0 0
Little Wing L.P. 150,000 150,000 0 0
Mahmood Loghman-Adham 6,667 6,667 0 0
Neisen Luks and Marsha Luks, JTWROS 13,334 13,334 0 0
Curtis R. Marshall 6,667 6,667 0 0
Matthew Marshall(2)(7) 26,471 26,471 0 0
Joseph Massino, Jr. 40,750 40,750 0 0
Terry R. McGowan 12,000 12,000 0 0
Joe T. McKibben, Trustee f/b/o
Joe T. McKibben Revocable Trust 48,334 48,334 0 0
Kenneth D. Michael, Trustee
f/b/o Kenneth D. Michael, M.D., Pension Plan 10,000 10,000 0 0
Loren D. Miller 8,000 8,000 0 0
Mark P. Miller, M.D. 16,666 16,666 0 0
Mark P. Miller, M.D., Trustee
Mark P. Miller, M.D., Inc. Profit
Sharing Plan and Trust 16,666 16,666 0 0
Krishan K. Nangia and Usha Nangia, JTWROS 13,334 13,334 0 0
Needham Capital Group, Inc. 50,000 50,000 0 0
Nat Orme 19,950 19,950 0 0
James Pao 6,667 6,667 0 0
Stuart Peck 6,667 6,667 0 0
Linda Pinney 6,830 6,830 0 0
B. Michael Pisani 20,000 20,000 0 0
Frank Pittelli 11,997 11,997 0 0
David S. Porter and Susan Berns Porter, Trustees
f/b/o Porter Family Trust 13,334 13,334 0 0
Kathleen J. Rogers 6,667 6,667 0 0
Gary Rosenblatt 6,667 6,667 0 0
Michael Rubin 8,334 8,334 0 0
James S. Sanders 7,000 7,000 0 0
Adeline O. Schoenenberger, Trustee of
the Mrs. Adeline O. Schoenenberger Trust 6,667 6,667 0 0
Russell Shubin 6,667 6,667 0 0
Shelly Singhal(3) 75,000 75,000 0 0
David B. Slater 33,333 33,333 0 0
Lytton W. Smith 14,083 14,083 0 0
Michael J. Sterling 35,000 35,000 0 0
Shawn Sullivan 8,700 8,700 0 0
Craig L. Swett and Carol L. Swett, JTWROS 16,667 16,667 0 0
Jay Teitelbaum 100,000 100,000 0 0
A.A. Torta and Betty J. Torta Family Trust 10,000 10,000 0 0
Hal Scott Townsend and Mary Jean
Townsend, JTWROS 14,083 14,083 0 0
</TABLE>
-17-
<TABLE>
<CAPTION>
Common Percentage of
Stock Common Stock Common Stock
Beneficially Common Beneficially Beneficially
Owned Stock Owned After Owned After
Prior to Being Completion of Completion of
Selling Stockholders(1) Offering Offered Offering Offering
<S> <C> <C> <C> <C>
Paul Monka, Trustee,
Urantia Corporation Profit Sharing Trust 27,000 27,000 0 0
Steven M. Velardi 6,667 6,667 0 0
Robert W. Walter 16,666 16,666 0 0
Rex M. Weissenbach 13,334 13,334 0 0
DLJSC IRA, Custodian
f/b/o Stewart Weston 26,667 26,667 0 0
Richard F. Wheeler 6,734 6,734 0 0
Zvi Wilamowsky 15,000 15,000 0 0
The Wilds Family Trust
f/b/o Joe C. Wilds or Della Wilds, Trustee 16,667 16,667 0 0
Wilds Family Trust Joe C. Wilds, Trustee 16,667 16,667 0 0
Joel Yanowitz 6,667 6,667 0 0
</TABLE>
(1) Unless otherwise indicated, all of the Selling Stockholders purchased
their shares in the 1995 Private Placement and/or the 1996 Private
Placement.
(2) Messrs. Anders, Cahill, Kemper and Marshall were the principal
stockholders of Kemper prior to the Merger and all of them received
their shares of Common Stock in connection with the Merger.
(3) Mr. Anders currently serves as Vice President of Operations of Kemper.
(4) Mr. Cahill currently serves as a consultant to the Company by
performing services at Kemper.
(5) Messrs. Hassell and Singhal are principals of Cruttenden Roth
Incorporated, the placement agent in both the 1995 Private Placement
and the 1996 Private Placement.
(6) Mr. Kemper currently serves as an Executive Vice President and Director
of the Company and as the President of Kemper.
(7) Mr. Marshall currently serves as the Vice President of Management
Information Systems of Kemper.
The shares of Common Stock are being registered to permit public
secondary trading of the shares from time to time by the Selling Stockholders.
The Company issued the Shares being offered hereby pursuant to the 1995 and 1996
Private Placements and in connection with the Merger. The
-18-
Selling Stockholders' shares are being registered, at the expense of the
Company, pursuant to the terms of either the registration rights agreements
entered into in connection with the 1995 and 1996 Private Placements or the
agreement entered into in connection with the Merger, exclusive of fees and
expenses of the Selling Stockholders' attorneys (to the extent that they exceed
$10,000 in the aggregate with respect to the Selling Stockholders who received
their shares in the 1995 and 1996 Private Placements), or other representatives
and selling or brokerage commissions, if any, as the result of the sale of such
shares.
The Selling Stockholders are not restricted as to the price or prices
at which they may sell their securities and sales of such securities at less
than the market price may depress the market price of the Company's Common
Stock. It is anticipated that the sale of the securities being offered hereby
when made, will be made through customary channels either through broker-dealers
acting as agents or brokers for the seller, or through broker-dealers acting as
principals, who may then resell the shares in the over-the-counter market, or at
private sales in the over-the-counter market or otherwise, at negotiated prices
related to prevailing market prices at the time of the sales, or by a
combination of such methods. Thus, the period for sale of such securities by the
Selling Stockholders may occur over an extended period of time.
-19-
PLAN OF DISTRIBUTION
The shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Stockholders listed above. The Selling Stockholders
will act independently of the Company in making decisions with respect to the
timing, market, or otherwise at prices related to the then current market price
or in negotiated transactions.
The shares of Common Stock may be sold from time to time by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest. The shares of Common Stock covered by this Prospectus may be sold by
the Selling Stockholders in one or more transactions on NASDAQ, or otherwise at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The shares of Common Stock may be
sold by one or more of the following: (a) a block trade in which the broker or
dealer so engaged will attempt to sell the shares of Common Stock as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
Thus, the period of distribution of such shares of Common Stock may occur over
an extended period of time. The Company is paying all of the other expenses of
registering the securities offered hereby under the Securities Act estimated to
be $26,000 for filing, legal, accounting and miscellaneous fees and expenses,
and has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Stockholders in
connection with such sales. The Company will not receive any proceeds from any
sales of the Common Stock by the Selling Stockholders.
In offering the shares, the Selling Stockholders and any broker-dealers
and any other participating broker-dealers who execute sales for the Selling
Stockholders may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales, and any profits realized by the
Selling Stockholders and the compensation of such broker-dealer may be deemed to
be underwriting discounts and commissions. In addition, any shares covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
The Selling Security Holders will pay or assume brokerage commissions
or underwriting discounts incurred in connection with the sale of their Shares,
which commissions or discounts will not be paid or assumed by the Company.
The Company has advised the Selling Stockholders that during such time
as they may be engaged in a distribution of Common Stock included herein they
are required to comply with Rules 10b-6 and 10b-7 under the Exchange Act (as
those Rules are described in more detail below) and, in connection therewith,
that they may not engage in any stabilization activity, except as permitted
-20-
under the Exchange Act, are required to furnish each broker-dealer through which
Common Stock included herein may be offered copies of this Prospectus, and may
not bid for or purchase any securities of the Company or attempt to induce any
person to purchase any securities except as permitted under the Exchange Act.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American
Securities Transfer, Incorporated of 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202-1817.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby will
be passed upon for the Company by O'Connor, Broude & Aronson, 950 Winter Street,
Waltham, Massachusetts 02154. Certain attorneys in the firm of O'Connor, Broude
& Aronson hold options to purchase an aggregate of 38,374 shares of the
Company's Common Stock.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for
the year then ended have been incorporated by reference herein and elsewhere in
this registration statement in reliance upon the report of KPMG Peat Marwick LLP
("KPMG"), independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG covering the financial statements for Fiscal 1995
contains an explanatory paragraph that states that the accompanying financial
statements for Fiscal 1995 have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the financial statements
for Fiscal 1995, the Company's loss from operations and limited capital
resources cause substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The report of KPMG covering the financial statements for Fiscal 1995
refers to a change to the percentage of completion method of accounting for
long-term contracts.
-21-
The financial statements of the Company as of December 31, 1994 and for
the year then ended have been incorporated by reference herein and elsewhere in
this registration statement in reliance upon the reports of KPMG and Craig J.
Delfino, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firms as experts in accounting and
auditing.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which is deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
To the maximum extent permitted by Section 102(b)(7) of
the General Corporation Law of Delaware, a director of this
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 an improper
personal benefit.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of the Company,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful. The Bylaws of the Company include the following provision:
Reference is made to Section 145 and any other relevant
provisions of the General Corporation Law of the State of
Delaware. Particular reference is made to the class of persons,
hereinafter called "Indemnitees," who may be indemnified by a
Delaware corporation pursuant to the provisions of such Section
145, namely, any person, or the heirs, executors, or
administrators of such person, who was or is a
-22-
party or is threatened to be made a party to any threatened,
pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact
that such person is or was a director, officer, employee, or agent
of such corporation or is or was serving at the request of such
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other
enterprise. The Corporation shall, and is hereby obligated to,
indemnify the Indemnitees, and each of them, in each and every
situation where the Corporation is obligated to make such
indemnification pursuant to the aforesaid statutory provisions.
The Corporation shall indemnify the Indemnitees, and each of them,
in each and every situation where, under the aforesaid statutory
provisions, the Corporation is not obligated, but is nevertheless
permitted or empowered, to make such indemnification, it being
understood that, before making such indemnification, with respect
to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods
referred to in Subsection (d) of such Section 145, a determination
as to whether each Indemnitee acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal
action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall
be made unless it is determined that such indemnification shall be
made unless it is determined that such Indemnitee acted in good
faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, in the
case of any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful.
-23-
============================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED
IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER A SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF.
-------------
TABLE OF CONTENTS
PAGE
Risk Factors .................................... 2
Available Information ........................... 10
Incorporation of Certain Information
by Reference ................................... 11
Recent Developments ............................. 12
The Company ..................................... 13
Use of Proceeds ................................. 15
Selling Stockholders ............................ 15
Plan of Distribution ............................ 20
Transfer Agent .................................. 21
Legal Matters ................................... 21
Experts ......................................... 21
Indemnification ................................. 22
-------------
==========================================================
2,826,650 SHARES
OF COMMON STOCK
ENCON SYSTEMS, INC.
-------------
PROSPECTUS
-------------
, 1996
==========================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in connection
with the issuance and distribution of the securities being offered hereby other
than underwriting discounts and commissions (items marked with an asterisk (*)
represent estimated expenses):
Registration Fee (SEC).........................$ 2,071.25
Registration Fee (NASD)........................$ 1,100.66
Transfer Agent's Fees*.........................$ 300.00
Printing Costs*................................$ 1,500.00
Legal Fees*....................................$ 17,000.00
Accounting Fees*...............................$ 3,000.00
Miscellaneous*.................................$ 1,028.09
------------
TOTAL* $ 26,000.00
============
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
See "Indemnification" contained in Part I hereof, which is incorporated
by reference.
ITEM 16. EXHIBITS
(a) The following is a list of exhibits filed herewith as part of
this Registration Statement:
Exhibit
No. Title
--- -----
5 Opinion letter of O'Connor, Broude & Aronson as to legality of
shares being registered.
23a Consent of KPMG Peat Marwick LLP.
23b Consent of Craig J. Delfino.
23c Consent of O'Connor, Broude & Aronson (contained in Opinion
filed as Exhibit 5).
23d Consent of Coopers & Lybrand L.L.P.
(b) The following exhibit was filed as part of the Company's Form
S-3 Registration Statement (No. 33-81822) declared effective
by the Commission on July 29, 1994 and is incorporated herein
by reference:
Exhibit
No. Title
--- -----
3a Certificate of Amendment of Certificate of Incorporation,
dated May 26 ,1994.
(c) The following exhibit was filed as part of the Company's Form
SB-2 Registration Statement (No. 33-57556) declared effective
by the Commission on December 3, 1993 and is incorporated
herein by reference:
Exhibit
No. Title
--- -----
3a Certificate of Incorporation, as amended.
(d) The following exhibits were filed as part of the Company's
Form S-18 Registration Statement (No. 33-45982-B) declared
effective by the Commission on April 14, 1992 and are
incorporated herein by reference:
Exhibit
No. Title
--- -----
3b Bylaws.
4b Specimen Common Stock Certificate.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement to include
any additional or changed material information on the plan of distribution.
(2) For the purpose of determining any liability under the
Securities Act, to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time as the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
-26-
Insofar as indemnification for liabilities arising under the
Securities Act 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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer, or controlling person of
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, 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.
-27-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 1 to this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Hopkinton,
Commonwealth of Massachusetts, on the 29th day of May 1996.
ENCON SYSTEMS, INC.
By: /s/ Alan L. Freidman
--------------------
Alan L. Freidman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
<S> <C> <C>
/s/ Alan L. Freidman Chairman of the Board, and May 29, 1996
- ---------------------------------
Alan L. Freidman Chief Executive Officer
(principal executive officer)
/s/ Thomas Beamer Chief Financial Officer May 29, 1996
- --------------------------------- (principal financial and
Thomas Beamer accounting officer)
/s/ Robin E. Read President May 29, 1996
- --------------------------------- and Director
Robin E. Read
/s/ Arnold Freidman Director May 29, 1996
- ---------------------------------
Arnold Freidman
</TABLE>
-28-
<TABLE>
<CAPTION>
Name Capacity Date
<S> <C> <C>
/s/ Bernard R. Patriacca Director May 29, 1996
- ------------------------------
Bernard R. Patriacca
/s/ Donald A. Worth Director May 29, 1996
- ------------------------------
Donald A. Worth
</TABLE>
-29-
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Title Page Number
--- ----- -----------
<S> <C> <C>
5 Opinion letter of O'Connor, Broude & Aronson as to
legality of shares being registered.
23a Consent of KPMG Peat Marwick LLP.
23b Consent of Craig J. Delfino.
23c Consent of O'Connor, Broude & Aronson (contained
in Opinion filed as Exhibit 5).
23d Consent of Coopers & Lybrand L.L.P.
</TABLE>
O'CONNOR, BROUDE & ARONSON
ATTORNEYS AT LAW
THE BAY COLONY CORPORATE CENTER
ROUTE 128 AND WINTER STREET
WALTHAM, MASSACHUSETTS 02154
-------
617-890-6600
May 29, 1996
Board of Directors
ENCON Systems, Inc.
86 South Street
Hopkinton, Massachusetts 01748-2213
Ladies and Gentlemen:
This firm has represented ENCON Systems, Inc., a Delaware corporation
(hereinafter called the "Corporation"), in connection with the filing of the
Registration Statement described below.
In our capacity as counsel to the Corporation, we are familiar with the
Certificate of Incorporation, as amended, and the By-Laws of the Corporation. We
are also familiar with the corporate proceedings taken by the Corporation in
connection with the preparation and filing of a Registration Statement on Form
S-3 (the "Registration Statement") covering the registration of 2,826,650 shares
of common stock, $.01 par value per share (the "Common Stock").
Based upon the foregoing, we are of the opinion that:
1. The Corporation is duly organized and validly existing under the laws
of the State of Delaware.
2. The 2,826,650 shares of Common Stock to be registered have been duly
authorized, and are legally issued, fully paid and non-assessable.
Board of Directors
ENCON Systems, Inc.
May 29, 1996
Page 2
This opinion is provided for the benefit of the addressee hereof and is not
to be relied upon by any other person or party. Nevertheless, we hereby consent
to the use of this opinion and to all references to our firm in or made part of
the Registration Statement and any amendments therto.
Very truly yours,
O'CONNOR, BROUDE & ARONSON
By: Paul D. Broude
---------------------
Paul D. Broude
PDB:MJH:anr
C: Alan L. Freidman, Chief Executive Officer
Robin E. Read, President
The Board of Directors
Encon Systems, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report dated April 3, 1996 contains an explanatory paragraph that states
that the accompanying financial statements for 1995 have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's loss from operations and limited capital
resources cause substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Our report refers to a change to the percentage of completion method from the
completed contract method of accounting.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
May 29, 1996
CRAIG J. DELFINO
Certified Public Accountant
7630 Post Road
North Kingston, RI 02852
(401)294-1210
(401)884-6694
Fax (401)294-2090
Consent of Certified Public Accountant
The Board of Directors
Encon Systems, Inc.
1105929 Ontarion Limited and Subsidiaries:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ Craig J. Delfino
--------------------
Craig J. Delfino C.P.A.
North Kingstown, Rhode Island
May 30, 1996
CONSENT OF ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
ENCON Systems, Inc. on Form S-3 (File No. 333-3720) of our report dated April
15, 1995, on our audits of the financial statements of Kemper Management
Services, Inc. as of December 31, 1994 and 1993, and for the years ended
December 31, 1994 and 1993, which report is included in Form 8-K/A dated January
24, 1996.
/s/ Coopers & Lybrand L.L.P.
Hartford, Connecticut
May 29, 1996
