UNITED STATES
SECURITIES AND EXCHANGE COMMISION
WASHINGTION, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number 1-14072
PEN INTERCONNECT, INC.
----------------------
(Exact name of small business issuer as specified in its charter)
UTAH 87-0430260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Employer Identification No)
2351 South 2300 West, Salt Lake City, UT 84119
(Address of Principal Executive Offices) (Zip Code)
(801) 973-6090
(Issuer's telephone number)
N/A
-----------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ___X___ No ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court.
Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 12, 1996, the issuer had 3,033,407 shares of its common
stock, par value $0.01 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes _____ No __X__
<PAGE>
FORM 10-QSB
PEN INTERCONNECT, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Financial Information 3
Condensed Balance Sheets at
June 30, 1996 and September 30, 1995 4-5
Condensed Statements of Earnings for the
Quarters Ended June 30, 1996 and 1995 and
Nine months ended June 30, 1996 and 1995 6
Condensed Statements of Cash Flows for the
Nine months Ended June 30, 1996 and 1995 7-10
Notes to Condensed Financial Statements 11-13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in the Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6(a).Exhibits 18-19
Item 6(b).Reports on Form 8-K 18-19
Signatures 20
<PAGE>
PEN INTERCONNECT, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED FINANCIAL STATEMENTS
Pen Interconnect, Inc. (the "Issuer"), has included the unaudited
condensed balance sheet of the Issuer as of June 30, 1996 and audited
balance sheet as of September 30, 1995 (the Issuer's most recent
fiscal year), unaudited condensed statements of earnings for the three
and nine months ended June 30, 1996 and 1995, and unaudited condensed
statements of cash flows for the nine months ended June 30, 1996 and
1995, together with unaudited condensed notes thereto. In the opinion
of management of the Issuer, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, considered
necessary to fairly present the financial condition, results of
operations and cash flows of the Issuer for the interim periods
presented. The financial statements included in this report on Form
10-QSB should be read in conjunction with the audited financial
statements of the Issuer and the notes thereto included in the annual
report of the Issuer on Form 10-KSB for the year ended September 30,
1995. The results of operations for the three and nine months ended
June 30, 1996 may not be indicative of the results that may be
expected for the year ending September 30, 1996.
3
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PEN INTERCONNECT, INC.
CONDENSED BALANCE SHEETS
ASSETS
June 30, September 30,
1996 1995
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 82,810 $ 376,488
Receivables (Note D)
Trade accounts, less allowance for
doubtful accounts of $279,394 and $12,500
at June 30, 1996 and September 30, 1995
respectively. 5,954,976 2,192,368
Current maturities of notes receivable 27,327 27,327
Inventories (Note B and D) 7,398,622 3,362,394
Prepaid expenses and other assets 339,206 135,789
Deferred tax asset 328,089 33,000
Total current assets 14,131,030 6,127,366
PROPERTY AND EQUIPMENT, AT COST (NoteD)
Production equipment 2,833,473 1,825,867
Furniture and fixtures 853,105 419,144
Transportation equipment 64,373 36,008
Leasehold improvements 354,150 340,429
Total property and equipment 4,105,101 2,621,448
Less accumulated depreciation 1,048,386 815,614
Net property and equipment 3,056,715 1,805,834
OTHER ASSETS
Notes receivable, less current maturities 72,245 73,322
Deferred offering costs (Note E) - 294,158
Goodwill (net) 1,435,800 -
Other 225,407 50,143
Total other assets 1,733,452 417,623
TOTAL ASSETS $ 18,921,197 $ 8,350,823
The accompanying notes are an integral part of these statements.
4
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PEN INTERCONNECT, INC.
CONDENSED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1996 1995
(Unaudited)
CURRENT LIABILITIES
Notes payable (Note C) $ - $ 1,600,000
Line of credit (Note D) 4,378,941 2,082,897
Current maturities of long-term obligations 65,524 199,200
Current maturities of capital leases 60,232 54,556
Accounts payable 4,023,428 1,443,395
Accrued liabilities 1,120,260 332,608
Income taxes payable 129,733 288,000
Total current liabilities 9,778,118 6,000,656
LONG-TERM OBLIGATIONS, less current
maturities 102,021 151,000
CAPITAL LEASE OBLIGATIONS, less current
maturities 164,548 208,594
DEFERRED INCOME TAXES 274,000 194,000
Total liabilities 10,318,687 6,554,250
STOCKHOLDERS' EQUITY (Notes A,D and E)
Preferred stock, $0.01 par value, authorized
5,000,000 shares, none issued - -
Common stock, $0.01 par value, authorized
50,000,000 shares, issued and outstanding
3,033,407 shares at June 30, 1996 and
1,700,000 shares at September 30, 1995 30,334 17,000
Additional paid-in capital 7,458,403 963,935
Retained earnings 1,113,773 815,638
Total stockholders' equity 8,602,510 1,796,573
Total liabilities and stockholders'
equity $ 18,921,197 $ 8,350,823
The accompanying notes are an integral part of these statements.
5
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PEN INTERCONNECT, INC.
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
Three months ended June 30, Nine months ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 8,582,794 $ 4,744,904 $ 18,595,250 $ 10,887,891
Cost of sales 7,446,724 3,750,034 15,606,248 8,518,500
Gross profit 1,136,070 994,870 2,989,002 2,369,391
Operating expenses
Sales and marketing 322,570 252,314 914,173 570,475
General and administrative 582,661 290,087 1,127,700 661,967
Depreciation and amortization 80,667 30,385 166,329 85,544
Total operating expenses 985,898 572,786 2,208,202 1,317,986
Operating income 150,172 422,084 780,800 1,051,405
Other income (expense)
Interest expense (92,354) (111,941) (296,803) (202,860)
Other, net 23,759 3,940 6,781 10,108
Total other income (expense) (68,595) (108,001) (289,803) (192,752)
Earnings before income taxes 81,577 314,083 490,997 858,653
Income taxes 35,422 130,996 192,862 346,000
NET EARNINGS $ 46,155 $ 183,087 $ 298,135 $ 512,653
Earnings per common - Primary $ 0.02 $ 0.11 $ 0.12 $ 0.30
share - Fully dilutive $ 0.02 $ 0.11 $ 0.12 $ 0.30
Weighted average common shares
outstanding - Primary 2,811,136 1,700,000 2,570,379 1,700,000
- Fully dilutive 2,829,658 1,700,000 2,576,553 1,700,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
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PEN INTERCONNECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30,
(Unaudited)
1996 1995
Increase(decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 298,135 $ 512,653
Adjustments to reconcile net earnings to net
cash used in operating activities
Depreciation and amortization 166,329 85,544
Allowance for bad debts 649 7,500
Deferred income taxes (215,089) 42,000
Changes in assets and liabilities:
Trade accounts receivable (119,440) (562,523)
Inventories (418,506) (544,318)
Prepaid expenses and other assets (337,023) (25,571)
Deferred offering costs 294,158 (94,295)
Accounts payable (1,239,585) (137,029)
Accrued liabilities 707,537 174,090
Income taxes payable (158,267) 293,000
Total adjustments (1,319,237) (761,602)
Net cash used in operating activities (1,021,102) (248,949)
Cash flows from investing activities
Purchase of propery and equipment (649,776) (139,890)
Acquisition of net assets (3,500,000) (2,107,457)
Collections on notes receivable 15,331 25,392
Increase in notes receivable (14,254) (6,274)
Net cash used in investing activities (4,148,699) (2,228,229)
(Continued)
7
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PEN INTERCONNECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
FOR NINE MONTHS ENDED JUNE 30,
(Unaudited)
1996 1995
Cash flows from financing activities
Proceeds from notes payable $ - $ 1,600,000
Principal payments on notes payable (1,600,000) -
Proceeds from line of credit 13,547,585 11,592,618
Principal payments on line of credit (11,251,541) (10,844,526)
Increase in long-term obligations - 145,000
Principal payments on long-term obligations (527,723) (69,163)
Proceeds from sale of common stock
and warrants 4,707,802 250,000
Net cash provided by financing activities 4,876,123 2,673,929
Net increase (decrease) in cash
and cash equivalents (293,678) 196,751
Cash and cash equivalents at beginning of period 376,488 109,520
Cash and cash equivalents at end of period $ 82,810 $ 306,271
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 351,294 $ 130,830
Income taxes $ 521,038 $ 11,000
Noncash investing and financing activities
During the nine months ended June 30, 1995, capital lease obligations of
$120,049 were incurred when the Company entered into leases for equipment.
(Continued)
8
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PEN INTERCONNECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
FOR NINE MONTHS ENDED JUNE 30, 1996 AND 1995
Acquisition of businesses
During May 1996, the Company acquired substantially all assets and assumed
certain liabilities and the operations of InCirT Technology, a division of
the Cerplex Group, Inc. for $3.5 million in cash and 333,407 shares of stock.
Assets aquired and liabilities assumed in conjunction with this acquisition
were as follows:
Accounts receivable (net) $ 3,463,186
Inventories 3,311,416
Prepaid expenses 5,436
Property and equipment 705,899
Other assets 30,424
Accounts payable (3,563,436)
Accrued liabilities (33,906)
Net assets acquired $ 3,919,019
Excess purchase price over net assets acquired
allocated to goodwill 1,380,981
Purchase price $ 5,300,000
Less Stock issued 1,800,000
Total cash paid $ 3,500,000
On March 5, 1996, the Company acquired selected net assets of Overland
Communications (MOTO-SAT). Assets acquired and liabilities assumed in
conjunction with this acquisition were as follows:
Accounts receivable (net) $ 180,631
Inventories 306,306
Prepaid and other assets 5,798
Furniture and equipment 43,755
Accounts payable (256,182)
Accrured liabilities (46,209)
Long-Term obligations (306,698)
Net assets acquired $ (72,599)
Excess purchase price over net assets acquired
resulted in recoginition of goodwill
(Continued)
9
<PAGE>
PEN INTERCONNECT, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
FOR NINE MONTHS ENDED JUNE 30, 1996 AND 1995
During March 1995, the Company acquired selected net assets of Quintec
Interconnect Systems for $2,000,000. Assets acquired and liabilities assumed
in conjunction with this aquisition were as follows:
Accounts receivable $ 705,010
Inventories 1,209,983
Prepaid expenses 6,400
Deposits 5,300
Property and equipment 294,645
Notes payable (32,322)
Accounts payable (636,951)
Net assets acquired 1,552,065
Excess purchase price over net assets acquired allocated
to inventory, property and equipment 555,392
Total cash paid $ 2,107,457
The accompanying notes are an integral part of these statements.
10
<PAGE>
<PAGE>
PEN INTERCONNECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - ACQUISITIONS
On May 2, 1996, the Company entered into an agreement to acquire
substantially all assets and assumed certain liabilities and the operations
of InCirT Technology, a division of the Cerplex Group, Inc. for $5.3
million comprised of $3.5 million in cash and 333,407 shares of common
stock. The cash portion of the purchase price consisted of $2.5 million
in additional borrowing and $1 million in excess IPO funds. In addition,
the Company will deliver to Cerplex .09261 shares of its common stock for
every dollar of past due over 90 days accounts receivable of ICT collected
by the Company during the first 180 days after the date of the acquisition
closing up to a maximum of 55,568 shares of common stock. This transaction
was accounted for using the purchase method of accounting and was effective
as of April 1, 1996. The results of operations of the aquired business
have been included in the financial statements since the effective date of
acquisition.
On March 5, 1996 the Company acquired the assets of Overland Communication,
Inc. dba MOTO-SAT by assuming that company's debt and offering future stock
distributions contingent upon achievement of performance milestones. The
acquisition was effective as of January 1, 1996. MOTO-SAT is a leading
manufacturer of high-end satellite television systems for recreational
vehicles. This transaction was accounted for using the purchase method of
accounting; accordingly the purchased assets and liabilities have been
recorded at their fair value at the date of acquisition. The results of
operations of the acquired business have been included in the financial
statements since the effective date of acquisition.
Effective March 24, 1995, the Company acquired substantially all assets and
assumed certain liabilities and the operations of Quintec Interconnect
Systems (QIS) for $2,107,457 including acquisition costs for $107,457.
This transaction was accounted for using the purchase method of accounting;
accordingly the purchased assets and liabilities have been recorded at
their estimated fair value at the date of acquisition. The results of
operations of the acquired business have been included in the financial
statements since the date of acquisition.
Pro forma data. The following unaudited pro forma summary represents the
combined results of operations as if the acquisitions of InCirT and Quintec
had occured on October 1, 1994, and do not purport to be indicative of what
would have occurred had the acquisitions been made as of October 1, 1994,
or of results which may occur in the future. The pro forma weighted
shares is reported as if outstanding at the beginning of the period.
(amounts in thousands, except share data)
Three months ended June 30, Nine months ended June 30,
1996 1995 1996 1995
Net sales $8,583 $8,139 $26,405 $19,546
Operating income 150 724 935 2,024
Net earnings 46 318 299 978
Earnings per share 0.02 0.16 0.10 0.48
Weighted shares outstanding 3,033,407 2,033,407 2,866,740 2,033,407
11
<PAGE>
PEN INTERCONNECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE B - INVENTORIES
Inventories consist of the following:
June 30, September 30,
1996 1995
Raw materials $ 4,356,772 $ 1,788,640
Work-in-process 2,567,235 1,395,241
Finished goods 474,615 178,513
$ 7,398,622 $ 3,362,394
NOTE C - NOTES PAYABLE
During March 1995, certain investors, in connection with a private
placement, loaned the Company $1,600,000 at 8% per annum. These notes and
related interest were paid in full upon successful completion of the
initial public offering in November, 1995 (Note E).
NOTE D - CREDIT FACILITY
The Company has a credit facility with a financing company which consists
of a line of credit and a long-term note.
At September 30, 1995, the Company had a $3,000,000 revolving line of
credit with interest at a base rate plus 3.25% (12.00% at September 1995),
payable monthly. The Company had borrowed $2,082,897 under the line of
credit at September 30, 1995. Advances on the line of credit were limited
to 80% of qualified accounts receivable and 35% of eligible inventory. The
line of credit was collateralized by accounts receivable, inventory,
property and equipment. The line of credit agreement was to expire in
August 1997 and provided for automatic renewals for successive periods of
one year each, but allowed for termination of the agreement at the end of
any term. The line of credit prohibited the payment of cash dividends
without the lender's consent and required the Company to comply with
certain financial ratios, minimum net worth levels, and limited capital
expenditures. The Company was in compliance with these requirements at
September 30, 1995.
12
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PEN INTERCONNECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE D - CREDIT FACILITY - CONTINUED
On April 8, 1996, the Company completed a new 3 year financing agreement
with National Bank of Canada for a $6 million revolving line of credit with
interest at one-half (.5) percent over the prime rate (8.75 % at June 30,
1996). This new line of credit replaced the $3,000,000 revolving line of
credit. The Company has borrowed $4,378,941 under the new line of credit
at June 30, 1996 (the Company still has $ 1,621,059 available under the
line). The line of credit is collateralized by accounts receivable,
inventory, property and equipment.
NOTE E - STOCK TRANSACTIONS
Initial public offering
On November 17, 1995, the Company successfully completed an initial
public offering of 1,000,000 shares of its Common Stock and warrants to
purchase 1,000,000 shares of Common Stock. The initial public offering
price was $6.00 per share of Common Stock and $0.10 per Warrant. Each
Warrant was immediately exercisable and entitled the registered holder to
purchase one share of Common Stock at a price of $6.50 and expires on
November 17, 2000. The outstanding Warrants may be redeemed by the Company
upon 30 days' written notice at $0.05 per Warrant, provided that the
closing bid quotations of the Common Stock have averaged at least $9.00 per
share for a period of any 20 trading days ending on the third day prior to
the day on which the Company gives notice.
In connection with the offering, the Company granted the underwriter
the right to purchase up to 100,000 shares of common stock and 100,000
warrants. The underwriter was also granted an over-allotment option of
150,000 shares of common stock and/or warrants to purchase an additional
150,000 shares of common stock. In December 1995, the underwriter exercised
its option and purchased the 150,000 warrants. The option to purchase the
150,000 shares of common stock has expired.
Shares issued in Acquisition
As discussed in Note A, the Company issued 333,407 shares of common
stock in connection with an acquisition in May 1996. In addition, the
Company has agreed to issue a maximum of 55,568 shares of common stock
("Contingent Stock") to The Cerplex Group, Inc. based on collections of
amounts over 90 days in the accounts receivable .
13
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides certain information
which the Company's management believes is relevant to an assessment and
understanding of the Company's results of operations and financial
condition for the three and nine month periods ended June 30, 1996 and
1995. This discussion should be read in conjunction with the audited
financial statements of the Issuer and notes thereto included in the Annual
Report of the Issuer on Form 10-KSB for the year ended September 30, 1995.
General
The Company develops and produces on a turnkey basis interconnections
solutions for original equipment manufacturers ("OEMs") in the computer,
computer peripheral and other computer related industries such as the
telecommunications, instrumentation and testing equipment industries. The
Company's products connect electronic equipment, such as computers, to
various external devices (such as video screens, printers, external disk
drives, modems, telephone jacks, peripheral interfaces and networks) and
connect devices within the equipment (such as power supplies, computer hard
drives and PC cards). Most of the Company's sales consist of custom cable
interconnections developed in close collaboration with its customers. The
Company's customers include OEMs of computers including mainframes,
desktops, portables, laptops, notebooks, pens and palmtops as well as OEMs
of computer peripheral equipment such as modems, memory cards, LAN
adapters, cellular phones, faxes and printers. Other customers include
OEMs of telecommunications, instrumentation and testing equipment. The
InCirT Division is engaged in the electronic manufacturing services
industry (EMSI), and provides sophisticated ISO 9002-certified assembly and
testing services for complex printed circuit boards and subsystems. In
addition, the Company's MOTO-SAT Division is a leading manufacturer of
high-end satellite television systems for recreational vehicles.
14
<PAGE>
Results of Operations
The acquisition of the net assets InCirT Technology (InCirT), which
was effective as of April 1, 1996 has been accounted for as a purchase.
The statement of earnings data for the three and nine months ended June 30,
1996 includes the results of operations of InCirT for the period from April
1, 1996.
The acquisition of the net assets MOTO-SAT in 1996, which was
effective as of January 1, 1996 has been accounted for as a purchase. The
statement of earnings data for the three and nine months ended June 30,
1996 includes the results of operations of MOTO-SAT for the period from
January 1, 1996.
The acquisition of the net assets of QIS on March 24, 1995 has been
accounted for as a purchase. The statement of earnings data for the three
and nine months ended June 30, 1996 includes the results of operations of
QIS for the period from March 24, 1995.
Net sales. Net sales for the Company increased approximately 81% and 71%
for the three and nine month periods in fiscal 1996 as compared to the same
periods in the prior year, respectively. These significant increases
principally resulted from the inclusion of the recent acquisitions of the
InCirT Division (since April '96), San Jose Division (QIS) (since March
'95) and the MOTO-SAT Division (since January '96). There have been no
material increases in prices of any of the Company's products between the
two periods and the Company anticipates that prices will remain subject to
competitive pressures in the foreseeable future which may prohibit a
significant price increase.
Cost of sales. Cost of sales as a percentage of net sales have increased to
approximately 86.8% and 83.9% for the three and nine month periods in 1996,
respectively, as compared to 79.0 and 78.2% for the three and nine month
periods in 1995, respectively. This increase in costs resulted primarily
from the following factors: 1) the recording of a series of unusual and
non-standard production expenses; 2) the Salt Lake City Division has
increased its per hour wages due to an increased demand for skilled workers
and a very low unemployment rate; 3) the InCirT Division has experienced
a temporary shift in its product mix resulting in an increase in low margin
orders from several customers; and 4) the San Jose Division has seen a
temporary decease in its standard cable and harness orders due to a recent
softening in the market. However, as the decrease is temporary the
Division has not reduced its indirect support personnel in anticipation of
a market rebound. This decision has effected the quarter and year to date
margins in 1996. The unusual and non-standard production expenses are
estimated by management to be about $395,000 (or about $236,000 after tax)
and consist of labor inefficiencies, inventory costs, excessive materials
rework costs, severance, finders fees, reorganization costs, etc. The
increases in sales coupled with the low unemployment rate has forced the
Salt Lake City Division to hire unskilled labor and thus incur increased
training costs
15
<PAGE>
and the resulting inefficiencies in production. The Company continues to
take steps to improve its gross profit margin by reorganizing its
production facilities (this reorganization has allowed a reduction in
workforce of about 60 workers through June 30, 1996), improving training,
and also is currently implementing a new manufacturing software package to
allow for more timely information to management.
Operating expenses. Operating expenses in total as a percent of net sales
have remained relatively constant at about 12% for all periods presented.
On a dollar for dollar basis the Company has proactively increased its
Sales and Marketing expenses to support the ever changing customer base
resulting from the recent acquisitions. Due to the additional costs in
absorbing its recent acquisitions the Company has not currently experienced
its anticipated saving in General and Administrative Expenses.
Other income and expenses. Other income and expenses have decreased as
a percent of sales from 2.3% to 1.8% for the three and nine months ended
June 30, 1995, respectively to 0.8% and 1.6% for the three and nine months
ended June 30, 1996, respectively.. This percentage decrease in interest
expense is due to an improved interest rate from an average of 3.25% over
prime in 1995 to 0.5% over prime since April of 1996. In addition, 1995
amounts included interest expenses associated with the bridge loan used to
fund the QIS acquisition which was repaid in November 1995 with some to the
proceeds received from the initial public offering.
Net Earnings and Earnings Per Share. The Company recorded $46,155 ($0.02
per share), for the third quarter of fiscal year 1996, compared to $183,087
($0.11 per share), for the third quarter of fiscal year 1995. For the
entire nine months, net earnings for fiscal year 1996 were $298,135 ($0.12
per share), versus $512,653 ($0.30 per share) for the first nine months of
fiscal year 1995. The reasons for the 75 percent and 42 percent decline in
earnings for the three and nine month periods in 1996 as compared to 1995
are as follows: first, the Company recorded a series of unusual and non-
standard production expenses, which represented a decrease of approximately
$0.09 per weighted share for the nine months ended June 30, 1996; second,
the Company has incurred additional costs in absorbing its recent
acquisitions - InCirT Technology Division in April '96 and MOTO-SAT
Division in January '96; and third, the Company has also experienced
higher labor, support and training costs due to increased production
requirements. In addition the per share earnings are further reduced
because the Company has issued an additional 1,333,407 shares since
September 1995 in connection with its initial public offering and the
recent InCirT acquisition, resulting in additional weighted shares
outstanding.
16
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Liquidity and Capital Resources
The Company has historically financed its operations through operating
cash flow and lines of credit. However, on November 17, 1995, the Company
completed an initial public offering which produced net proceeds of
approximately $4.8 million . This offering significantly increased the
cash and equity balances. It also allowed the Company to retire the
$1,600,000 debt associated with the QIS acquisition, and to purchase
additional inventory and equipment to support the increased production
levels.
Working capital increased from $126,710 at September 30, 1995 to
$4,352,912 at June 30, 1996. The increase is principally due to earnings
in the period, acquisitions and the net proceeds received from the initial
public offering.
The current ratio has increased from 1.0 to 1.0 at September 1995 to
1.4 to 1.0 at June 1996. This significant improvement is primarily the
result of the IPO and acquisitions.
Management believes that existing cash balances, borrowings available
under the line of credit, and cash generated from operations will be
adequate to meet the Company's anticipated cash requirements during the
next twelve months. However, in the event the Company experiences adverse
operating performance or above anticipated capital expenditure
requirements, additional financing may be required. There can be no
assurance that such additional financing, if required, would be available
on favorable terms.
Inflation and Seasonality
The Company does not believe that it is significantly impacted by
inflation. Historically, the industry sales tend to decline in January,
February, July and August when activity in the personal computer industry
as a whole is reduced. During the last quarter, the Computer Industry has
experienced a general softening in the market which management believes is
seasonal in nature and therefore anticipates a resurgence in the future.
17
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time the Company has been a party to various legal
proceedings arising in the ordinary course of business. The Company
is not currently a party to any material litigation and is not aware
of any litigation threatened against it that could have a materially
adverse effect on its business.
Item 2. Changes in the Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None during
the quarter.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
A: Reports on Form 8-K
During the quarter ended June 30, 1996, the Issuer filed a report
on form 8-K dated May 1, 1996 associated with the acquisition of
InCirT Technology (a division of the Cerplex Group, Inc.). Also
on July 16, 1996 an amended 8-K/A was filed with the required
audited financial statements and the Pro Forma Statements
related to the acquisition.
B. Exhibits
10 Material contracts -
Asset Purchase Agreement for the purchase
of InCirT Technology form the Cerplex Group, Inc. The
Schedules to this agreement are in standard form and are
omitted. Registrant will on request of the Securities and
Exchange Commission supplementally file all omitted schedules.
Employment Agreement between James S. Pendleton and the Company
Employment Agreement between Wayne R. Wright and the Company
Employment Agreement between Robert D. Deforest Sr. and the Company
18
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Employment Agreement between Lewis Carl Rasmussen and the Company
Employment Agreement between Allan L. Weaver and the Company
The Employment agreement schedules to these agreements are in
standard form and are omitted. Registrant will on request of the
Securities and Exchange Commission supplementally file all omitted
schedules.
11 Calculation of earnings per share.
27 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PEN INTERCONNECT, INC.
By: /s/ James S. Pendleton
-------------------------
James S. Pendleton,
CEO and Director
By: /s/ Wayne R. Wright
-------------------------
Wayne R. Wright,
CFO, Principal Accounting
Officer and Director
20
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement"), dated as of 12:01 a.m.,
April 1, 1996, by and among PEN INTERCONNECT, INC., a Utah corporation
("Purchaser"), as purchaser, and THE CERPLEX GROUP, INC., a Delaware
corporation ("Company"), as seller.
RECITALS:
WHEREAS, the Company wishes to sell to Purchaser, and Purchaser
wishes to purchase from the Company all of the assets and business of the
Company related to or used in connection with its InCirT Technology
division ("Division"), upon the terms, conditions and provisions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, Purchaser and Seller hereby agree as
follows:
ARTICLE I
DEFINITIONS
I.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
"Accounts Receivable" has the meaning specified in Section 2.1(l).
"Act" has the meaning specified in Section 3.19.
"Action or Proceeding" means any action, suit, proceeding, claim
pending or filed or arbitration by any Person or any investigation or
audit by any Governmental or Regulatory Body.
"Additional Stock" has the meaning specified in Section 2.4(c).
"Affiliate" with respect to any Person, means any other Person
controlling, controlled by or under common control with such Person,
except that the Purchaser and the Company shall not be deemed to be
affiliates of each other after the Closing.
"Agreement" means this Asset Purchase Agreement.
"Assets" has the meaning specified in Section 2.1.
"Assignable Contracts" has the meaning specified in Section 2.1(c).
"Assignment and Assumption Agreement" has the meaning specified in
Section 5.1(h).
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner
or is the beneficial owner, directly or indirectly, of ten percent (10%)
or more of any class of equity securities, any trust or estate in which
such Person has a substantial beneficial interest or as to which such
Person serves as a trustee or in a similar capacity and any relative or
spouse of such Person, or any relative of such spouse, who has the same
home as such Person or any child or sibling of such Person or such
Person's spouse.
"Assumed Liabilities" has the meaning specified in Section 2.2.
"Audited Financial Statements" has the meaning specified in Section
3.6(b).
"Benefits" has the meaning specified in Section 6.5(b)(ii).
"best knowledge", "knowledge" or words to that effect shall mean, as
to any Person, to the best knowledge of such Person after due inquiry and
investigation.
"Bill of Sale" has the meaning specified in Section 5.1(h).
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business,
operations, conditions of (financial or other), results of operations and
assets and properties of such Person, including without limitation,
financial statements, Tax Returns and related work papers and letters
from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock
transfer ledgers, contracts and other agreements, licenses, customer
lists, computer files and programs, retrieval programs, operating data
and plans and environmental studies and plans.
"Bulk Sales or Transfer Laws" means Sections 6101 et seq. of the
Uniform Commercial Code as adopted by the State of California.
"Business Day" means those days as defined in California Civil Code
Section 9.
"Business" has the meaning specified in Section 2.1.
"Cash Payment" has the meaning specified in Section 2.5(a).
"Claim Notice" has the meaning specified in Section 7.4(a).
"Closing" has the meaning specified in Section 2.5.
"Closing Date" has the meaning specified in Section 2.5.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning specified in Section 2.4(a).
"Company" has the meaning specified in the first paragraph of this
Agreement.
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"Company Plan" each "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and each other policy, arrangement or practice that
either covers any employee of the Company or is maintained by the Company
with respect to which the Company makes or has an obligation to make
contributions in connection with the Business.
"Confidential Company Information" has the meaning specified in
Section 6.5(a)(ii).
"Contracts and other Agreements" means all executory contracts,
agreements, understandings, indentures, notes, bonds, loans, instruments,
leases, mortgages, franchises, licenses, commitments or other legally
binding arrangements.
"Division" has the meaning specified in the Recitals.
"document or other papers" means any document, agreement,
instrument, certificate, notice, consent, affidavit, letter, telegram,
telex, statement, schedule (including any Schedule to this Agreement) or
exhibit (including any Exhibit to this Agreement).
"Environmental, Health and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants,
or chemical, industrial, hazardous, or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
"Extremely Hazardous Substance" has the meaning set forth in Sec.
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means each entity required to be aggregated with
the Company under Section 414(b), (c), (m) or (o) of the Code or Section
4001 of ERISA.
"GAAP" means generally accepted accounting principles.
"Governmental or Regulatory Body" means court, tribunal, arbitrator
or any government or political subdivision thereof, whether federal,
state, county, local or foreign, or any agency, authority, official or
instrumentality of any such government or political subdivision.
"Inventory" has the meaning specified in Section 2.1(d).
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"Indemnified Party" has the meaning specified in Section 7.4.
"Indemnifying Party" has the meaning specified in Section 7.4.
"Intellectual Property" has the meaning specified in Section 2.1(a).
"IRS" means the Internal Revenue Service.
"Law" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Body.
"Liability" or "Liabilities" means any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
"Loss" or "Losses" has the meaning specified in Section 7.2.
"Material Adverse Effect" means, in the case of any Person, any
change or changes or effect or effects that individually or in the
aggregate are or may reasonably be expected to be materially adverse to
(i) the assets, properties, business, operations, income, prospects or
condition (financial or otherwise) of such Person or the transactions
contemplated by this Agreement or (ii) the ability of such Person to
perform its obligations under this Agreement.
"Material Contracts" means:
(a) The Assignable Contracts;
(b) Contracts and other Agreements with any current or former
employee, consultant, agent, other representative of the Business;
(c) Contracts or other Agreements for the sale or license of
any of the Assets or for the grant to any Person of any preferential
rights to purchase any of the Assets;
(d) material contracts under which the Company agrees to
indemnify any Person for use of the Assets;
(e) Contracts and other Agreements relating to the creation of
Liens on any of the Assets; and
(f) Lease Agreement dated November 1, 1995 between C2H2, Ltd.,
a California limited partnership and the Company, as amended.
4
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"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Body, in each case whether
preliminary or final.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental or Regulatory Body or
other entity.
"Purchase Price" has the meaning specified in Section 2.4(a).
"Purchaser" has the meaning specified in the first paragraph of this
Agreement.
"Records" has the meaning specified in Section 2.1(h).
"Redemption Payment" has the meaning specified in Section 2.6.
"Redemption Period" has the meaning specified in Section 2.6.
"Restricted Period" has the meaning specified in Section 6.5(a)(i).
"Restrictive Covenants" has the meaning specified in Section 6.5(b).
"Tangible Property" has the meaning specified in Section 3.11.
"Tax Return" means any return, report, information return, or other
document (including any related or supporting information) filed or
required to be filed with any federal, state, local or foreign
governmental entity or other authority in connection with the
determination, assessment or collection of any Tax (whether or not such
Tax is imposed on the Company) or the administration of any laws,
regulations or administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing
authority, whether disputed or not, including, without limitation,
income, capital, estimated, excise, property, sales, transfer,
withholding employment, payroll, and franchise taxes and such terms shall
include any interest, penalties or additions attributable to or imposed
on or with respect to such assessments.
"Transfer Taxes" has the meaning specified in Section 6.3.
"Unaudited Financial Statements" has the meaning specified in
Section 3.6(a).
5
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ARTICLE II
ACQUISITION OF THE ASSETS;
ASSUMED LIABILITIES AND PURCHASE PRICE
II.1 Purchase of the Assets. On the terms and subject to the
conditions set forth in this Agreement, the Company hereby sells,
transfers, assigns, conveys and delivers to Purchaser, and Purchaser
hereby purchases, acquires and accepts from the Company, all of the
right, title and interest of the Company in and to all of the assets
(excluding intercompany and cash accounts), properties and rights owned
by the Company, and used primarily by the Company in the business and
operations of the Division as such business is conducted on the date
hereof ("Business"), both tangible and intangible, free and clear of any
Liens (the foregoing are hereinafter collectively referred to as the
"Assets"). The Assets include, without limitation, all of the right,
title and interest of the Company in or to the following:
(a) Intellectual Property. All intellectual property rights
used or held for use primarily in each case in the conduct of the
Business (including the Company's goodwill therein) and all rights,
privileges, claims, causes of action and options relating to the Business
or its assets or properties, including but not limited to (i)(x) the
right to own and use the names "InCirT" and "InCirT Technology," and (y)
"MASS Microsystems," (to the extent the Company has any rights or
privileges thereto), or (ii) the right to use existing collateral
material that uses the term (x) "InCirT" or "InCirT Technology," or (y)
"MASS Microsystems" (to the extent the Company has any rights or
privileges thereto), and (iii) all trademarks and trade names (including,
without limitation, (x) "InCirT," "InCirT Technology," and (y) "MASS
Microsystems" (to the extent the Company has any rights or privileges
thereto)) service marks, goodwill, trade secrets (including the property
defined as "trade secrets" in the California Uniform Trade Secrets Act),
know-how, manufacturing methods, engineering drawings and specifications,
inventions, patents or patents pending, if any, or improvements thereto
(whether or not patentable or reduced to practice) and other proprietary
information used in the conduct of the Business (the "Intellectual
Property");
(b) IP Licenses. All licenses, sublicenses and other
agreements under which the Company is a licensor or licensee of any
Intellectual Property (the "IP Licenses");
(c) Assignable Contracts. The contracts and other agreements
to which the Company is a party and which are utilized in the conduct of
the Business, (the "Assignable Contracts");
(d) Inventory. All inventories or work-in-process, finished
goods, merchandise, demonstration equipment, office and other supplies,
parts, packaging materials, advertising materials and other accessories
related thereto which is otherwise used or held for use by the Division
or in the conduct of the Business, which are held at, or are in transit
from or to, the locations at which the Business is conducted or including
any of the foregoing purchased subject to any conditional sales or title
retention agreement in favor of any other Person, together with all
rights of the Company against suppliers of such inventories (the
"Inventory");
(e) Tangible Personal Property. In addition to the Inventory
separately described above, all furniture, fixtures, equipment, tooling,
molds, and dyes, machinery and other tangible personal property used or
6
<PAGE>
held for use in the conduct of the Business at the locations at which the
Business is conducted or at suppliers' premises or customers' premises on
consignment, or otherwise used or held for use by the Company in the
conduct of its Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any
other Person;
(f) Warranties. All rights of the Company under or pursuant
to all warranties, representations and guarantees made by suppliers,
manufacturers or contractors in connection with products sold to or
services provided to the Company for the Division or the Business, or
affecting the IP Licenses, property, machinery or equipment used in the
conduct of the Business;
(g) Telephone Numbers. All rights in and to the telephone
numbers of the Division, subject to the regulations of the California
Public Utilities Commission;
(h) Books and Records. All books, records and information or
copies thereof relating to the Assets or the Business except for records
pertaining to past or current employees of the Business (the "Records");
(i) Advertising. All customer and market record referral data
and materials, and all advertising and promotional literature and
material relating to the Assets, including without limitation, catalogs,
brochures, pamphlets, art work and printing plates;
(j) Customer List. The list of all of the past and current
customers of the Division;
(k) MASS Microsystem Assets. Any and all assets used in
connection with the business of MASS Microsystem as set forth on Schedule
2.1(k);
(l) Accounts Receivable. All accounts receivable of the
Division as set forth on Schedule 2.1(l) ("Accounts Receivable"); and
(m) Other Assets. Any and all other assets used primarily in
connection with the operation of the Business.
II.2 Assumed Liabilities. Subject to the terms and conditions set
forth herein, Purchaser hereby assumes those liabilities of the Company
set forth on Schedule 2.2 and agrees to perform all of the outstanding
obligations of the Company under the Assignable Contracts arising and to
be performed on or after the Closing Date (collectively, the "Assumed
Liabilities"). In the event of any claim against Purchaser with respect
to any of the Assumed Liabilities hereunder, Purchaser shall have, and
the Company hereby assigns to Purchaser, any defense, counterclaim, or
right of set off which would have been available to the Company if such
claim had been asserted against the Company.
II.3 Liabilities Not Assumed. Except for the Assumed Liabilities,
Purchaser does not assume nor have any responsibility for or with respect
to any other obligation, debt or Liability of the Company.
II.4 Purchase Price.
(a) Subject to adjustment as provided herein and in addition
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to the Assumed Liabilities, the purchase price (the "Purchase Price") for
the Assets to be purchased by Purchaser from the Company hereunder shall
be a total of five million three hundred thousand dollars ($5,300,000)
payable as follows: (i) three million five hundred thousand dollars
($3,500,000) to be a cash payment (the "Cash Payment"), and (ii) the
issuance by Purchaser to the Company of three hundred thirty-three
thousand four hundred seven (333,407) shares of its common stock, par
value $0.01 per share (the "Common Stock"). The number of shares of
Common Stock is determined by dividing one million eight hundred thousand
($1,800,000) by $5.3988, which is the average of the last reported sale
price of one share of Purchaser's common stock for the twenty (20)
trading days immediately preceding March 22, 1996.
(b) The Cash Payment shall be paid to the Company by Purchaser
on the Closing Date by wire transfer of immediately available funds to
the Company's account at Wells Fargo Bank, San Francisco, California,
account # 4600-196786; ABA #121-000-248.
(c) Purchaser will deliver to the Company .09261 shares of its
common stock ("Additional Stock") for every $1.00 of the Division's past
due over 90 days accounts receivable as of March 26, 1996 collected by
the Purchaser within one hundred eighty (180) days of the Closing Date,
up to a maximum of fifty five thousand five hundred sixty-eight (55,568)
shares of additional stock. Purchaser agrees to use practices consistent
with its ordinary business practices in collecting past due over 90 days
accounts receivable of the Division as set forth on Schedule 2.1(l). The
parties acknowledge that as of March 26, 1996 the past due over 90 days
accounts receivable is in the amount of $832,494. The certificate
representing the Additional Stock will be delivered to the Company by
Purchaser within 30 days after the expiration of the period during which
Purchaser may collect the past due over 90 days accounts receivable.
II.5 Closing Date. The consummation of the purchase and sale of the
Assets (the "Closing") shall be held simultaneously with the execution of
this Agreement ("Closing Date"). The Closing may be held by the
Purchaser and Company exchanging facsimile signature pages and complying
with the conditions set forth in Article V.
II.6 Redemption Right. The Company hereby grants to Purchaser the
option to redeem the Common Stock, for a purchase price of Two Million
Seventy Thousand Dollars ($2,070,000) or $6.2086 per share and the
Additional Stock, if any, for a purchase price of $5.9387 per share of
Additional Stock up to a maximum of Three Hundred Thirty Thousand Dollars
($330,000) ("Redemption Payment"). At any time within one year of the
Closing Date ("Redemption Period"), Purchaser may exercise its right to
redeem the Common Stock and Additional Stock, if any, by delivering
written notice of its intent to so exercise at any time during the
Redemption Period and delivering the Redemption Payment to the Company
within ten (10) days thereafter. If Purchaser exercises its right to
redeem the Common Stock and Additional Stock, if any, and delivers the
Redemption Payment to the Company, the Company shall deliver the
certificate or certificates representing the Common Stock and Additional
Stock, if any, appropriately endorsed to Purchaser within five days of
the delivery of the Redemption Payment by Purchaser. During the
Redemption Period, the Company shall not sell, transfer, convey, pledge,
encumber or otherwise dispose of the Common Stock or Additional Stock, if
any, provided, however, given that the Company is obligated to pledge the
Common Stock and Additional Stock to Wells Fargo Bank, the Company shall
use its best efforts to obtain written confirmation from Wells Fargo Bank
that Wells Fargo Bank will release the pledged stock upon the payment of
the Redemption Payment.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser with the knowledge
that Purchaser is relying on such representations and warranties in
entering into this Agreement, and that the statements contained in this
Article III are correct and complete as of the date of this Agreement.
III.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power
and authority to (a) enter into this Agreement and to perform its
obligations hereunder, (b) own, lease and operate its properties and
assets as they are now owned, leased and operated and (c) carry on its
business, including, without limitation, the Business, as now presently
conducted. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or
properties makes such qualification necessary, except where the failure
to do so would not have a Material Adverse Effect after the Closing Date
on the Company, the Business, the Assets or Purchaser.
III.2 Validity and Execution of Agreement. The Company has the
full legal right, capacity and power and has all requisite corporate
authority and approval required to enter into, execute and deliver this
Agreement and to perform fully its obligations hereunder. The board of
directors of the Company has approved the transactions contemplated
pursuant to this Agreement and each of the other documents contemplated
by this Agreement. This Agreement constitutes the valid and binding
obligation of the Company and is enforceable against it in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
the enforcement of creditors' rights in general and by general principles
of equity.
III.3 No Conflict. Except as set forth on Schedule 3.3, neither
the execution and delivery of this Agreement by the Company nor the
performance by the Company of the transactions contemplated hereby will:
(a) violate or conflict with any of the provisions of the Certificate of
Incorporation or By-Laws (or similar governing documents) of the Company;
(b) except as would not have a Material Adverse Effect after the Closing
Date on the Company, the Business, the Assets or Purchaser, violate,
conflict with, result in the acceleration of, or entitle any party to
accelerate the maturity or the cancellation of the performance of any
obligation under, or result in the creation or imposition of any lien in
or upon any of Assets or constitute a default (or an event which might,
with the passage of time or the giving of notice, or both, constitute a
default) under any mortgage, indenture, deed of trust, lease, contract,
loan or credit agreement, license or other instrument to which the
Company is a party or by which its or any of its properties or assets may
be bound or affected; or (c) except as would not have a Material Adverse
Effect after the Closing Date on the Company, the Business, the Assets or
Purchaser, violate or conflict with any provision of any Law or Order
applicable to the Company or require any consent or approval of or filing
or notice with any Governmental or Regulatory Body.
III.4 Books and Records. The Records of the Company as supplied
to Purchaser are true, correct, complete and current in all material
respects.
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III.5 Certificate of Incorporation and By-Laws. The Company has
heretofore delivered to Purchaser true, correct and complete copies of
the Certificate or Articles of Incorporation and By-Laws or similar
governing documents of the Company as in full force and effect on the
date hereof.
III.6 Financial Statements.
(a) The unaudited financial statements (the "Unaudited
Financial Statements") of the Division for the years ended December 31,
1995 and 1994 and the three month period ended March 31, 1996, attached
hereto as Schedule 3.6 were prepared in accordance with the Company's
internal accounting policies and procedures and were used in the
preparation of the consolidated financial statements of the Company which
were prepared in accordance with GAAP consistently applied for the
periods covered thereby. The Company is not aware of any material
adjustments to the Company's consolidated financial statements which
would be attributed to the Division's financial statements included
herein, except for adjustments to inventory as disclosed on the Schedule.
(b) The audited balance sheets of the Division as of December
31, 1994 and December 31, 1995 and the related audited statements of
income, retained earnings and cash flows for the years ended December 31,
1995, 1994 and 1993, including the footnotes thereto, certified by Grant
Thornton, certified public accountants, true and complete copies of which
will be delivered to Purchaser will present fairly, in all material
respects, the financial position of the Division as at such dates and the
results of operations and cash flows of the Division for the years then
ended, in each case, in accordance with GAAP consistently applied for the
periods covered thereby (the "Audited Financial Statements"). The
Company shall cooperate with Grant Thornton to cause the Audited
Financial Statements to be delivered to the Purchaser by May 31, 1996.
III.7 No Material Adverse Change. Except as set forth on
Schedule 3.7 or for events as to which the Purchaser has actual
knowledge, since December 31, 1995, to the Company's knowledge there has
been no material adverse change in the assets, properties, business,
operations, income or condition (financial or otherwise) of the Business,
nor is any such change threatened, nor has there been any damage,
destruction or loss which could have a Material Adverse Effect after the
Closing Date on the Business, the Assets or Purchaser, whether or not
covered by insurance.
III.8 Tax Matters. All Tax Returns required to be filed with
respect to the Company have been timely filed and all such Tax Returns
were correct and complete in all respects. The Company has timely paid
to the appropriate tax authorities all Taxes due or claimed to be due
from it by any Tax authority. No adjustment relating to any Tax Return
required to be filed with respect to the Company has been proposed
formally or informally by any Tax authority, and to the best knowledge of
the Company no basis exists for any such adjustment. The Company is not
currently the beneficiary of any extension of time within which to file
any Tax Return. There are no liens for Taxes upon assets or properties
of the Company. There is no examination or proceeding pending or, to the
knowledge of the Company, threatened by any tax authority relating to the
determination, assessment or collection of, or any delinquencies in
filing related to any Taxes of the Company. Notwithstanding anything
contained herein to the contrary contained herein, the Company shall not
be deemed to be in breach of this Section 3.8 if the breach of any of the
statements contained in this Section 3.8 does not have a Material Adverse
Effect after the Closing Date upon the Assets, the Division, the Business
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or the Purchaser. The Company holds a valid California resale
certificate.
III.9 Litigation. Except as set forth on Schedule 3.9, there
are no outstanding Orders by which the Company, or any of its securities,
assets, properties or businesses are bound. Except as set forth on
Schedule 3.9, there is no Action or Proceeding pending or, to the
knowledge of the Company threatened (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance) against or
affecting the Company or any of its assets, properties or businesses,
including without limitation the Business and the Assets, which if
adversely decided would have a Material Adverse Effect after the Closing
on the Company, the Purchaser, the Business, the Division or the Assets,
nor are there any facts which are likely to give rise to any such Action
or Proceeding which if adversely decided, would have a Material Adverse
Effect after the Closing on the Company, the Purchaser, the Business, the
Division or the Assets.
III.10 Contracts and Other Agreements. True and complete copies
of all of the Material Contracts have been delivered to Purchaser or made
available to Purchaser for inspection. All of the Material Contracts are
valid, subsisting, in full force and effect and binding upon the Company
and to the best knowledge of the Company, the Company has satisfied in
full or provided for all of its liabilities and obligations thereunder
requiring performance prior to the date hereof in all material respects,
is not in default under any of them, nor does any condition exist that
with notice or lapse of time or both would constitute such a default. To
the knowledge of the Company, no other party to any such Material
Contract is in default thereunder, nor does any condition exist that with
notice or lapse of time or both would constitute such a default. Except
as separately identified on Schedule 3.10, no approval or consent of any
Person is needed for the Material Contracts to continue to be in full
force and effect, and all of the Company's rights under Material
Contracts to be assigned to Purchaser hereunder will be conveyed to
Purchaser, upon consummation of the transactions contemplated by this
Agreement.
III.11 Tangible Property. Schedule 3.11 sets forth a true,
complete and correct list of all categories of tangible personal property
(other than Inventory), including, without limitation, equipment,
furniture, leasehold improvements, fixtures, vehicles, structures, any
related capitalized items and other similar tangible property, in each
case owned or leased by the Company and material to the Business
(collective, the "Tangible Property") together with a description of all
leases or subleases of Tangible Property to which the Company (on behalf
of the Business) is the lessor, sublessor, lessee or sublessee and all
options to purchase or sell the underlying property. The Tangible
Property is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition
and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used.
III.12 Intellectual Property.
(a) The Company owns or is licensed to use all "Intellectual
Property" that is necessary for the conduct of the Business, free and
clear of any Liens of any kind that may interfere with the conduct of the
Business. Except as disclosed in Schedule 3.12, the Company is not a
party to any agreement limiting the use of Intellectual Property.
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(b) No litigation is pending or, to the knowledge of the
Company, threatened, that challenges the validity, enforceability,
ownership of, or right to use, sell, license or dispose of any
Intellectual Property, nor does the Company know of any valid grounds for
any such claim.
(c) None of the material trade secrets of the Company as are
material to the Business has been disclosed to any Person, except as
required pursuant to the filing of a patent application by the Company,
unless such disclosure was necessary and the use was made pursuant to a
confidentiality agreement. All such trade secrets are protected against
their use by other Persons to an extent and in a manner customary in the
industries in which the Company operates, except that the Company has not
required its employees to sign confidentiality or similar agreements.
III.13 ERISA. The Company has provided to the Purchaser a true,
correct and complete copy of each Company Plan, or if no copy exists, a
written description thereof. All of the Company Plans are, and have been
maintained and administered, in all material respects in compliance with
all applicable requirements of ERISA and the Internal Revenue Code of
1986, as amended (the "Code"), to the extent such Company Plans are
subject to ERISA and the Code. Each Company Plan that is intended to be
a qualified plan under Section 401(a) of the Code has received all
necessary favorable determination letters from the Internal Revenue
Service and, to the Company's knowledge, such Company Plans have not been
operated in any way which would adversely affect their qualified status.
As a result of the transactions contemplated by this Agreement, the
Purchaser shall have no liability with respect to any Company Plan
maintained by the Company or any trade or business under common control
with the Company within the meaning of Section 414(b), (c) or (m) of the
Code. Other than usual claims for benefits arising under the Company
Plans in the normal course, there are no pending claims, and the
transactions contemplated by this Agreement will not give rise to any
material claims, suits or proceedings which might cause the Company to
incur liability to any employee under any Company Plan, including any
liability for severance payments to any employee or former employee of
the Company, which may have a Material Adverse Effect after the Closing
Date upon the Assets, the Division, the Business or the Purchaser.
III.14 Title; Liens. At the Closing, Company will deliver to
Purchaser one or more Forms UCC-2 -- Termination Statement from Wells
Fargo Bank. At such time as the Termination Statements are properly
filed with the appropriate state agency, the title to the Assets will be
in each case free and clear of any Lien.
III.15 Compliance with Laws. Except as set forth in Schedule
3.15, the Company (a) is in compliance with all, and not in violation of
any, and has not received any claim or notice that it is not in
compliance in any material respect with, or that it is in violation in
any material respect of, any Law or Order to which the Business or any of
the Assets (including the use thereof) are subject and (b) has not failed
to obtain or to adhere to the requirements of any governmental permit,
license, registration and other governmental consent or authorization
necessary in connection with the Business or the Assets, which failure
would have a Material Adverse Effect after the Closing Date on the
Business, the Assets, the Division or Purchaser. The Company has advised
Purchaser in writing of any proposed health or other law, rule or
regulation which, to its knowledge, could reasonably be expected to have
a Material Adverse Effect on the Business, the Division, the Assets or
Purchaser on or which, to its knowledge, could reasonably be expected to
require substantial new capital investments by Purchaser in the Business.
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III.16 Entire Business. The sale of the Assets to be sold by the
Company to Purchaser pursuant to this Agreement will convey to Purchaser
the entire Business of, and all of the tangible and intangible property
used by, the Company (whether owned, leased or held under license by the
Company, by any of the Company's Affiliates, Associates or by others,
including, without limitation, any of the assets of the Business) in
connection with the conduct of the Business as heretofore conducted by
the Company. Except as disclosed in Schedule 3.16, there are no material
facilities, services, assets or properties shared with any other Person
which are used by the Company in the Business.
III.17 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by the Company
directly with Purchaser without the intervention of any person on behalf
of the Company in such manner as to give rise to any valid claim by any
Person against Purchaser for a finder's fee, brokerage commission or
similar payment, except to Ventana International, Ltd. ("Ventana"). All
amounts so payable to Ventana shall be paid by Company.
III.18 Environmental, Health and Safety Laws.
(a) Each of the Company, and it's predecessors and Affiliates has
complied with all Environmental, Health and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any failure so to comply. Without limiting the generality of
the preceding sentence, each of the Company, and its predecessors and
Affiliates has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health and Safety Laws.
(b) None of the Company or its Affiliates has any Liability (and
none of the Company, and its respective predecessors and Affiliates has
handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner
that could form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of the Company and its Affiliates giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or
other individual, or for any reason under any Environmental, Health, and
Safety Law.
(c) All properties and equipment used in the business of the
Company, and its predecessors and Affiliates have been and are free of
asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-
transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(d) Notwithstanding anything contained herein to the contrary, the
Company shall not be deemed to be in breach of this Section 3.18 if the
breach of any of the representations and warranties contained in Section
3.18(a), (b) and (c) does not have a Material Adverse Effect after the
Closing upon the Assets, the Division, the Business or the Purchaser.
III.19 Restrictions on Common Shares. The Common Stock and
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Additional Stock, if and when issued to the Company, will constitute
"restricted securities" as that term is defined in Rule 144, as
promulgated under the Securities Act of 1933, as amended (the "Act"), and
as such may not be transferred except pursuant to an effective
registration statement filed under the Act, or pursuant to a valid
exemption from the registration requirements of the Act. Except as
provided in the Registration Rights Agreement dated of even date
herewith, the Purchaser has no obligation, whatsoever, to register the
Common Stock or Additional Stock under the Act and has no present
intention to so register the Common Stock or Additional Stock. The
Common Stock and Additional Stock is being acquired by the Company for
investment purposes only, solely for its own account, and without any
present intention of participating directly or indirectly in the
distribution or resale of all or any portion of the Common Stock or
Additional Stock then being acquired. The following legend shall be
placed upon the certificate or certificates representing the Common Stock
or Additional Stock:
The shares represented by this certificate have
not been registered under the Securities Act of 1933.
The shares have been acquired for investment and may
not be sold, transferred or assigned in the absence
of an effective registration statement for these
shares under the Securities Act of 1933 or an opinion
of the Company's [Pen Interconnect, Inc.] counsel
that registration is not required under said Act.
In addition, an appropriate legend for the State of California and a
legend reflecting the redemption right of the Purchaser shall be placed
upon the certificates. Buyer may place a "stop transfer order" regarding
the Common Stock and Additional Stock with its transfer agent as
appropriate to comply with the requirements of this Section 3.19.
III.20 Securities. The Company is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Act. The Company acknowledges that Purchaser has delivered to it its
Prospectus dated November 17, 1995, its Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995 and its Quarterly Report on Form
10-QSB for the quarter ended December 31, 1995. The Company has had the
opportunity to review and discuss the above-referenced documents with
Purchaser and has had the opportunity to ask questions and make inquiries
of representatives of Purchaser regarding Purchaser's financial
condition, assets and operations and the Company has received
satisfactory answers to such questions and inquiries.
III.21 Disclosure. None of the representations, warranties or
covenants contained in this Agreement, nor in any Schedule or Exhibit
hereto contains or will contain an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company with knowledge that
Company is relying upon such representation and warranties in entering
into this Agreement, and that the statements contained in this Article IV
are correct and complete as of the date of this Agreement.
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IV.1 Organization and Capitalization. Purchaser is a corporation
duly organized and validly existing and in good standing under the laws
of the State of Utah and has all requisite corporate power and authority
to (a) enter into this Agreement and to perform its obligations
hereunder, (b) own, lease and operate its properties and assets as they
are now owned, leased and operated and (c) carry on its business as now
conducted.
IV.2 Validity and Execution of Agreement. Purchaser has the full
legal right, capacity and power and has all requisite corporate authority
and approval required to enter into, execute and deliver this Agreement
and to perform fully its obligations hereunder. The board of directors
of Purchaser has approved the transactions contemplated pursuant to this
Agreement and each of the other documents contemplated by this Agreement.
This Agreement constitutes the valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights in general and by general principles of
equity.
IV.3 No Conflict. Neither the execution and delivery of this
Agreement by Purchaser nor the performance by Purchaser of the
transactions contemplated hereby will: (a) violate or conflict with any
of the provisions of the articles of incorporation or by-laws of
Purchaser (or similar governing documents), (b) violate or conflict with
any provisions of any Law or Order applicable to Purchaser; or (c)
require any consent or approval by or filing or notice with any
Governmental or Regulatory Body.
IV.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser
directly with the Company without the intervention of any Person on
behalf of Purchaser in such manner as to give rise to any valid claim by
any Person against the Company for a finder's fee, brokerage commission
or similar payment.
IV.5 Articles of Incorporation and Bylaws. The Purchaser has
heretofore delivered to the Company true, correct and complete copies of
its Articles of Incorporation and Bylaws or similar governing documents
of the Purchaser as in full force and effect on the date hereof.
IV.6 Delivery of Documents. The Purchaser has delivered to the
Company its Prospectus dated November 17, 1995, its Annual Report on Form
10-KSB for the fiscal year ended September 30, 1995 and its quarterly
report on Form 10-QSB for the quarter ended December 31, 1995. Each of
these documents contain the information required to be included therein
by applicable law and as to such required information do not contain any
untrue statements of material fact or omit a material fact necessary to
make the statements contained thereof not misleading.
IV.7 Status of Shares. The Common Stock and Additional Stock when
issued in accordance with the terms of this Agreement will be duly
authorized, validly issued, fully paid and nonassessable and free of
liens, encumbrances or preemptive lights contained in the Articles of
Incorporation or Bylaws of Purchaser; provided, however, that the Common
Stock and Additional Stock, if any, may be subject to restrictions on
transfer under state and/or federal securities laws.
IV.8 Disclosure. None of the representations, warranties or
covenants contained in this Agreement, nor in any Schedule or Exhibit
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hereto made by Purchaser, contains or will contain any untrue statement
of material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading.
ARTICLE V
CONDITIONS PRECEDENT TO THE CLOSING
V.1 Conditions Precedent to the Obligations of Purchaser to
Complete the Closing. The obligations of Purchaser to enter into and
complete the Closing are subject to the fulfillment at or prior to the
Closing of the following conditions, any one or more of which may be
waived by Purchaser:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company contained in this Agreement
shall be true, complete and correct in all material respects.
(b) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals, authorizations, licenses, registrations, declarations or
filings listed on Schedule 3.3, if any, hereto shall have been obtained
or made, as the case may be.
(c) Third Party Consents. Except as otherwise waived by
Purchaser, all consents, permits and approvals from parties to contracts
or other agreements with the Company set forth on any Schedule to this
Agreement, including, but not limited to, the Assignable Contracts, and
any other material consent, permit or approval that may be required in
connection with the performance by the Company of its obligations under
this Agreement or the consummation of the transactions contemplated by
this Agreement or the continuance of the Company's contracts or other
agreements with Purchaser after the Closing shall have been obtained.
(d) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any party hereto or Law promulgated that
prevents consummation of the transactions contemplated by this Agreement
or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material
Adverse Effect on the Business or the Assets to be purchased hereunder.
(e) Opinion of Counsel to the Company. Purchaser shall have
been provided with an opinion of Brobeck Phleger & Harrison, counsel to
the Company, in form and substance satisfactory to Purchaser and dated
the date of the Closing.
(f) Approval of Counsel to Purchaser. All actions and
proceedings hereunder and all documents and other papers required to be
delivered by the Company hereunder or in connection with the consummation
of the transaction contemplated hereby and all other related matters
shall have been approved by Parsons Behle & Latimer, counsel to
Purchaser, as to their form and substance, which approval shall not be
unreasonably withheld.
(g) Conveyancing Documents. The Company shall have executed
and delivered to Purchaser an Assignment and Assumption Agreement (an
"Assignment and Assumption Agreement") in substantially the form of
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Exhibit A hereto, and such further instruments and documents as may be
reasonably requested by Purchaser in order to complete the transfer of
the Assets to Purchaser and as may be necessary for the Purchaser's
operation of the Business.
(h) Sublease. Purchaser and the Company shall have executed a
definitive agreement in form and substance satisfactory to both parties
relating to Purchaser's sublease of space currently occupied by the
Division in connection with the Business.
(i) Investors' Rights Agreement. The Company shall have
executed and delivered to Purchaser an Investors' Rights Agreement in
form and substance satisfactory to both parties hereto.
V.2 Conditions Precedent to the Obligations of the Company to
Complete the Closing. The obligations of the Company to enter into and
complete the Closing are subject to the fulfillment on or prior to the
Closing, of the following conditions, any one or more of which may be
waived by the Company:
(a) Representations, Warranties and Covenants. The
representations, warranties and covenants of Purchaser shall be true,
complete and correct in all material respects.
(b) Injunction, etc. At the Closing, there shall not be any
Order outstanding against any party hereto or Law promulgated that
prevents consummation of the transactions contemplated by this Agreement
or any of the conditions to the consummation of the transaction
contemplated by this Agreement or would be likely to have any Material
Adverse Effect on the Business or the Assets to be purchased by Purchaser
hereunder.
(c) Opinion of Counsel to Purchaser. Purchaser shall have
been provided with an opinion of Parsons Behle & Latimer, counsel to
Purchaser, in form and substance satisfactory to the Company and dated
the date of the Closing.
(d) Delivery of Purchase Price. Purchaser shall have
delivered to the Company the Cash Payment and a copy of the letter to
American Stock Transfer, the Purchaser's transfer agent, which letter
shall direct American Stock Transfer to deliver the Common Stock to the
Company in accordance with Section 2.4(a) hereof.
(e) Conveyancing Documents. Purchaser shall have executed and
delivered to the Company the Assignment and Assumption Agreement.
(f) Sublease. Purchaser and the Company shall have executed a
definitive agreement in form and substance satisfactory to both parties
relating to Purchaser's sublease of space currently occupied by the
Division in connection with the Business.
(g) Investors' Rights Agreement. The Company shall have
executed and delivered to Purchaser an Investors' Rights Agreement in
form and substance satisfactory to both parties hereto.
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ARTICLE VI
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing
Date:
VI.1 Further Information. Following the Closing, each party will
afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of
the Company or relating to the Business, the Assets, or the Assumed
Liabilities in its possession with respect to periods prior to the
Closing and the right to make copies and extracts therefrom, to the
extent that such access may be reasonably required by the requesting
party (a) to facilitate the investigation, litigation and final
disposition of any claims which may have been or may be made against any
party or its Affiliates and (b) for any other reasonable business
purpose.
VI.2 Record Retention. Each party agrees that for a period of not
less than seven (7) years following the Closing Date, it shall not
destroy or otherwise dispose of any of the Records relating to the
Business, the Assets, the Assumed Liabilities, or the Company in its
possession with respect to periods prior to the Closing. Each party
shall have the right to destroy all or part of such Records after the
seventh anniversary of the Closing Date or, at an earlier time by giving
each other party hereto thirty (30) days prior written notice of such
intended disposition and by offering to deliver to the other parties, at
the other parties' expense, custody of such Records as such party may
intend to destroy.
VI.3 Transfer and Property Taxes. The Company agrees to pay all
sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") arising out
of or in connection with the transactions effected pursuant to this
Agreement, and shall indemnify, defend and hold harmless Purchaser with
respect to such Transfer Taxes. The Company shall file all necessary
documentation and Tax Returns with respect to such Transfer Taxes.
Personal property taxes assessed against the Assets for the year 1996
shall be prorated as of the Closing Date.
VI.4 Post-Closing Assistance. The Company, on the one hand, and
Purchaser, on the other hand, will provide each other with such
assistance as may reasonably be requested in connection with the
preparation of any Tax Return, any audit or other examination by any
taxing authority, or any judicial or administrative proceedings relating
to liability for Taxes, and each will retain and provide the requesting
party with any records or information that may be reasonably relevant to
such return, audit or examination, proceedings or determination. The
party requesting assistance shall reimburse the other party for
reasonable out-of-pocket expenses (other than salaries or wages of any
employees of the parties) incurred in providing such assistance. Any
information obtained pursuant to this Section 6.4 or pursuant to any
other Section hereof providing for the sharing of information or the
review of any Tax Return or other schedule relating to Taxes shall be
kept confidential by the parties hereto.
VI.5 Non-Compete.
(a) Covenants Against Competition. The Company acknowledges
that (i) the Company has developed the Business; and (ii) Purchaser would
not purchase the Assets but for the agreements and covenants of the
Company contained in this Section 6.5. Accordingly, the Company (for and
on behalf of each of its Affiliates) covenants and agrees that:
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(i) The Company and its subsidiaries shall not directly
or indirectly, for a period commencing on the Closing Date and
terminating, on the date three (3) years following the Closing Date (the
"Restricted Period") in the United States of America and Canada, (1)
engage in any business, directly or as a partner, shareholder, member,
principal, agent trustee, consultant or in any other similar relationship
or capacity, which directly competes with the Business for the Company's
or such subsidiary's own account; (2) render any services or sell any
products which the Business sells or renders to any Person (other than
Purchaser) engaged in such activities; or (3) provided, however, that
notwithstanding the above the Company may own, directly or indirectly,
solely as an investment, securities of the Purchaser and of any Person
which are traded on any national securities exchange or NASDAQ if the
Company (i) is not a controlling Person or a member of a group which
controls such Person and (ii) does not, directly or indirectly, own 10%
or more of any class of securities of such Person (other than the
Purchaser).
(ii) During and after the Restricted Period, the Company
and each Affiliate shall keep secret and retain in strictest confidence,
and shall not use for the benefit of itself or himself or others except
in connection with the business and affairs of Purchaser and its
Affiliates, all confidential information with respect to the Business and
the Assets, or learned by the Company and each Affiliate heretofore or
hereafter directly or indirectly from the Company or Purchaser,
including, without limitation, information with respect to (a)
prospective facilities, (b) sales figures, (c) profit or loss figures,
and (d) customers, clients, suppliers, sources of supply and customer
lists ("Confidential Company Information"), and shall not disclose such
Confidential Company Information to anyone outside of Purchaser and its
Affiliates except with Purchaser's express written consent and except for
Confidential Company Information which (i) is at the time of receipt or
thereafter becomes publicly known through no wrongful act of either of
the Company or an Affiliate or (ii) is received from a third party not
under an obligation to keep such information confidential and without
breach of this Agreement.
(iii) During the Restricted Period, the Company and
each of its Affiliate shall not, directly or indirectly knowingly solicit
or encourage to leave the employment of Purchaser, any employee of
Purchaser or hire any employee who has left the employment of Purchaser
after the date of this Agreement within six (6) months of the termination
of such employee's employment with Purchaser, without the consent of the
Purchaser, which consent will not be unreasonably withheld.
Notwithstanding the above, the Company and each of its Affiliates shall
not hire Alan Weaver, Tom Buxton, Mike Clary, Jeff Tucker and Mehrdad
Mobasseri within three (3) years of the termination of such person's
employment with Purchaser.
(b) Rights and Remedies Upon Breach. If the Company or any
Affiliate breaches, or threatens to commit a breach of, any of the
provisions of Section 6.5 (the "Restrictive Covenants"), Purchaser shall
have the following rights and remedies (upon compliance with any
necessary prerequisites imposed by law upon the availability of such
remedies), each of which rights and remedies shall be independent of the
other and severally enforceable and shall not be affected by the
provisions of Article VI, and all of which rights and remedies shall be
in addition to, and not in lieu of, any other rights and remedies
available to Purchaser under law or in equity:
(i) The right and remedy to have the Restrictive
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Covenants specifically enforced (without posting any bond) by any court
having equity jurisdiction, including, without limitation, the right to
an entry against the Company or such Affiliate of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, of
such covenants, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to Purchaser and that
money damages will not provide adequate remedy to Purchaser.
(ii) The right and remedy to require the Company or such
Affiliate to account for and pay over to Purchaser all compensation,
profits, monies, accruals, increments or other benefits (collectively,
"Benefits") derived or received by such person the result of any
transactions constituting a breach of any of the Restrictive Covenants,
and such person shall account for and pay over such Benefits to
Purchaser.
(c) Severability of Covenants. If any court determines that
any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
(d) Blue-Pencilling. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court
shall have the power to reduce the duration or area of such provisions
and, in its reduced form, such provision shall then be enforceable and
shall be enforced.
(e) Enforceability in Jurisdictions. Purchaser and the
Company and the Shareholders intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction
within the geographical scope of the Restrictive Covenants. If the
courts of any one or more of such jurisdictions hold the Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of Purchaser and the Company and the
Shareholders that such determination not bar or in any way affect
Purchaser's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenants,
as to breaches of such restrictive Covenants in such other respective
jurisdictions, such Restrictive Covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and
independent covenants, subject, where appropriate, to the doctrine of res
judicata.
VI.6 Lease of Assets. The Purchaser agrees to reimburse the Company
for the actual costs of leasing the equipment portions of the Assets
subject to the Capital Lease between the Company and Capital Associates
International, Inc. until such time as (i) a new lease agreement is
obtained or assigned from the Lessor for such equipment, (ii) a sublease
is executed and approved by the Lessor for such equipment, or (iii)
Purchaser and Company make other arrangements to acquire the equipment.
The Purchaser shall be required to maintain the equipment in good working
condition, normal wear and tear excepted.
VI.7 Delivery of Certificates. The Company will use its best
efforts to provide the Purchaser with a sales tax clearance certificate
from the State Board of Equalization and a certificate of no claims from
the Economic Development Department in a commercially reasonable manner
and time.
ARTICLE VII
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SURVIVAL; INDEMNIFICATION
VII.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of
the Company and Purchaser contained in this Agreement will survive the
Closing (a) 60 days after the expiration of all applicable statutes of
limitation (including all periods of extension, whether automatic or
permissive) with respect to the matters covered by the representations
and warranties contained in Sections 3.1, 3.2, 3.3, 3.6, 3.7, 3.8, 3.9,
3.10, 3.12, 3.14, 3.15, 3.16, 3.17, 4.1, 4.2 and 4.3, (b) until the first
anniversary of the Closing Date in the case of all other representations
and warranties and any covenant or agreement to be performed on or prior
to the Closing, or (c) with respect to each other covenant or agreement
contained in this Agreement, until ninety (90) days following the last
date on which such covenant or agreement is to be performed or, if no
such date is specified, until the termination of the applicable statute
of limitations provided, however, that any representation, warranty,
covenant or agreement that would otherwise terminate in accordance with
clause (a), (b) or (c) above will continue to survive, if a Claim Notice
shall have been given under this Article VII on or prior to such
termination date, until the related claim for indemnification has been
satisfied or otherwise resolved as provided in this Article VII.
VII.2 Indemnification of Purchaser. Subject to the limitations
contained in this Article VII, the Company agrees to indemnify, defend
and hold harmless Purchaser and its directors, officers, shareholders,
partners, employees, successors and assigns from and against any and all
losses, Liabilities (including punitive or exemplary damages and fines or
penalties and any interest thereon), expenses (including fees and
disbursements of counsel and expenses of investigation and defense),
claims, liens or other obligations of any nature whatsoever (hereinafter
individually, a "Loss" and collectively, "Losses") which, directly or
indirectly, arise out of, result from or relate to (a) any inaccuracy in
or any breach of any representation and warranty, or any breach of any
covenant or agreement, of the Company contained in this Agreement or in
any document or other papers delivered pursuant to this Agreement, (b)
any liability or obligation of the Company which is not an Assumed
Liability, (c) the failure of the Company to comply with any Bulk Sales
or Transfer Laws or failure to comply with any other applicable laws,
rules or regulations and Purchaser's waiver of compliance with such laws,
(d) the Company's misappropriation of trade secrets, or its infringement
or alleged infringement of any patent, copyright, trademark, servicemark,
or any other proprietary right of any Person, (e) any claims which arise
from the operations of the Business by the Company prior to the Closing
Date other than the Assumed Liabilities, (f) any obligations of the
Company for claims under ERISA, and (g) violations of the Environmental,
Health and Safety Laws prior to the Closing Date. Notwithstanding any
other provision of this Agreement, the Company (i) shall have no
obligation hereunder to provide indemnification for the first $100,000 of
Losses ("Company's Basket Amount"), and (ii) shall have no liability for
Losses from such claims if such amount is equal to or less than $2,000
for any single item ("Immaterial Claims"), provided, however, such
Immaterial Claims do not apply to liabilities not assumed from items that
arise from operation of the Business prior to December 31, 1995, and (iv)
Purchaser agrees to offset from any claims pursuant to this Section 7.2
any Assumed Liabilities not paid or released by the creditor.
VII.3 Indemnification of the Company. Subject to the
limitations contained in this Article VII, Purchaser agrees to indemnify,
defend and hold harmless the Company, its respective directors, officers,
21
<PAGE>
shareholders, partners, employees, successors and assigns from and
against any and all Losses which, directly or indirectly, arise out of,
result from or relate to (a) any inaccuracy in or any breach of any
representation and warranty, or any breach of any covenant or agreement,
of Purchaser contained in this Agreement or in any documents or other
papers delivered pursuant to this Agreement, (b) any Assumed Liability
assumed by Purchaser pursuant to Section 2.2, (c) operations of the
Business by the Purchaser subsequent to the Closing Date, and (d)
violations of the Environment, Health and Safety laws subsequent to the
Closing Date. Notwithstanding any other provision of this Agreement, the
Purchaser (i) shall have no obligation hereunder to provide
indemnification for the first $100,000 of Losses ("Purchaser Basket
Amount"), and (ii) shall have no liability for any Immaterial Claims.
VII.4 Method of Asserting Claims. The party making a claim
under this Article VII is referred to as the "Indemnified Party" and the
party against whom such claims are asserted under this Article VII is
referred to as the "Indemnifying Party." all claims by any Indemnified
Party under this Article VII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party hereunder is
asserted against or sought to be collected from such Indemnified Party by
a third party, said Indemnified Party shall with reasonable promptness
notify in writing the Indemnifying Party of such claim or demand,
specifying the basis for such claim or demand, and the amount or the
estimated amount thereof to the extent then determinable (which estimate
shall not be conclusive of the final amount of such claim and demand; the
"Claim Notice"); provided, however, that any failure to give such Claim
Notice will not be deemed a waiver of any rights of the Indemnified Party
except to the extent the rights of the Indemnifying Party are actually
prejudiced by such failure. The Indemnifying Party, upon request of the
Indemnified Party, shall retain counsel (who shall be reasonably
acceptable to the Indemnified Party) to represent the Indemnified Party
and shall pay the reasonable fees and disbursements of such counsel with
regard thereto' provided, however, that any Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose
fees and expenses shall be at the expense of the Indemnifying Party, to
file any motion, answer or other pleading and take such other action
which it reasonably shall deem necessary to protect its interests or
those of the Indemnifying Party until the date on which the Indemnified
Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (x)
the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (y) the named parties of any
such proceeding (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party shall
not, in connection with any proceedings or related proceedings in the
same jurisdiction, be liable for the fees and expenses of more than one
such firm for the Indemnified Party (except to the extent the Indemnified
Party retained counsel to protect its (or the Indemnifying Party's)
rights prior to the selection of counsel by the Indemnifying Party.) If
requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate with the Indemnifying Party and its counsel in contesting any
claim or demand which the Indemnifying Party defends. A claim or demand
may not be settled by the Indemnifying Party without the prior written
consent of the Indemnified Party (which consent will not be unreasonably
withheld) unless, as part of such settlement, the Indemnified Party shall
receive a full and unconditional release reasonably satisfactory to the
Indemnified Party.
22
<PAGE>
(b) In the event any Indemnified Party shall have a claim
against any Indemnifying Party hereunder which does not involve a claim
or demand being asserted against or sought to be collected from it by a
third party, the Indemnified Party shall send a Claim Notice with respect
to such claim to the Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Article VII, the affected parties
each agree to retain all Books and Records related to such Claim Notice.
In each instance, the Indemnified Party shall have the right to be kept
fully informed by the Indemnifying Party and its legal counsel with
respect to any legal proceedings. Any information or documents made
available to any party hereunder and designated as confidential by the
party providing such information or documents and which is not otherwise
generally available to the public and not already within the knowledge of
the party to whom the information is provided (unless otherwise covered
by the confidentiality provision of any other agreement among the parties
hereto, or any of them), and except as may be required by applicable law,
shall not be disclosed to any third Person (except for the
representatives of the party being provided with information, in which
event the party being provided with the information shall request its
representatives not to disclose any such information which it otherwise
required hereunder to be kept confidential).
ARTICLE VIII
MISCELLANEOUS
VIII.1 Expenses. Each of the parties hereto shall pay its own
expenses (including, without limitation, attorney's and accountants' fees
and out-of-pocket expenses) incidental to this Agreement and the
transactions contemplated hereby, except that the Company will reimburse
the Purchaser for actual accountants' fees and out-of-pocket expenses of
Grant Thornton in completing an audit of the financial statements of the
Division for the three-year period ended December 31, 1995, 1994 and
1993; provided, however, in no event shall such reimbursement of fees and
out-of-pocket expenses exceed $30,000.
VIII.2 Further Assurances. At any time and from time to time
after the Closing Date at the request of Purchaser, and without further
consideration, the Company will execute and deliver such other
instruments of sale, transfer, conveyance, assignment and confirmation
and take such other action as Purchaser may reasonably deem necessary or
desirable in order to transfer, convey and assign more effectively to
Purchaser, the Assets to put Purchaser in actual possession and operating
control of the Business and to assist Purchaser in exercising all rights
with respect thereto.
VIII.3 Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in
writing and shall be given personally, telegraphed, telexed, sent by
facsimile transmission or sent by prepaid air courier or certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed to have been given (a) when received, if delivered in person,
telegraphed, telexed, sent by facsimile transmission and confirmed in
writing within three (3) Business Days thereafter or sent by prepaid air
courier or (b) three (3) Business Days following the mailing thereof, if
mailed by certified first class mail, postage prepaid, return receipt
requested, in any such case as follows (or to such other address or
addresses as a party may have advised the other in the manner provided in
this Section 8.3):
23
<PAGE>
If to the Company:
The Cerplex Group, Inc.
1382 Bell Avenue
Tustin, California 92680
Attention: James T. Schraith
With a copy to:
Brobeck Phleger & Harrison LLP
4675 MacArthur Court
Newport Beach, California 92660-1846
Attention: Frederic A. Randall, Jr.
If to Purchaser:
Pen Interconnect, Inc.
2351 South 2300 West
Salt Lake City, Utah 84119
Attention: James S. Pendleton & Wayne R. Wright
With a copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
Attention: Stuart A. Fredman & Scott R. Carpenter
VIII.4 Publicity. No public release or announcement concerning
this Agreement or the transactions contemplated hereby shall be made
without advance approval thereof by Purchaser and the Company; provided,
however, that either party hereto may make any public disclosure it
believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which
case the disclosing party will use its reasonable efforts to advise the
other party prior to making the disclosure).
VIII.5 Entire Agreement. This Agreement (including the Exhibits
and Schedules) and the agreements, certificates and other documents
delivered pursuant to this Agreement contain the entire agreement among
the parties with respect to the transactions described herein, and
supersede all prior agreements, written or oral, with respect thereto.
VIII.6 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be
waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the party
in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. The rights and remedies of any parties based upon,
arising out of or otherwise in respect of any inaccuracy in or breach of
24
<PAGE>
any representation, warranty, covenant or agreement contained in this
Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties as to which
there is no inaccuracy or breach).
VIII.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to principles of conflicts of law.
VIII.8 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. This Agreement is not assignable by
any party hereto without the prior written consent of the other parties
hereto except by operation of law and any other purported assignment
shall be null and void; however, that Purchaser may assign this Agreement
without the consent of the other parties hereto to any lender to
Purchaser.
VIII.9 Variations in Pronouns. All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular
or plural, as the context may require.
VIII.10 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may
constitute a number of copies hereof each signed by less than all, but
together signed by all of the parties hereto.
VIII.11 Exhibits and Schedules. The Exhibits and Schedules are a
part of this Agreement as if fully set forth herein. All references
herein to Sections, subsections, clauses, Exhibits and Schedules shall be
deemed references to such parts of this Agreement, unless the context
shall otherwise require.
VIII.12 Effect of Disclosure on Schedules. Any item disclosed on
any Schedule to this Agreement shall only be deemed to be disclosed in
connection with (a) the specific representation and warranty to which
such Schedule is expressly referenced, (b) any specific representation
and warranty which expressly cross-references such Schedule and (c) any
specific representation and warranty to which any other Schedule to this
Agreement is expressly referenced if such other Schedule expressly cross-
references such Schedule.
VIII.13 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this
Agreement.
VIII.14 Severability of Provisions. If any provision or any
portion of any provision of this Agreement or the application of such
provision or any portion thereof to any Person or circumstance, shall be
held invalid or unenforceable, the remaining portion of such provision
and the remaining provisions of this Agreement or the application of such
provision or portion of such provision as is held invalid or
unenforceable to persons or circumstances other than those as to which it
is held invalid or unenforceable, shall not be affected thereby.
VIII.15 Arbitration. Any dispute arising under or pursuant to or
affecting the subject matter of this Agreement shall be resolved in
arbitration in Los Angeles, California under the arbitration provisions
25
<PAGE>
of the California Code of Civil Procedure Sections 1282 through 1284.
Any judgment upon the award may be confirmed and entered in any court
having jurisdiction thereof. The arbitrator(s) shall be required to, in
all determinations, apply California law. Further, the arbitrator(s) are
afforded the jurisdiction to provide and order all provisional remedies,
including, without limitation, injunctive relief, writs for recovery or
possession or such similar relief as may be necessary to protect the
interests of either of the parties or their property rights. In the
event that it is determined that the arbitrator(s) do not have the
jurisdiction to grant those remedies conferred upon them by this
provision and requested by the parties, then such remedies shall be
reserved to a court of competent jurisdiction. The prevailing party in
said arbitration shall be awarded by the arbitrator(s) the costs of
arbitration (inclusive of the arbitrator(s)' fees and costs), as
allocated by the arbitrator(s).
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PEN INTERCONNECT, INC.
By: /s/ James S. Pendleton
Its: CEO and Director
THE CERPLEX GROUP, INC.
By: /s/ James T. Schraith
Its: President and CEO
26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of April 1996,
between , Pen Interconnect, Inc. a Utah Corporation, hereinafter called
the "Company", and JAMES S PENDLETON , hereafter called the Employee.
WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and
abilities in the business of the Company; and
WHEREAS, the Employee desires to accept such engagement upon the
terms and conditions herein after set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT- Company hereby engages the Employee and the
Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. TERM - Subject to the provisions for termination as hereafter
provided, the term of this Agreement shall be for a minimum period of
FIVE YEARS, beginning on the first day of APRIL, 1996. The term of this
Agreement may be extended for ONE additional year, upon the mutual
agreement of the parties.
3. COMPENSATION - As compensation for all services rendered by
Employee under this agreement, Company shall pay Employee an annual
salary determined as follows: (A) Employee shall
receive an initial base salary of $139,000 per year, payable at
least monthly in equal installments in accordance with the company's
regular payroll schedule retroactive to January 1, 1996. Such amount may
be adjusted as approved by the Board of Directors of the Company.
(B) Employee shall also receive additional commission and
bonuses, as are approved and awarded by the Board of Directors of the
Company per exhibit A attached. 4. FRINGE BENEFITS - (A)
Company shall provide a three weeks paid vacation each year to Employee.
Unused vacation time will accrue and may be carried over to one
succeeding year.
(A) The Company shall provide the Employee with a car
allowance of a minimum of $600.00 per month, for his / her use in
connection with his/her employment. The Company agrees to pay all minor
operating costs (gas,oil,wash and minor repairs). The employee will be
responsible for (insurance, tires, taxes and registration and all major
repairs) associated with the use of the automobile.
(B) The Employee shall continue to participate as a member of the
Company's major group insurance plan with the employee paying $ 40.00 of
the monthly premium.
(C) The Company shall provide and pay for the Life
Insurance covering the life of the Employee as described on Exhibit B.
page 2
(D) The Company shall provide Deferred Compensation and
Salary Continuation Plans to the employee as described on Exhibit C
attached.
5. DUTIES - The Employee is engaged for the purpose of
performing services for the company with specific work in the management
of the company as described in Exhibit D.
6. TERMINATION - (a) The Company may terminate the
Employee's employment under this Agreement for cause at any time during
the term of this agreemen1t. As used in this paragraph 6, the term
"cause" shall be defined as the Employee's (i) wilful misconduct, (ii)
fraud, (iii) misappropriation, (iv) embezzlement, (v) failure to abide by
any codes of conduct adopted by the Employer, (vi) failure to follow the
Employer's lawful orders and directives, (vii) failure to meet
performance standards or conduct generally applicable to similarly
situated employees of the employer, (viii) conviction of a felony, (ix)
breach or threatened breach of any confidentiality or non-competition
agreement between the Employee and the Company,or (x) conduct which
impairs or damages, or tends to impair or damage, the reputation of the
company. In the event of any termination pursuant 6(a), the Company
shall be obligated to pay the Employee only such compensation as shall be
accrued to the Employee up to and including the date upon which such
termination becomes effective. No notice period shall be required to
terminate the Employee under the provisions of this paragraph 6(a).
(b) The Employee may terminate this agreement with cause upon ten (10)
days written notice to the Company, unless during such ten (10) day
period the cause for such termination shall be cured by the Company. As
used in this paragraph 6(b), the term "cause" shall be defined as the
Company's inability or refusal to comply with or perform its obligations
and duties hereunder , including specifically, the payment of any
compensation due the Employee hereunder and any illegal act or willful
mis conduct by the employer. In the event of any termination pursuant to
the terms of this paragraph 6(b), the Company shall be obligated to pay
the Employee the compensation which shall have accrued to the Employee up
to and including the date upon which such termination becomes effective.
(c) The Employee and the Company may terminate this agreement at any
time upon their mutual agreement.
7. STOCK OPTIONS-- Stock options may be granted by the company to
the employee as approved by the Board of Directors.
8. NON COMPETITION-- Employee acknowledges and agrees that he
is being employed in a confidential position and, as a consequence will
have complete access to and knowledge of Company's marketing techniques,
customers, potential customers, and the Company's strategy concerning new
markets, and inasmuch as Employee recognizes and agrees that the
development of said customers, potential customers, and markets is an
will be mainly the result of the Company's efforts the Employee covenants
and agrees to with the Company, its successors or assigns, that for the
term of this Agreement, and for a period of 18 months from the date of
termination
page 3
hereof, he will not engage in or participate in, either directly or
indirectly, or be employed by or in any connection with, or furnish any
information concerning the Company's business to any similar business
that Pen is engaged in at the time of termination for a period of (18)
months from the date of termination hereof. If the termination of
employee is because of an illegal act or willful misconduct by the
employer or termination because of a merger or buy out then the waiting
period will be waived.
9. CONFIDENTIALITY- Employee understands, recognizes and
acknowledges that, as a consequence of the performance of his duties
hereunder, he may receive notice or knowledge of, or have disclosed to
him, certain Confidential Information , as defined below, of the Company.
Employee understands, acknowledges and agrees that the Confidential
Information is proprietary and secret and agrees to respect the
confidentiality and secrecy of the same. Employee also understands,
agrees and acknowledges that all Confidential Information is the
property of the Company. Except as lawfully authorized or as may be
expressly and specifically required in the performance of Employees's
responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose, reveal, report,publish or transfer
possession of, or access to any Confidential Information to any person or
entity. Employee further agrees to disclose promptly and fully to the
company any information which qualifies as Confidential hereunder, and
agrees to turn over or return to the Company any and all Confidential
Information in the Employee's possession or control upon the request of
the Company or upon the termination of the Employee's and the Company
employment relationship. As used herein, the term "Confidential
Information" shall include all intellectual property or information which
is proprietary to the Company or which is submitted or disclosed to the
Company by a third party under obligations of secrecy or confidentiality
or which is not exempted by amendment to this Agreement. Confidential
Information (whether or not reduced to writing and in any and all stages
of development) shall include, but shall not be limited to, discoveries,
ideas, inventions, designs, concepts, drawings, specifications,
techniques, models, data, software, documentation, diagrams, flow charts,
research, development, processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques,
marketing and development plans, product plans, customer names and
addresses, names and financial information, information relating to the
Company's customers or their financial position or marketing plans,
strategies, forecasts, pricing, policies, and any tangible article which
embodies such Confidential Information.
10. INTELLECTUAL PROPERTY- As to any inventions, ideas discoveries
improvements, ideas, devices, writings or other intellectual property (
hereafter collectively referred to as "INVENTIONS") made by the Employee
during the term of his employment, solely of jointly with others, which
are made with the Employer's equipment, supplies, facilities, trade
secrets, or time, or which relate to the of the Employer, or the
Employer's
page 4
actual of demonstrably anticipated research or development, or the
Employee actual or demonstrably anticipated research or development, or
any other device directly related to the Employee's business, or which
result from any work performed by the Employee for the Employer, the
Employee agrees that such Inventions shall be the sole and exclusive
property of the Employer and he promises to assign such Inventions to the
Employer and to cooperate with the Employer to obtain patents or
copyrights on such Inventions for the Employer in the United States and
all foreign countries. The Employee also agrees that the Employer shall
have the right to keep such Inventions as trade secrets, if the Employer
so chooses.
10. WAIVER OF BREACH- The waiver of either party of a breach of
any provision of this Agreement by either party shall not operate or be
construed as a waiver of any subsequent breach
by said party.
11. ASSIGNMENT- The rights and obligations of the Company under
this agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of Company.
12. INDEMNIFICATION- The Company agrees to indemnify and hold
harmless the Employee for any contractual liability, including any
personal guarantee to a financial institution as part of any loan to the
Company, or any other liability incurred by Employee as a result of his
employment by or association with the Company. The Company shall pay all
legal costs and expenses necessary to defend any contractual obligations,
personal guarantees or other liabilities associated with the Employee's
employment by or association with the Company.
13. GOVERNING LAW- This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah.
14. INJUNCTIVE RELIEF- Upon a breach or threatened breach by
Employee of any of the provisions of Paragraphs 8 and 9 of this
Agreement, the Company shall be entitled to an injunctions restraining
Employee from such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach
or threatened breach, including recovery of damages from Employee
15. SEVERABILITY- It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of this Section in the particular jurisdiction in which such adjudication
is made.
page 5
16. ASSIGNMENT- The Company may assign its rights and
obligations under this Agreement to any affiliate of the Company or to
any acquire of substantially all of the business of he Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this agreement nor
any rights or duties hereunder may be signed by or delegated by employee.
17. ENTIRE AGREEMENT- This Agreement sets forth the entire
agreement and understanding of the parties and supersedes all prior
understandings, agreements or representations by or between the parties,
whether written or oral, which relate in any way to the subject matter
hereof.
18. AMENDMENT- No provision of this Agreement shall be
altered, amended, revoked, or waived except by an instrument in writing
signed by the party sought to be charged with such amendment, revocation
or waiver.
19. BINDING EFFECT- Except as otherwise provided herein,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereunto and their respective legal representatives, heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this agreement as of
date first written.
PEN INTERCONNECT,INC.
/s/ Wayne R. Wright /s/ James S. Pendleton
- ----------------------- ----------------------
WAYNE R. WRIGHT
EXECUTIVE V.P. AND CFO EMPLOYEE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of April 1996,
between , Pen Interconnect, Inc. a Utah Corporation, hereinafter called
the "Company", and WAYNE R. WRIGHT , hereafter called the Employee.
WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and
abilities in the business of the Company; and
WHEREAS, the Employee desires to accept such engagement upon the
terms and conditions herein after set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT- Company hereby engages the Employee and the Employee
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. TERM - Subject to the provisions for termination as hereafter
provided, the term of this Agreement shall be for a minimum period of
FIVE YEARS, beginning on the first day of APRIL, 1996. The term of this
Agreement may be extended for ONE additional year, upon the mutual
agreement of the parties.
3. COMPENSATION - As compensation for all services rendered by
Employee under this agreement, Company shall pay Employee an annual
salary determined as follows:
(A) Employee shall receive an initial base salary of $ 95,000
per year, payable at least monthly in equal installments in accordance with
the company's regular payroll schedule retroactive to January 1, 1996.
Such amount may be adjusted as approved by the Board of Directors of the
Company.
(B) Employee shall also receive additional commission and
bonuses, as are approved and awarded by the Board of Directors of the
Company per exhibit A attached. 4. FRINGE BENEFITS - (A) Company
shall provide a three weeks paid vacation each year to Employee. Unused
vacation time will accrue and may be carried over to one succeeding year.
(A) The Company shall provide the Employee with a car allowance of a
minimum of $600.00 per month, for his / her use in connection with
his/her employment. The Company agrees to pay all minor operating costs
(gas,oil,wash and minor repairs). The employee will be responsible for
(insurance, tires, taxes and registration and all major repairs)
associated with the use of the automobile. (B)
The Employee shall continue to participate as a member of the Company's
major group insurance plan with the employee paying $ 40.00 of the
monthly premium.
(C) The Company shall provide and pay for the Life
Insurance covering the life of the Employee as described on Exhibit B.
page 2
(D) The Company shall provide Deferred Compensation and
Salary Continuation Plans to the employee as described on Exhibit C
attached.
5. DUTIES - The Employee is engaged for the purpose of
performing services for the company with specific work in the management
of the company as described in Exhibit D.
6. TERMINATION - (a) The Company may terminate the
Employee's employment under this Agreement for cause at any time during
the term of this agreemen1t. As used in this paragraph 6, the term
"cause" shall be defined as the Employee's (i) wilful misconduct, (ii)
fraud, (iii) misappropriation, (iv) embezzlement, (v) failure to abide by
any codes of conduct adopted by the Employer, (vi) failure to follow the
Employer's lawful orders and directives, (vii) failure to meet
performance standards or conduct generally applicable to similarly
situated employees of the employer, (viii) conviction of a felony, (ix)
breach or threatened breach of any confidentiality or non-competition
agreement between the Employee and the Company,or (x) conduct which
impairs or damages, or tends to impair or damage, the reputation of the
company. In the event of any termination pursuant 6(a), the Company
shall be obligated to pay the Employee only such compensation as shall be
accrued to the Employee up to and including the date upon which such
termination becomes effective. No notice period shall be required to
terminate the Employee under the provisions of this paragraph 6(a).
(b) The Employee may terminate this agreement with cause upon ten (10)
days written notice to the Company, unless during such ten (10) day
period the cause for such termination shall be cured by the Company. As
used in this paragraph 6(b), the term "cause" shall be defined as the
Company's inability or refusal to comply with or perform its obligations
and duties hereunder , including specifically, the payment of any
compensation due the Employee hereunder and any illegal act or willful
mis conduct by the employer. In the event of any termination pursuant to
the terms of this paragraph 6(b), the Company shall be obligated to pay
the Employee the compensation which shall have accrued to the Employee up
to and including the date upon which such termination becomes effective.
(c) The Employee and the Company may terminate this agreement at any
time upon their mutual agreement.
7. STOCK OPTIONS-- Stock options may be granted by the company to
the employee as approved by the Board of Directors.
8. NON COMPETITION-- Employee acknowledges and agrees that he
is being employed in a confidential position and, as a consequence will
have complete access to and knowledge of Company's marketing techniques,
customers, potential customers, and the Company's strategy concerning new
markets, and inasmuch as Employee recognizes and agrees that the
development of said customers, potential customers, and markets is an
will be mainly the result of the Company's efforts the Employee covenants
and agrees to with the Company, its successors or assigns, that for the
term of this Agreement, and for a period of 18 months from the date of
termination
page 3
hereof, he will not engage in or participate in, either directly or
indirectly, or be employed by or in any connection with, or furnish any
information concerning the Company's business to any similar business
that Pen is engaged in at the time of termination for a period of (18)
months from the date of termination hereof. If the termination of
employee is because of an illegal act or willful misconduct by the
employer or termination because of a merger or buy out then the waiting
period will be waived.
9. CONFIDENTIALITY- Employee understands, recognizes and
acknowledges that, as a consequence of the performance of his duties
hereunder, he may receive notice or knowledge of, or have disclosed to
him, certain Confidential Information , as defined below, of the Company.
Employee understands, acknowledges and agrees that the Confidential
Information is proprietary and secret and agrees to respect the
confidentiality and secrecy of the same. Employee also understands,
agrees and acknowledges that all Confidential Information is the
property of the Company. Except as lawfully authorized or as may be
expressly and specifically required in the performance of Employees's
responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose, reveal, report,publish or transfer
possession of, or access to any Confidential Information to any person or
entity. Employee further agrees to disclose promptly and fully to the
company any information which qualifies as Confidential hereunder, and
agrees to turn over or return to the Company any and all Confidential
Information in the Employee's possession or control upon the request of
the Company or upon the termination of the Employee's and the Company
employment relationship. As used herein, the term "Confidential
Information" shall include all intellectual property or information which
is proprietary to the Company or which is submitted or disclosed to the
Company by a third party under obligations of secrecy or confidentiality
or which is not exempted by amendment to this Agreement. Confidential
Information (whether or not reduced to writing and in any and all stages
of development) shall include, but shall not be limited to, discoveries,
ideas, inventions, designs, concepts, drawings, specifications,
techniques, models, data, software, documentation, diagrams, flow charts,
research, development, processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques,
marketing and development plans, product plans, customer names and
addresses, names and financial information, information relating to the
Company's customers or their financial position or marketing plans,
strategies, forecasts, pricing, policies, and any tangible article which
embodies such Confidential Information.
10. INTELLECTUAL PROPERTY- As to any inventions, ideas discoveries
improvements, ideas, devices, writings or other intellectual property (
hereafter collectively referred to as "INVENTIONS") made by the Employee
during the term of his employment, solely of jointly with others, which
are made with the Employer's equipment, supplies, facilities, trade
secrets, or time, or which relate to the of the Employer, or the
Employer's
page 4
actual of demonstrably anticipated research or development, or the
Employee actual or demonstrably anticipated research or development, or
any other device directly related to the Employee's business, or which
result from any work performed by the Employee for the Employer, the
Employee agrees that such Inventions shall be the sole and exclusive
property of the Employer and he promises to assign such Inventions to the
Employer and to cooperate with the Employer to obtain patents or
copyrights on such Inventions for the Employer in the United States and
all foreign countries. The Employee also agrees that the Employer shall
have the right to keep such Inventions as trade secrets, if the Employer
so chooses.
10. WAIVER OF BREACH- The waiver of either party of a breach
of any provision of this Agreement by either party shall not operate or
be construed as a waiver of any subsequent breach
by said party.
11. ASSIGNMENT- The rights and obligations of the Company
under this agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Company.
12. INDEMNIFICATION- The Company agrees to indemnify and hold
harmless the Employee for any contractual liability, including any
personal guarantee to a financial institution as part of any loan to the
Company, or any other liability incurred by Employee as a result of his
employment by or association with the Company. The Company shall pay all
legal costs and expenses necessary to defend any contractual obligations,
personal guarantees or other liabilities associated with the Employee's
employment by or association with the Company.
13. GOVERNING LAW- This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah.
14. INJUNCTIVE RELIEF- Upon a breach or threatened breach by
Employee of any of the provisions of Paragraphs 8 and 9 of this
Agreement, the Company shall be entitled to an injunctions restraining
Employee from such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach
or threatened breach, including recovery of damages from Employee
15. SEVERABILITY- It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of this Section in the particular jurisdiction in which such adjudication
is made.
page 5
16. ASSIGNMENT- The Company may assign its rights and
obligations under this Agreement to any affiliate of the Company or to
any acquire of substantially all of the business of he Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this agreement nor
any rights or duties hereunder may be signed by or delegated by employee.
17. ENTIRE AGREEMENT- This Agreement sets forth the
entire agreement and understanding of the parties and supersedes all
prior understandings, agreements or representations by or between the
parties, whether written or oral, which relate in any way to the subject
matter hereof.
18. AMENDMENT- No provision of this Agreement shall be
altered, amended, revoked, or waived except by an instrument in writing
signed by the party sought to be charged with such amendment, revocation
or waiver.
19. BINDING EFFECT- Except as otherwise provided herein,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereunto and their respective legal representatives, heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this agreement as of
date first written.
PEN INTERCONNECT,INC.
/s/ James S. Pendleton /s/ Wayne R. Wright
- -------------------------- --------------------------
JAMES S PENDLETON
PRESIDENT AND CEO EMPLOYEE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of April 1996,
between , Pen Interconnect, Inc. a Utah Corporation, hereinafter called
the "Company", and ROBERT D. DEFOREST SR., hereafter called the Employee.
WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and
abilities in the business of the Company; and
WHEREAS, the Employee desires to accept such engagement upon the
terms and conditions herein after set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT- Company hereby engages the Employee and the
Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. TERM - Subject to the provisions for termination as hereafter
provided, the term of this Agreement shall be for a minimum period of
FIVE YEARS, beginning on the first day of APRIL, 1996. The term of this
Agreement may be extended for ONE additional year, upon the mutual
agreement of the parties.
3. COMPENSATION - As compensation for all services rendered by
Employee under this agreement, Company shall pay Employee an annual
salary determined as follows:
(A) Employee shall receive an initial base salary of $ 85,000
per year, payable at least monthly in equal installments in accordance with
the company's regular payroll schedule retroactive to January 1, 1996. Such
amount may be adjusted as approved by the Board of Directors of the Company.
(B) Employee shall also receive additional commission and
bonuses, as are approved and awarded by the Board of Directors of the
Company per exhibit A attached.
4. FRINGE BENEFITS - (A) Company shall provide a three weeks paid vacation
each year to Employee. Unused vacation time will accrue and may be carried
over to one succeeding year.
(A) The Company shall provide the Employee with a
car allowance of a minimum of $550.00 per month, for
his / her use in connection with his/her employment. The Company agrees
to pay all minor operating costs (gas,oil,wash and minor repairs). The
employee will be responsible for (insurance, tires, taxes and
registration and all major repairs) associated with the use of the
automobile.
(B) The Employee shall continue
to participate as a member of the Company's major group insurance plan
with the employee paying $ 40.00 of the monthly premium.
(C) The Company shall provide and pay for the Life
Insurance covering the life of the Employee as described on Exhibit B.
page 2
(D) The Company shall provide Deferred Compensation and
Salary Continuation Plans to the employee as described on Exhibit C
attached.
5. DUTIES - The Employee is engaged for the purpose of
performing services for the company with specific work in the management
of the company as described in Exhibit D.
6. TERMINATION - (a) The Company may terminate the
Employee's employment under this Agreement for cause at any time during
the term of this agreemen1t. As used in this paragraph 6, the term
"cause" shall be defined as the Employee's (i) wilful misconduct, (ii)
fraud, (iii) misappropriation, (iv) embezzlement, (v) failure to abide by
any codes of conduct adopted by the Employer, (vi) failure to follow the
Employer's lawful orders and directives, (vii) failure to meet
performance standards or conduct generally applicable to similarly
situated employees of the employer, (viii) conviction of a felony, (ix)
breach or threatened breach of any confidentiality or non-competition
agreement between the Employee and the Company,or (x) conduct which
impairs or damages, or tends to impair or damage, the reputation of the
company. In the event of any termination pursuant 6(a), the Company
shall be obligated to pay the Employee only such compensation as shall be
accrued to the Employee up to and including the date upon which such
termination becomes effective. No notice period shall be required to
terminate the Employee under the provisions of this paragraph 6(a).
(b) The Employee may terminate this agreement with cause upon ten (10)
days written notice to the Company, unless during such ten (10) day
period the cause for such termination shall be cured by the Company. As
used in this paragraph 6(b), the term "cause" shall be defined as the
Company's inability or refusal to comply with or perform its obligations
and duties hereunder , including specifically, the payment of any
compensation due the Employee hereunder and any illegal act or willful
mis conduct by the employer. In the event of any termination pursuant to
the terms of this paragraph 6(b), the Company shall be obligated to pay
the Employee the compensation which shall have accrued to the Employee up
to and including the date upon which such termination becomes effective.
(c) The Employee and the Company may terminate this agreement at any
time upon their mutual agreement.
7. STOCK OPTIONS-- Stock options may be granted by the company to
the employee as approved by the Board of Directors.
8. NON COMPETITION-- Employee acknowledges and agrees that he
is being employed in a confidential position and, as a consequence will
have complete access to and knowledge of Company's marketing techniques,
customers, potential customers, and the Company's strategy concerning new
markets, and inasmuch as Employee recognizes and agrees that the
development of said customers, potential customers, and markets is an
will be mainly the result of the Company's efforts the Employee covenants
and agrees to with the Company, its successors or assigns, that for the
term of this Agreement, and for a period of 18 months from the date of
termination
page 3
hereof, he will not engage in or participate in, either directly or
indirectly, or be employed by or in any connection with, or furnish any
information concerning the Company's business to any similar business
that Pen is engaged in at the time of termination for a period of (18)
months from the date of termination hereof. If the termination of
employee is because of an illegal act or willful misconduct by the
employer or termination because of a merger or buy out then the waiting
period will be waived.
9. CONFIDENTIALITY- Employee understands, recognizes and
acknowledges that, as a consequence of the performance of his duties
hereunder, he may receive notice or knowledge of, or have disclosed to
him, certain Confidential Information , as defined below, of the Company.
Employee understands, acknowledges and agrees that the Confidential
Information is proprietary and secret and agrees to respect the
confidentiality and secrecy of the same. Employee also understands,
agrees and acknowledges that all Confidential Information is the
property of the Company. Except as lawfully authorized or as may be
expressly and specifically required in the performance of Employees's
responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose, reveal, report,publish or transfer
possession of, or access to any Confidential Information to any person or
entity. Employee further agrees to disclose promptly and fully to the
company any information which qualifies as Confidential hereunder, and
agrees to turn over or return to the Company any and all Confidential
Information in the Employee's possession or control upon the request of
the Company or upon the termination of the Employee's and the Company
employment relationship. As used herein, the term "Confidential
Information" shall include all intellectual property or information which
is proprietary to the Company or which is submitted or disclosed to the
Company by a third party under obligations of secrecy or confidentiality
or which is not exempted by amendment to this Agreement. Confidential
Information (whether or not reduced to writing and in any and all stages
of development) shall include, but shall not be limited to, discoveries,
ideas, inventions, designs, concepts, drawings, specifications,
techniques, models, data, software, documentation, diagrams, flow charts,
research, development, processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques,
marketing and development plans, product plans, customer names and
addresses, names and financial information, information relating to the
Company's customers or their financial position or marketing plans,
strategies, forecasts, pricing, policies, and any tangible article which
embodies such Confidential Information.
10. INTELLECTUAL PROPERTY- As to any inventions, ideas discoveries
improvements, ideas, devices, writings or other intellectual property (
hereafter collectively referred to as "INVENTIONS") made by the Employee
during the term of his employment, solely of jointly with others, which
are made with the Employer's equipment, supplies, facilities, trade
secrets, or time, or which relate to the of the Employer, or the
Employer's
page 4
actual of demonstrably anticipated research or development, or the
Employee actual or demonstrably anticipated research or development, or
any other device directly related to the Employee's business, or which
result from any work performed by the Employee for the Employer, the
Employee agrees that such Inventions shall be the sole and exclusive
property of the Employer and he promises to assign such Inventions to the
Employer and to cooperate with the Employer to obtain patents or
copyrights on such Inventions for the Employer in the United States and
all foreign countries. The Employee also agrees that the Employer shall
have the right to keep such Inventions as trade secrets, if the Employer
so chooses.
10. WAIVER OF BREACH- The waiver of either party of a breach
of any provision of this Agreement by either party shall not operate or
be construed as a waiver of any subsequent breach
by said party.
11. ASSIGNMENT- The rights and obligations of the Company
under this agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of Company.
12. INDEMNIFICATION- The Company agrees to indemnify and hold
harmless the Employee for any contractual liability, including any
personal guarantee to a financial institution as part of any loan to the
Company, or any other liability incurred by Employee as a result of his
employment by or association with the Company. The Company shall pay all
legal costs and expenses necessary to defend any contractual obligations,
personal guarantees or other liabilities associated with the Employee's
employment by or association with the Company.
13. GOVERNING LAW- This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah.
14. INJUNCTIVE RELIEF- Upon a breach or threatened breach by
Employee of any of the provisions of Paragraphs 8 and 9 of this
Agreement, the Company shall be entitled to an injunctions restraining
Employee from such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach
or threatened breach, including recovery of damages from Employee
15. SEVERABILITY- It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of this Section in the particular jurisdiction in which such adjudication
is made.
page 5
16. ASSIGNMENT- The Company may assign its rights and
obligations under this Agreement to any affiliate of the Company or to
any acquire of substantially all of the business of he Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this agreement nor
any rights or duties hereunder may be signed by or delegated by employee.
17. ENTIRE AGREEMENT- This Agreement sets forth the
entire agreement and understanding of the parties and supersedes all
prior understandings, agreements or representations by or between the
parties, whether written or oral, which relate in any way to the subject
matter hereof.
18. AMENDMENT- No provision of this Agreement shall be
altered, amended, revoked, or waived except by an instrument in writing
signed by the party sought to be charged with such amendment, revocation
or waiver.
19. BINDING EFFECT- Except as otherwise provided herein,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereunto and their respective legal representatives, heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this agreement as of
date first written.
PEN INTERCONNECT,INC.
/s/ James S. Pendleton /s/ Robert D. DeForest Sr.
- ------------------------ -------------------------------------
JAMES S PENDLETON
PRESIDENT AND CEO EMPLOYEE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of April 1996,
between , Pen Interconnect, Inc. a Utah Corporation, hereinafter called
the "Company", and L CARL RASMUSSEN , hereafter called the Employee.
WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and
abilities in the business of the Company; and
WHEREAS, the Employee desires to accept such engagement upon the
terms and conditions herein after set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT- Company hereby engages the Employee and the
Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. TERM - Subject to the provisions for termination as hereafter
provided, the term of this Agreement shall be for a minimum period of
FIVE YEARS, beginning on the first day of APRIL, 1996. The term of this
Agreement may be extended for ONE additional year, upon the mutual
agreement of the parties.
3. COMPENSATION - As compensation for all services rendered by
Employee under this agreement, Company shall pay Employee an annual
salary determined as follows:
(A) Employee shall receive an initial base salary of $ 75,000
per year, payable at least monthly in equal installments in accordance with
the company's regular payroll schedule retroactive to January 1, 1996.
Such amount may be adjusted as approved by the Board of Directors of the
Company.
(B) Employee shall also receive additional commission and
bonuses, as are approved and awarded by the Board of Directors of the
Company per exhibit A attached.
4. FRINGE BENEFITS - (A) Company shall provide a three weeks paid vacation
each year to Employee. Unused vacation time will accrue and may be carried
over to one succeeding year.
(A) The Company shall provide the
Employee with a car allowance of a minimum of $550.00 per month, for
his / her use in connection with his/her employment. The Company agrees
to pay all minor operating costs (gas,oil,wash and minor repairs). The
employee will be responsible for (insurance, tires, taxes and
registration and all major repairs) associated with the use of the
automobile.
(B) The Employee shall continue
to participate as a member of the Company's major group insurance plan
with the employee paying $ 40.00 of the monthly premium.
(C) The Company shall provide and pay for the Life
Insurance covering the life of the Employee as described on Exhibit B.
page 2
(D) The Company shall provide Deferred Compensation and
Salary Continuation Plans to the employee as described on Exhibit C
attached.
5. DUTIES - The Employee is engaged for the purpose of
performing services for the company with specific work in the management
of the company as described in Exhibit D.
6. TERMINATION - (a) The Company may terminate the
Employee's employment under this Agreement for cause at any time during
the term of this agreemen1t. As used in this paragraph 6, the term
"cause" shall be defined as the Employee's (i) wilful misconduct, (ii)
fraud, (iii) misappropriation, (iv) embezzlement, (v) failure to abide by
any codes of conduct adopted by the Employer, (vi) failure to follow the
Employer's lawful orders and directives, (vii) failure to meet
performance standards or conduct generally applicable to similarly
situated employees of the employer, (viii) conviction of a felony, (ix)
breach or threatened breach of any confidentiality or non-competition
agreement between the Employee and the Company,or (x) conduct which
impairs or damages, or tends to impair or damage, the reputation of the
company. In the event of any termination pursuant 6(a), the Company
shall be obligated to pay the Employee only such compensation as shall be
accrued to the Employee up to and including the date upon which such
termination becomes effective. No notice period shall be required to
terminate the Employee under the provisions of this paragraph 6(a).
(b) The Employee may terminate this agreement with cause upon ten (10)
days written notice to the Company, unless during such ten (10) day
period the cause for such termination shall be cured by the Company. As
used in this paragraph 6(b), the term "cause" shall be defined as the
Company's inability or refusal to comply with or perform its obligations
and duties hereunder , including specifically, the payment of any
compensation due the Employee hereunder and any illegal act or willful
mis conduct by the employer. In the event of any termination pursuant to
the terms of this paragraph 6(b), the Company shall be obligated to pay
the Employee the compensation which shall have accrued to the Employee up
to and including the date upon which such termination becomes effective.
(c) The Employee and the Company may terminate this agreement at any
time upon their mutual agreement.
7. STOCK OPTIONS-- Stock options may be granted by the company to
the employee as approved by the Board of Directors.
8. NON COMPETITION-- Employee acknowledges and agrees that
he is being employed in a confidential position and, as a consequence
will have complete access to and knowledge of Company's marketing
techniques, customers, potential customers, and the Company's strategy
concerning new markets, and inasmuch as Employee recognizes and agrees
that the development of said customers, potential customers, and markets
is an will be mainly the result of the Company's efforts the Employee
covenants and agrees to with the Company, its successors or assigns, that
for the term of this Agreement, and for a period of 18 months from the
date of termination
page 3
hereof, he will not engage in or participate in, either directly or
indirectly, or be employed by or in any connection with, or furnish any
information concerning the Company's business to any similar business
that Pen is engaged in at the time of termination for a period of (18)
months from the date of termination hereof. If the termination of
employee is because of an illegal act or willful misconduct by the
employer or termination because of a merger or buy out then the waiting
period will be waived.
9. CONFIDENTIALITY- Employee understands, recognizes and
acknowledges that, as a consequence of the performance of his duties
hereunder, he may receive notice or knowledge of, or have disclosed to
him, certain Confidential Information , as defined below, of the Company.
Employee understands, acknowledges and agrees that the Confidential
Information is proprietary and secret and agrees to respect the
confidentiality and secrecy of the same. Employee also understands,
agrees and acknowledges that all Confidential Information is the
property of the Company. Except as lawfully authorized or as may be
expressly and specifically required in the performance of Employees's
responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose, reveal, report,publish or transfer
possession of, or access to any Confidential Information to any person or
entity. Employee further agrees to disclose promptly and fully to the
company any information which qualifies as Confidential hereunder, and
agrees to turn over or return to the Company any and all Confidential
Information in the Employee's possession or control upon the request of
the Company or upon the termination of the Employee's and the Company
employment relationship. As used herein, the term "Confidential
Information" shall include all intellectual property or information which
is proprietary to the Company or which is submitted or disclosed to the
Company by a third party under obligations of secrecy or confidentiality
or which is not exempted by amendment to this Agreement. Confidential
Information (whether or not reduced to writing and in any and all stages
of development) shall include, but shall not be limited to, discoveries,
ideas, inventions, designs, concepts, drawings, specifications,
techniques, models, data, software, documentation, diagrams, flow charts,
research, development, processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques,
marketing and development plans, product plans, customer names and
addresses, names and financial information, information relating to the
Company's customers or their financial position or marketing plans,
strategies, forecasts, pricing, policies, and any tangible article which
embodies such Confidential Information.
10. INTELLECTUAL PROPERTY- As to any inventions, ideas discoveries
improvements, ideas, devices, writings or other intellectual property (
hereafter collectively referred to as "INVENTIONS") made by the Employee
during the term of his employment, solely of jointly with others, which
are made with the Employer's equipment, supplies, facilities, trade
secrets, time, or which relate to the of the Employer, or the Employer's
page 4
actual of demonstrably anticipated research or development, or the
Employee actual or demonstrably anticipated research or development, or
any other device directly related to the Employee's business, or which
result from any work performed by the Employee for the Employer, the
Employee agrees that such Inventions shall be the sole and exclusive
property of the Employer and he promises to assign such Inventions to the
Employer and to cooperate with the Employer to obtain patents or
copyrights on such Inventions for the Employer in the United States and
all foreign countries. The Employee also agrees that the Employer shall
have the right to keep such Inventions as trade secrets, if the Employer
so chooses.
10. WAIVER OF BREACH- The waiver of either party of a breach of
any provision of this Agreement by either party shall not operate or be
construed as a waiver of any subsequent breach
by said party.
11. ASSIGNMENT- The rights and obligations of the Company under
this agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of Company.
12. INDEMNIFICATION- The Company agrees to indemnify and hold
harmless the Employee for any contractual liability, including any
personal guarantee to a financial institution as part of any loan to the
Company, or any other liability incurred by Employee as a result of his
employment by or association with the Company. The Company shall pay all
legal costs and expenses necessary to defend any contractual obligations,
personal guarantees or other liabilities associated with the Employee's
employment by or association with the Company.
13. GOVERNING LAW- This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah.
14. INJUNCTIVE RELIEF- Upon a breach or threatened breach by
Employee of any of the provisions of Paragraphs 8 and 9 of this
Agreement, the Company shall be entitled to an injunctions restraining
Employee from such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach
or threatened breach, including recovery of damages from Employee
15. SEVERABILITY- It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of this Section in the particular jurisdiction in which such adjudication
is made.
page 5
16. ASSIGNMENT- The Company may assign its rights and
obligations under this Agreement to any affiliate of the Company or to
any acquire of substantially all of the business of he Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this agreement nor
any rights or duties hereunder may be signed by or delegated by employee.
17. ENTIRE AGREEMENT- This Agreement sets forth the entire
agreement and understanding of the parties and supersedes all prior
understandings, agreements or representations by or between the parties,
whether written or oral, which relate in any way to the subject matter
hereof.
18. AMENDMENT- No provision of this Agreement shall be
altered, amended, revoked, or waived except by an instrument in writing
signed by the party sought to be charged with such amendment, revocation
or waiver.
19. BINDING EFFECT- Except as otherwise provided herein,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereunto and their respective legal representatives, heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this agreement as of
date first written.
PEN INTERCONNECT,INC.
/s/ James S. Pendleton /s/ Lewis Carl Rasmussen
- ----------------------- ------------------------------
JAMES S PENDLETON
PRESIDENT AND CEO EMPLOYEE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of MAY 1996, between
, Pen Interconnect, Inc. a Utah Corporation, hereinafter called the
"Company", and ALAN WEAVER , hereafter called the Employee.
WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and
abilities in the business of the Company; and
WHEREAS, the Employee desires to accept such engagement upon the
terms and conditions herein after set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:
1. EMPLOYMENT- Company hereby engages the Employee and the
Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.
2. TERM - Subject to the provisions for termination as hereafter
provided, the term of this Agreement shall be for a minimum period of
THREE YEARS, beginning on the first day of MAY 1, 1996. The term of
this Agreement may be extended for ONE additional year, upon the mutual
agreement of the parties.
3. COMPENSATION - As compensation for all services rendered by
Employee under this agreement, Company shall pay Employee an annual
salary determined as follows: (A) Employee shall
receive an initial base salary of $120,000 per year, payable at
least monthly in equal installments in accordance with the company's
regular payroll schedule. Such amount may be adjusted as approved by
the Board of Directors of the Company.
(B) Employee shall also receive additional commission and
bonuses, as are approved and awarded by the Board of Directors of the
Company per exhibit A attached.
4. FRINGE BENEFITS - (A) Company shall provide a three weeks paid vacation
each year to Employee.
Unused vacation time will accrue and may be carried over to one
succeeding year.
(A) The Company shall provide the Employee with a car
allowance of a minimum of $550.00 per month, for his / her use in
connection with his/her employment. The Company agrees to pay all minor
operating costs (gas,oil,wash and minor repairs). The employee will be
responsible for (insurance, tires, taxes and registration and all major
repairs) associated with the use of the automobile.
(B) The Employee shall continue
to participate as a member of the Company's major group insurance plan
with the employee paying $ 40.00 of the monthly premium.
(C) The Company shall provide and pay for the Life
Insurance covering the life of the Employee as described on Exhibit B.
page 2
(D) The Company shall provide Deferred Compensation and
Salary Continuation Plans to the employee as described on Exhibit C
attached.
5. DUTIES - The Employee is engaged for the purpose of
performing services for the company with specific work in the management
of the company as described in Exhibit D.
6. TERMINATION - (a) The Company may terminate the
Employee's employment under this Agreement for cause at any time during
the term of this agreemen1t. As used in this paragraph 6, the term
"cause" shall be defined as the Employee's (i) wilful misconduct, (ii)
fraud, (iii) misappropriation, (iv) embezzlement, (v) failure to abide by
any codes of conduct adopted by the Employer, (vi) failure to follow the
Employer's lawful orders and directives, (vii) failure to meet
performance standards or conduct generally applicable to similarly
situated employees of the employer, (viii) conviction of a felony, (ix)
breach or threatened breach of any confidentiality or non-competition
agreement between the Employee and the Company,or (x) conduct which
impairs or damages, or tends to impair or damage, the reputation of the
company. In the event of any termination pursuant 6(a), the Company
shall be obligated to pay the Employee only such compensation as shall be
accrued to the Employee up to and including the date upon which such
termination becomes effective. No notice period shall be required to
terminate the Employee under the provisions of this paragraph 6(a).
(b) The Employee may terminate this agreement with cause upon ten (10)
days written notice to the Company, unless during such ten (10) day
period the cause for such termination shall be cured by the Company. As
used in this paragraph 6(b), the term "cause" shall be defined as the
Company's inability or refusal to comply with or perform its obligations
and duties hereunder , including specifically, the payment of any
compensation due the Employee hereunder and any illegal act or willful
mis conduct by the employer. In the event of any termination pursuant to
the terms of this paragraph 6(b), the Company shall be obligated to pay
the Employee the compensation which shall have accrued to the Employee up
to and including the date upon which such termination becomes effective.
(c) The Employee and the Company may terminate this agreement at any
time upon their mutual agreement.
7. STOCK OPTIONS-- Stock options may be granted by the company to
the employee as approved by the Board of Directors.
8. NON COMPETITION-- Employee acknowledges and agrees that he is
being employed in a confidential position and, as a consequence will have
complete access to and knowledge of Company's marketing techniques,
customers, potential customers, and the Company's strategy concerning new
markets, and inasmuch as Employee recognizes and agrees that the
development of said customers, potential customers, and markets is an
will be mainly the result of the Company's efforts the Employee covenants
and agrees to with the Company, its successors or assigns, that for the
term of this Agreement, and for a period of 18 months from the date of
termination
page 3
hereof, he will not engage in or participate in, either directly or
indirectly, or be employed by or in any connection with, or furnish any
information concerning the Company's business to any similar business
that Pen is engaged in at the time of termination for a period of (18)
months from the date of termination hereof. If the termination of
employee is because of an illegal act or willful misconduct by the
employer or termination because of a merger or buy out then the waiting
period will be waived.
9. CONFIDENTIALITY- Employee understands, recognizes and
acknowledges that, as a consequence of the performance of his duties
hereunder, he may receive notice or knowledge of, or have disclosed to
him, certain Confidential Information , as defined below, of the Company.
Employee understands, acknowledges and agrees that the Confidential
Information is proprietary and secret and agrees to respect the
confidentiality and secrecy of the same. Employee also understands,
agrees and acknowledges that all Confidential Information is the
property of the Company. Except as lawfully authorized or as may be
expressly and specifically required in the performance of Employees's
responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose, reveal, report,publish or transfer
possession of, or access to any Confidential Information to any person or
entity. Employee further agrees to disclose promptly and fully to the
company any information which qualifies as Confidential hereunder, and
agrees to turn over or return to the Company any and all Confidential
Information in the Employee's possession or control upon the request of
the Company or upon the termination of the Employee's and the Company
employment relationship. As used herein, the term "Confidential
Information" shall include all intellectual property or information which
is proprietary to the Company or which is submitted or disclosed to the
Company by a third party under obligations of secrecy or confidentiality
or which is not exempted by amendment to this Agreement. Confidential
Information (whether or not reduced to writing and in any and all stages
of development) shall include, but shall not be limited to, discoveries,
ideas, inventions, designs, concepts, drawings, specifications,
techniques, models, data, software, documentation, diagrams, flow charts,
research, development, processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques,
marketing and development plans, product plans, customer names and
addresses, names and financial information, information relating to the
Company's customers or their financial position or marketing plans,
strategies, forecasts, pricing, policies, and any tangible article which
embodies such Confidential Information.
10. INTELLECTUAL PROPERTY- As to any inventions, ideas discoveries
improvements, ideas, devices, writings or other intellectual property (
hereafter collectively referred to as "INVENTIONS") made by the Employee
during the term of his employment, solely of jointly with others, which
are made with the Employer's equipment, supplies, facilities, trade
secrets, or time, or which relate to the of the Employer, or the
Employer's
page 4
actual of demonstrably anticipated research or development, or the
Employee actual or demonstrably anticipated research or development, or
any other device directly related to the Employee's business, or which
result from any work performed by the Employee for the Employer, the
Employee agrees that such Inventions shall be the sole and exclusive
property of the Employer and he promises to assign such Inventions to the
Employer and to cooperate with the Employer to obtain patents or
copyrights on such Inventions for the Employer in the United States and
all foreign countries. The Employee also agrees that the Employer shall
have the right to keep such Inventions as trade secrets, if the Employer
so chooses.
10. WAIVER OF BREACH- The waiver of either party of a breach of
any provision of this Agreement by either party shall not operate or be
construed as a waiver of any subsequent breach
by said party.
11. ASSIGNMENT- The rights and obligations of the Company under
this agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of Company.
12. INDEMNIFICATION- The Company agrees to indemnify and hold
harmless the Employee for any contractual liability, including any
personal guarantee to a financial institution as part of any loan to the
Company, or any other liability incurred by Employee as a result of his
employment by or association with the Company. The Company shall pay all
legal costs and expenses necessary to defend any contractual obligations,
personal guarantees or other liabilities associated with the Employee's
employment by or association with the Company.
13. GOVERNING LAW- This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Utah.
14. INJUNCTIVE RELIEF- Upon a breach or threatened breach by
Employee of any of the provisions of Paragraphs 8 and 9 of this
Agreement, the Company shall be entitled to an injunctions restraining
Employee from such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach
or threatened breach, including recovery of damages from Employee
15. SEVERABILITY- It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
particular provision or portion of this Agreement shall be adjudicated to
be invalid or unenforceable, this Agreement shall be deemed amended to
delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation
of this Section in the particular jurisdiction in which such adjudication
is made.
page 5
16. ASSIGNMENT- The Company may assign its rights and
obligations under this Agreement to any affiliate of the Company or to
any acquire of substantially all of the business of he Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this agreement nor
any rights or duties hereunder may be signed by or delegated by employee.
17. ENTIRE AGREEMENT- This Agreement sets forth the entire
agreement and understanding of the parties and supersedes all prior
understandings, agreements or representations by or between the parties,
whether written or oral, which relate in any way to the subject matter
hereof.
18. AMENDMENT- No provision of this Agreement shall be
altered, amended, revoked, or waived except by an instrument in writing
signed by the party sought to be charged with such amendment, revocation
or waiver.
19. BINDING EFFECT- Except as otherwise provided herein,
this Agreement shall be binding upon and shall inure to the benefit of
the parties hereunto and their respective legal representatives, heirs,
successors and assigns.
IN WITNESS WHEREOF, the parties have executed this agreement as of
date first written.
PEN INTERCONNECT,INC.
/s/ James S. Pendleton /s/ Alan L. Weaver
- ----------------------- ------------------------
JAMES S PENDLETON
PRESIDENT AND CEO EMPLOYEE
Exhibit 11
PEN INTERCONNECT, INC.
CALCULATION OF EARNINGS PER SHARE
FOR THE THREE MONTH PERIOD ENDED
JUNE 30, 1996 & 1995
<TABLE>
<S> <C> <C> <C> <C>
Fully
Primary dilutive
Months Weighted Weighted
Common Out- Average Average
1996 Shares standing Shares Shares
- -------------------------------------------------------------------------------------
Balance at April 1, 1996 2,700,000 3 8,100,000 8,100,000
Issued shares in May 1996 333,407 1 333,407 333,407
Balance at June 30, 1996 - Primary 3,033,407 8,433,407
Contingent shares 55,568 1 n/a 55,568
Balance at June 30, 1996 - Fully dilutive 8,488,975
Weighted average number of shares for
three months 2,811,136 2,829,658
Earnings for three months ended June 30, $ 46,155 $ 46,155
Earnings per share $ .02 $ 0.02
1995
- -------------------------------------------------------------------------------------
Balance at April 1, 1996 1,700,000 3 5,100,000 5,100,000
Balance at June 30, 1996 1,700,000 5,100,000 5,100,000
Weighted average number of shares for
three months 1,700,000 1,700,000
Earnings for three months ended June 30, $ 183,087 $ 183,087
Earnings per share $ 0.11 $ 0.11
FOR THE NINE MONTH PERIOD ENDED
JUNE 30, 1996 & 1995
1996
- ------------------------------------------------------------------------------------
Balance at October 1, 1995 1,700,000 9 15,300,000 15,300,000
Issued shares November 17, 1995 1,000,000 7.5 7,500,000 7,500,000
Issued shares in May 1996 333,407 1 333,407 333,407
Balance at June 30, 1996 - Primary 3,033,407 23,133,407
Contingent shares 55,568 1 n/a 55,568
Balance at June 30, 1996 - Fully dilutive 23,188,975
Weighted average number of shares for
nine months 2,570,379 2,576,553
Earnings for nine months ended June 30, $ 298,135 $ 298,135
Earnings per share $ 0.12 $ 0.12
1995
- ------------------------------------------------------------------------------------
Balance at October 1, 1994 1,200,000 9 10,800,000 10,800,000
Issued shares in October 1994 500,000 9 4,500,000 4,500,000
Balance at June 30, 1995 1,700,000 15,300,000 15,300,000
Weighted average number of shares for
nine months 1,700,000 1,700,000
Earnings for nine months ended June 30, $ 512,653 $ 512,653
Earnings per share $ 0.30 $ 0.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PEN
INTERCONNECT, INC. JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 82,810
<SECURITIES> 0
<RECEIVABLES> 6,234,370
<ALLOWANCES> 279,394
<INVENTORY> 7,398,622
<CURRENT-ASSETS> 14,131,030
<PP&E> 4,105,101
<DEPRECIATION> 1,048,386
<TOTAL-ASSETS> 18,921,197
<CURRENT-LIABILITIES> 9,778,118
<BONDS> 0
30,334
0
<COMMON> 0
<OTHER-SE> 8,572,176
<TOTAL-LIABILITY-AND-EQUITY> 18,921,197
<SALES> 18,595,250
<TOTAL-REVENUES> 18,595,250
<CGS> 15,606,248
<TOTAL-COSTS> 17,814,450
<OTHER-EXPENSES> (6,781)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,584
<INCOME-PRETAX> 490,997
<INCOME-TAX> 192,862
<INCOME-CONTINUING> 298,135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298,135
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
