As filed with the Securities and Exchange Commission on October 1, 1998
Registration Statement No. 333-60451
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 1
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PEN INTERCONNECT, INC.
(Exact name of registrant as specified in its charter)
Utah 3357 87-0430260
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation Classificate Identification No.)
Pen Interconnect, Inc. James S. Pendleton, Chairman
2351 South 2300 West Pen Interconnect, Inc.
Salt Lake City, Utah 84119 2351 South 2300 West
(801) 973-6090 Salt Lake City, Utah 84119
(Address, including zip code, (Name, address, including zip code,
and telephone number, including and telephone number, including
area code principal executive offices) area code, of agent for service)
Copy to:
Oscar D. Folger, Esq.
James W. Lucas, Esq.
521 Fifth Avenue
New York, New York 10175
(212) 697-6464
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective. If the only
securities being registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. /_/
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. /_/
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Maximum Proposed Maximum
Titl of Each Class of Amount Being Offering Price Per Aggregate Offering Amount of
Securities Being Registered Registered Share (1) Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) 1,475,000 $1.671875 $2,466,016 $727.48(3)
=================================================================================================================
</TABLE>
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457(c) at $1.671875 per Share based upon the average of the high and low
prices of $1.71875 and $1.625 respectively, on July 23, 1998.
(2) Pursuant to Rule 416, this Registration Statement also covers any additioal
shares of Common Stock whih may become issuable by virtue of anti-dilution
provisions.
(3) Previously paid.
<PAGE>
SUBJECT TO COMPLETION, DATED October 1, 1998
Pen Interconnect, Inc.
1,475,000 Shares of Common Stock
-------------------
This Prospectus relates to the offering of an aggregate of 1,475,000
shares of the Common Stock, par value $.01 per share ("Common Stock"), of Pen
Interconnect, Inc. (the "Company"). The Common Stock is sometimes referred to
hereinafter as "Securities." The Company's Common Stock and Warrants have been
publicly traded since November 1995, when the Company completed an underwritten
initial public offering of 1,000,000 shares of Common Stock and warrants to
purchase 1,000,000 shares of Common Stock (the "Initial Public Offering"). Only
persons named herein as Selling Security Holders may rely upon this Prospectus
for resale of Securities owned by them. Of the Securities included herein, up to
985,000 shares are issuable upon conversion of Convertible Debentures, and
490,000 shares are issuable upon conversion of warrants at prices ranging from
$2.00 to $2.75 per share.
The Company will receive the exercise prices payable upon exercise of the
Warrants. The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Security Holders. The Company has been advised by the
Selling Security Holders that there are no underwriting arrangements with
respect to the sale of any Securities. The Securities will be sold from time to
time by the Selling Security Holders in the over-the-counter market at then
prevailing prices and in private transactions at negotiated prices. Usual and
customary brokerage fees, if any, may be paid by the Selling Security Holders in
connection with sales by the Selling Security Holders.
The Company's Common Stock and Warrants are quoted on the Nasdaq National
Market System under the symbols "PENC" and "PENCW," respectively. The closing
sale prices of the Company's Common Stock and Warrants on September 30, 1998 as
quoted on the Nasdaq National Market System, were $1.00 and $ 0.0938,
respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AS WELL AS
IMMEDIATE AND SUBSTANTIAL DILUTION.
0000
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Price Underwriting Proceeds to Proceeds to
to Public (1) Discounts and Company (1) Selling Security
Commissions (1) Holders (1)
Per Share...
Total.......
================================================================================
(1) Not determinable at this time.
The date of this Prospectus is October __, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 ("Exchange Act") and in accordance therewith files reports
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511;
Seven World Trade Center - 13th Floor, New York, New York 10048; and Suite 500
East, 5757 Wilshire Boulevard, Los Angeles, California 90036-3648. Copies of
such material may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates, and can also be
accessed electronically through the Commissions Web Site at http;//www.sec.gov.
------------------------
The Company will furnish its security holders with annual reports
containing audited financial statements at the end of each fiscal year. In
addition, the Company may, from time to time, issue unaudited interim reports
and financial statements.
THE FOLLOWING LEGEND WILL APPEAR IN RED INK ON THE FRONT PAGE OF THE PROSPECTUS
IN THE EVENT THAT THE PROSPECTUS IS CIRCULATED PRIOR TO BEING DECLARED EFFECTIVE
BY THE COMMISSION:
"The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell nor the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State."
<PAGE>
The Company
Pen Interconnect, Inc. (the "Company") develops and produces on a
turnkey basis, interconnection and contract manufacturing solutions for original
equipment manufacturers ("OEMs") in the medical, computer peripheral, and other
computer related industries, such as the telecommunications, instrumentation and
testing equipment industries. The Cable Division'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). 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. The PowerStream Division was acquired in 1997. Its main
focus is the design and manufacturing of custom power supplies, battery
chargers, and uninterruptible power supply (UPS) systems. In addition, the
Company's MOTO-SAT Division is a manufacturer of satellite receiving systems for
recreational vehicles. The Company was incorporated under the laws of the State
of Utah on September 30, 1985. The Company maintains divisions located in Salt
Lake City, Utah, Orem, Utah and Tustin, California. The Tustin Division was
acquired in April 1996 for cash and common stock from Cerplex Group, Inc. The
Company also had a division located in San Jose, California which was sold by
the Company in November 1996. The executive offices of the Company are located
at 2351 South 2300 West, Salt Lake City, Utah 84119. Its telephone number is
801-973-6090.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
securities offered by this Prospectus.
Factors Affecting Operating Results
The Company's operating results are affected by a wide variety of
factors, many of which are beyond the control of the Company, which could
adversely impact its net sales and profitability. The factors include the
Company's ability to design and introduce new products on a timely and
cost-effective basis, market acceptance of products of both the Company and its
customers, customer demand for the products of the Company and its customers,
the level of orders that are received and can be shipped in a quarter, customer
order patterns and seasonality, changes in product mix, product performance and
reliability, product obsolescence, the amount of any product returns, the
availability and costs of raw materials, equipment and other supplies, the
cyclical nature of both the computer industry and the markets addressed by the
Company's products, technological changes, competition and competitive pressures
on prices, the impact of the appearance of new manufacturers in East Asia, and
economic conditions in the markets served by the Company. The Company's products
find application in a wide variety of computer, computer peripheral, medical,
telecommunications and industrial control products. A slowdown in demand for
products that utilize the Company's products as a result of economic,
technological, or other conditions in the markets served by the Company or other
broad-based factors could adversely affect the Company's operating results. In
addition, the Company will be adversely affected if OEMs increase their own
manufacture of interconnections, if large manufacturers of cables, printed
circuit board assemblies or connectors seek a greater share of the molded cable
assembly business, or if manufacturing is moved to East Asian suppliers.
Wide market acceptance of the Personal Computer Memory Card
International Association ("PCMCIA") standards or other standards such as those
for modems have been critical to the Cable Division's growth prospects. The
success of such standards, however, cannot be accurately predicted since such
success will depend on the promotional efforts of leading computer manufacturers
and user acceptance. In addition, market acceptance of new standards can be
expected to displace a portion of the Company's business for traditional
cabling. Manufacturers of PCMCIA devices have standardized the connections
between these devices and internal computer devices and with cables leading to
connections with the external environment, such as the connection between PCMCIA
modem devices and cables to outside telephone jacks. There has been no
standardization of the connections between these cables and external devices,
leading to substantial need for customization of cabling. The Company's PCMCIA
sales rely on custom work for connections to external devices and will be
significantly and adversely affected should manufacturers succeed in
standardizing these connections. As a result, further standardization of PCMCIA
devices could adversely affect the Company's business. The Company will continue
to be affected by competitive forces in the markets for all of its products and
services.
Possible Merger
The Company has announced the termination of a letter of intent for a
merger with TMCI Electronics, Inc. ("TMCI"). The letter of intent had
contemplated a tax-free exchange of shares at an expected exchange rate ratio of
.625 shares of TMCI for each share of the Company. The Company and TMCI will
continue to interact on their earlier sales and manufacturing agreement and also
may continue to discuss a possible strategic partnership. There can be no
assurance that the Company will conclude a strategic partnership merger with
TMCI or any other party, and what effect any such partnership might have on the
future of the operations of the Company.
Need to Establish and Expand Customer Base
Sales by the Company have historically been concentrated with several large
customers. The Company has worked to reduce its dependence on several large
customers, however sales to three customers still accounted for approximately
41% of total sales for the fiscal year ended September 30, 1997 and sales to one
customers accounted for approximately 60% of total sales for the nine months
ended June 30, 1998. The loss of any one of these major customers could
significantly and adversely affect the Company.
The Company's sales to a particular customer can vary significantly
depending on the life cycles of the customer's products. As a result of the
rapid pace of technological development in the computer and computer peripheral
industries, products frequently have life cycles of less than a year. Demand for
the Company's products and services can diminish significantly as a customer's
products reach the end of their useful sales lives or become so standardized as
to be appropriate for high volume, low cost foreign production. The Company must
continue to expand its customer base in order to consistently have customers
that have products at the beginning of their life cycles when demand for the
Company's customized cable interconnection development and production services
is greatest. Therefore, the Company's future prospects depend significantly on
its ability to establish and maintain long-term customer relationships over the
sales lives of multiple products and to add new customers in the rapidly
changing market for compatible products.
Dependence on New Products and Technologies
The Company's future operating results will depend to a significant
extent on its ability to continue to develop and introduce on a timely basis new
products, which compete effectively on the basis of price and performance and
which address customer requirements. The success of new product introductions
depends on various factors, including proper new product selection, timely
completion and introduction of new product designs and the use and market
acceptance of customers' end products. The Company's inability to design,
develop and introduce competitive products on a timely basis could adversely
affect its future operating results. Some of the Company's products also require
compatibility with products manufactured by third-party vendors. There can be no
assurance the Company will be able to maintain compatibility in the event such
vendors modify their products. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
products noncompetitive or obsolete.
<PAGE>
Technological Obsolescence
The industries that the Company serves are marked by rapid
technological change. The Company must continuously modify its existing products
and seek to develop new products in order to remain competitive. There can be no
assurance that new technological developments will not adversely affect the
Company. Specifically, technology has been recently developed using
electromagnetic transmission on infrared and UHF frequencies that fulfill the
functions of some of the Company's cable products. Although this technology is
still subject to significant obstacles, such as maintaining the security of the
transmissions and improving their capacity and clarity, the successful
development of "wireless" local data transmission could render many of the
Company's current products obsolete.
Limited Proprietary Technology
In 1997, the Company acquired, through the PowerStream division, the
rights to several patent applications. The Company is currently investigating
the economic feasibility of exploiting the technology covered by these patent
applications, and has not yet determined to actively pursue these patent
applications. The Company's other divisions do not have any patented technology.
The Company regards aspects of its manufacturing processes as trade secrets and
seeks to protect this know-how with secrecy agreements. There can be no
assurance, however, that these agreements will be enforceable in the event of a
breach. Therefore, even if the Company is able to develop successful new
products, the Company may be limited in its ability to prevent competitors from
copying these products. In addition, the Company has no registered trademarks,
and products manufactured by the Company typically do not refer to the Company
by name or mark.
Financial Condition of the Company; Recent Losses
The Company has experienced losses from operations in recent fiscal
periods. It experienced losses of $1,735,483 and $709,010 for the fiscal years
ended September 30, 1997 and 1996, respectively. The Company also reported a
loss of $225,978 for the first nine months ending June 30, 1998. As of September
30, 1997 and June 30, 1998, the Company had working capital of only $1,065,778
and $3,847,388, respectively. The Company's working capital requirements have
been met primarily from loans, the issuance of debentures, operating cash flow
and the net proceeds of its initial public offering but there can be no
assurance the Company will be able to obtain such funds in the future on
acceptable terms. Although the Company is actively pursuing additional
financing, there can be no assurance that the Company will not continue to
experience losses or will ever generate revenues at levels sufficient to support
profitable operations.
Factors Affecting Supplies
Many of the Company's suppliers are located outside the United States.
The purchase of materials from foreign suppliers may be adversely affected by
political and economic conditions abroad. Protectionist trade legislation in
either the United States or foreign countries, such as a change in the current
tariff structures or other trade policies, could adversely affect the Company's
ability to purchase materials from foreign suppliers. Also, to the extent that
such foreign transactions are denominated in currencies other than the U.S.
dollar, the Company may be exposed to exchange rate fluctuations. Although the
Company has not entered into non-U.S. dollar transactions and has not incurred
any material exchange gains or losses to date, there can be no assurance that
the Company will not enter into such transactions in the future or that
fluctuations in the currency exchange rates in the future will not have an
adverse effect on the Company's operations.
<PAGE>
Certain key component parts used in the Company's interconnection
products are available from only one or a limited number of suppliers, and the
Company currently does not have long-term agreements with any suppliers of
components. Any reduction or interruption in supply from third-party contractors
would adversely affect the Company's results of operations unless or until
alternative sources are established. Moreover, operating results could be
adversely affected by the receipt of defective components, an increase in prices
from suppliers or the inability of the Company to obtain lower prices in
response to competitive price reductions. Finally, some of the Company's
suppliers may also enter the manufacture of custom cable interconnections, which
could adversely affect the Company's business by directly competing with the
Company and by ceasing or delaying supplies to the Company.
Competition
Many of the markets for the Company's products are highly competitive.
The Company competes directly with numerous other contract manufacturers that,
like the Company, obtain raw material from suppliers and in turn manufacture for
customers. The Company also indirectly competes with computer cabling and
connector manufacturers and major OEMs that produce their own cable assemblies.
In all product lines, such manufacturing and OEMs generally are substantially
larger and have greater resources than the Company. As new products become
standardized and are produced in large quantities, foreign producers in
countries with lower labor costs than the United States will be better able to
compete for production of the products since they can generally offer lower
prices than the Company. The Company also competes with other OEM companies to
obtain supplies. A number of the companies from which the Company buys material
maintain proprietary control of their newly designed products.
Impact of Price Variations of Raw Materials
Although the Company does not manufacture the cable sub components itself,
the raw materials purchased from manufacturers are a significant component of
the Company's cost of sales. The prices of such materials can vary substantially
based upon many factors including world economic and political conditions. The
Company may be able to pass on increases in material costs resulting from
increases in raw material costs to its customers. However, the Company generally
bids on projects in advance and may not be able to pass on increased costs to
the extent that raw material costs increase more than anticipated.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the
continued service of James S. Pendleton, its Chairman and Chief Executive
Officer; Wayne R. Wright, its Vice Chairman and Chief Financial Officer; Alan
Weaver, President of the InCirT Division; Daniele Reni, President of the
PowerStream Division; and Stephen J. Fryer, its President and Chief Operating
Officer. The Company has employment agreements with Messrs. Pendleton and Wright
which expire in January 2002, with Mr. Weaver which expires in April 1999, with
Mr. Reni which expires in April 2000 and with Mr. Fryer which expires in October
2002. The Company has obtained $1,000,000 key person life insurance on Messrs.
Wright, and Pendleton, and $500,000 on Messrs. Weaver, Fryer, and Reni. The
Company also will continue to depend on other members of its senior staff as
well as on its ability to continue to attract, retain and motivate additional
qualified personnel. The competition for experienced personnel is intense, and
the loss of the services of one or more of the Company's key employees could
have a material adverse effect on the Company. There can be no assurance that
the Company will be successful in retaining its existing key employees or in
attracting and retaining any additional personnel it requires.
Potential Future Need for Additional Funds
Management believes that additional working capital may be required to meet
its future operating costs, for business expansion opportunities and
acquisitions in addition to its existing cash balances, borrowings available
under the line of credit, and cash generated from operations. However, there can
be no assurance that such additional financing, if required, would be available
on favorable terms if at all or that such additional financing, if available,
would not result in substantial dilution of the equity interests of existing
stockholders.
<PAGE>
Maintenance Criteria for Nasdaq Securities; Penny Stock Rules
Since March 13, 1996, the Common Stock and Warrants of the Company have
been quoted on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") National Market System. The Common Stock and
Warrants were previously quoted on the Nasdaq Small-Cap Market. To maintain its
listing on the Nasdaq National Market System, the Company must continue to be
registered under Section 12(g) of the Exchange Act and have net tangible assets
of at least $4,000,000, a public float of at least 750,000 shares with a market
value of at least $5,000,000 and at least 400 stockholders. In the event the
Company does not meet the conditions for maintaining its listing on the National
Market System, the Company believes it will qualify for listing on the Small-Cap
Market. There can be no assurance that the Company in the future will meet the
requirements for continued listing on the Nasdaq National Market System or
Nasdaq Small-Cap Market with respect to the Common Stock or Warrants. If the
Company's securities fail to maintain a Nasdaq listing, the market value of the
Common Stock and Warrants likely would decline and purchasers in this offering
likely would find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Common Stock and Warrants.
In addition, if the Company fails to maintain at least a Nasdaq
Small-Cap Market listing for its securities, and no other exclusion from the
definition of a "penny stock" under the Exchange Act is available, then any
broker engaging in a transaction in the Company's securities would be required
to provide any customer with a risk disclosure document, disclosure of market
quotations, if any, disclosure of the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
values of the Company's securities held in the customer's accounts. The bid and
offer quotation and compensation information must be provided prior to effecting
the transaction and must be contained on the customer's confirmation. If brokers
become subject to the "penny stock" rules when engaging in transactions in the
Company's securities, they would become less willing to engage in such
transactions, thereby making it more difficult for purchasers in this offering
to dispose of their shares.
Potential Reduction in Exercise Price of Warrants
The Company can reduce the exercise price of the Warrants upon notice
to the Warrant holders and may seek to promote the exercise of the Warrants by
reducing the exercise price thereof. The Company has no current plans to effect
such a reduction in the exercise price of the Warrants and holders of Warrants
should not anticipate such a reduction. In the event that the exercise price is
reduced, Warrant holders may be able to purchase Common Stock for a price less
than the then market value of the Common Stock which may result in a material
dilution to the then current holders of Common Stock.
Effect of Issuance of Preferred Stock
Certain provisions of the Company's Certificate of Incorporation allow the
Company to issue Preferred Stock with voting, liquidation and dividend rights
senior to those of the Common Stock without the approval of the Company's
stockholders. The issuance of Preferred Stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding stock
of the Company and result in the dilution of the value of the then current
stockholders' Common Stock. The Company has no present plans to issue shares of
Preferred Stock.
Shares Eligible for Future Sale
Sales of substantial amounts of Common Stock of the Company in the public
market could adversely affect prevailing market prices. All of the 4,773,863
shares of Common Stock outstanding as of July 27, 1998 are eligible for resale
in the public market, subject to compliance with Rule 144 under the Securities
Act, or are currently registered for public sale.
<PAGE>
Dividends Not Likely
The Company has never paid dividends on its Common Stock and does not
anticipate that it will pay dividends in the foreseeable future. Any earnings
that may be generated will be used to finance the growth of the Company's
business. In addition, the Company's revolving credit facility prohibits the
payment of cash dividends without the lender's consent.
Control by Current Directors
As of September 30, 1998, the current directors own approximately 22% of
the issued and outstanding shares of Common Stock (assuming no exercise of any
outstanding options or warrants). Accordingly, the current directors may be able
to substantially influence the election of the Company's directors, to cause an
increase in the authorized capital or the dissolution, merger, or sale of the
assets of the Company and generally to control the affairs of the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,475,000 shares of Common
Stock upon exercise of the Convertible Debentures and warrants would be
approximately $1,217,000 after taking into account estimated offering expenses
of approximately $50,000. The Company will receive no proceeds from the sale of
Securities held by any Selling Security Holders. There can be no assurance that
any or all of the Convertible Debentures or Warrants will be exercised and
accordingly, the Company might receive no or only minimal proceeds from this
offering.
Any proceeds received from the exercise of the Convertible Debentures
or Warrants would be added to working capital. The Company has no definite plans
for the use of any proceeds from the exercise of the Convertible Debentures or
warrants, except the repayment of certain debt, nor has the Company made
specific allocations as to the use of any such proceeds. The proceeds could be
used for current manufacturing, administrative, marketing or research and
development expenses, the acquisition of inventory or related businesses, the
repurchase of certain of the Company's outstanding securities, or the repayment
of debt. Future events, including changes in the economic climate and/or the
Company's planned business operations, including the success or lack thereof of
the various intended business activities, may make shifts in the allocation of
funds amongst these categories necessary or desirable. Any such shifts will be
at the discretion of the Board of Directors of the Company. In its financial
planning, the Company has not assumed the receipt of any funds from the exercise
of the Convertible Debentures or Warrants. Prior to expenditure, any net
proceeds will be invested in short-term interest bearing securities or money
market funds.
MATERIAL DEVELOPMENTS
Except as noted below, no reportable material developments have occurred
since the Company's filing on September 30, 1998 of its amended quarterly report
on Form 10-QSB for the quarterly period ending June 30, 1998.
Stephen J. Fryer has been named President and Chief Operating Officer.
James S. Pendleton will continue as Chairman and Chief Executive Officer. On
August 27, 1998 the Company held its annual shareholders meeting. All of the
current directors were reelected and Mr. Milton Haber was elected as an
additional director. The stockholders also ratified the issuance of convertible
debentures and the grant of stock options to officers and directors as well as
approving the appointment of Grant Thornton LLP as auditors for the 1998 fiscal
year financial statements. See also "Risk Factors - Possible Merger".
<PAGE>
LEGAL PROCEEDINGS
In 1996, the Company sold its San Jose Division to Touche Electronics,
Inc. ("Touche") and TMCI Electronics, Inc., ("TMCI"). On February 14, 1997,
Touche and TMCI filed a demand for arbitration for the purpose of rescinding the
Asset Purchase Agreement in Santa Clara County, California under the arbitration
provisions of the California Code of Civil Procedure Sections 1282 through 1284
as provided in the contract of sale. The Company filed a counterclaim against
TMCI in May 1997, alleging that TMCI had defaulted in its obligations under
promissory notes issued to the Company for the purchase of the San Jose
Division. The disputes were submitted to arbitration. In December 1997, the
Company and TMCI entered into a Settlement and Release Agreement (the
"Settlement Agreement") releasing each other of any and all respective claims
the parties may have had against each other. The Settlement Agreement provided,
in part, that TMCI issue to the Company 137,390 shares of TMCI's common stock to
replace the Notes Receivable, accrued interest and other obligations of TMCI
(the "Settlement Stock"). The Settlement Stock is guaranteed by TMCI to have a
minimum value of $7.4532 per share. In April 1998, TMCI issued to the Company
18,861 shares of additional stock because the Stock Settlement was sold for less
than minimum value. The Company has entered into a letter of intent to merge
with TMCI. See "Risk Factors - Possible Merger".
PLAN OF DISTRIBUTION
All of the Securities being offered hereunder are being offered for the
respective accounts of the Selling Security Holders. The Company will not
receive any proceeds from the sale of these Securities by the Selling Security
Holders, although it will receive the exercise prices of such Warrants when and
if the Warrants are exercised. The sale of Securities by the Selling Security
Holders may be effected from time to time in transactions in the
over-the-counter market, in negotiated transactions, through the writing or
timing of options on the Securities, or through a combination of such methods of
sale, at fixed prices, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Such
transactions may include block transactions by or for the account of the Selling
Security Holders. If any Securities, or options thereon, are sold pursuant to
this Prospectus at a fixed price or at a negotiated price which is in either
case other than the prevailing market price or in a block transaction to a
purchaser who resells, or if any Selling Security Holder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions, or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Securities, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part would need to be filed and declared effective by the Securities and
Exchange Commission before such Selling Security Holder could make such sale,
pay such compensation or make such distribution. The Company is under no
obligation to file a post-effective amendment to the Registration Statement of
which this Prospectus is a part under such circumstances.
The Selling Security Holders may effect transactions in their Securities by
selling their Securities directly to purchasers, through broker-dealers acting
as agents for the Selling Security Holders or to broker-dealers who may purchase
the Selling Security Holders' Securities as principals and thereafter sell such
Securities from time to time in the over-the-counter market, in negotiated
transactions, or otherwise. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holders and/or the purchasers for whom such broker-dealers may
act as agents or to whom they may sell as principals, or both.
The Selling Security Holders and any broker-dealers who act in
connection with the sale of the Securities hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and profit on any sale of the Securities as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act.
<PAGE>
SELLING SECURITY HOLDERS
An aggregate of up to 1,475,000 shares of Common Stock are being offered
for sale by Selling Security Holders. The following table sets forth certain
information with respect to the Selling Security Holders. The Company will not
receive any of the proceeds from the sale of the shares of Common Stock,
although it will receive proceeds from the exercise of the Warrants, if
exercised.
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership of Ownership of
Shares of Shares of
Common Stock Securities to be Common Stock
Selling Security Holders Prior to Sale Sold After Sale
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louis F. Centofanti 50,000 50,000 0
- -------------------------------------------------------------------------------------------------------------------
Gordon Mundy 90,000 90,000 0
- -------------------------------------------------------------------------------------------------------------------
Heracles Holdings 50,000 50,000 0
- -------------------------------------------------------------------------------------------------------------------
RBB Bank Aktiengesellschaft 800,000 290,000 510,000
- -------------------------------------------------------------------------------------------------------------------
BMC Bach International Ltd., Inc.
a British Virgin Islands Corporation 715,000 715,000 0
- -------------------------------------------------------------------------------------------------------------------
JW Charles Securities, Inc. 280,000 280,000 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock
offered hereby have been passed upon for the Company by Oscar D. Folger, Esq.,
New York, New York.
EXPERTS
The financial statements of Pen Interconnect, Inc., as of September 30,
1997, and for each of the two years then ended, incorporated by reference from
the Company's annual report on Form 10-KSB for the fiscal year ended September
30, 1997, have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report appearing therein, and are included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission by the
Company, are incorporated herein by reference and made a part hereof. The
Commission file number for all documents which are incorporated by reference is
1-14072.
(1) Annual Report on Form 10-KSB as of September 30, 1997 and for each of
the two years then ended, as amended.
(2) The section entitled "Description of Securities" in the Company's
registration statement on Form SB-2 (Registration No. 33-96444-D,
declared effective on November 17, 1995.
(3) Quarterly Report on Form 10-QSB as of March 31, 1998 and for the six
months then ended, as amended.
(4) Quarterly Report on Form 10-QSB as of June 30, 1998 and for the nine
months then ended, as amended.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13 (c), 14 and 15 (d) of the Exchange Act, from the time of the initial filing
of this Registration Statement to the termination of the offering of the
securities covered by this Prospectus or the filing of a post-effective
amendment which indicates that all securities have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated in this Prospectus and made a part hereof by reference from the
date of filing each such document. Any statement contained in an earlier
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded to
constitute a part of this Prospectus.
INDEMNIFICATION
The Certificate of Incorporation of the Company provides that all
directors, officers, employees and agents of the Company shall be entitled to be
indemnified by the Company to the fullest extent permitted by law. The
Certificate of Incorporation also provides as follows:
The corporation shall, to the fullest extent permitted by the Act, as the same
may be amended and supplemented, indemnify all directors, officers, employees,
and agents of the corporation whom it shall have power to indemnify thereunder
from and against any and all of the expenses, liabilities, or other matters
referred to therein or covered thereby. Such right to indemnification or
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee, or agent of the corporation, and shall inure to the
benefit of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement may be entitled under any bylaw, agreement, vote of shareholders or
of disinterested directors or otherwise. The corporation shall have the right to
purchase and maintain insurance on behalf of its directors, officers, employees
or agents to the full extent permitted by the Act, as the same may be amended or
supplemented.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
<PAGE>
AVAILABLE INFORMATION
This Prospectus contains certain information concerning the Company and
its securities, but does not contain all the information set forth in the
Registration Statement and the Exhibits thereto filed with the Commission under
the Securities Act of 1933, as amended, to which reference is made. Any summary
from the Exhibits contained in this Prospectus is necessarily incomplete and
must not be considered as a full statement of the provisions of such
instruments.
<PAGE>
PEN INTERCONNECT, INC.
1,475,000 shares of Common Stock
-------------------------------
PROSPECTUS
-------------------------------
October __, 1998
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Securities and Exchange Commission Registration Fee $727
Nasdaq Listing Fee 17,500
Printing and Engraving 2,000
Transfer Agent's Fee and Expenses 1,000
Legal Fees and Expenses 8,000
Blue Sky Qualification Fees and Expenses 10,000
Accountants' Fees and Expenses 5,000
Miscellaneous Expenses 5,773
-------
Total $ 50,000
========
Item 15. Indemnification of Directors and Officers
The Company has entered into agreements with each director and officer
in which the Company agrees to indemnify each director and officer to the
maximum extent permitted by law.
The Company's Certificate of Incorporation provides that all
directors, officers, employees and agents of the Registrant shall be
entitled to be indemnified by the Company to the fullest extent
permitted by law. The Certificate of Incorporation also provides as
follows:
The corporation shall, to the fullest extent permitted by the Act, as
the same may be amended and supplemented, indemnify all directors,
officers, employees, and agents of the corporation whom it shall have
power to indemnify thereunder from and against any and all of the
expenses, liabilities, or other matters referred to therein or covered
thereby. Such right to indemnification or advancement of expenses shall
continue as to a person who has ceased to be a director, officer,
employee, or agent of the corporation, and shall inure to the benefit
of the heirs, executives, and administrators of such persons. The
indemnification and advancement of expenses provided for herein shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement may be entitled under any bylaw,
agreement, vote of shareholders or of disinterested directors or
otherwise. The corporation shall have the right to purchase and
maintain insurance on behalf of its directors, officers, employees or
agents to the full extent permitted by the Act, as the same may be
amended or supplemented.
Sections 16.10a-902 and 16.10a-903 of the Utah Revised Business
Corporation Act concerning indemnification of officers, directors, employees and
agents are set forth below.
16-10a-902 Authority to Indemnify Directors.
(1) Except as provided in Subsection (4), a corporation may indemnify an
individual made a party to a proceeding because he is or was a
director, against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not opposed to the
corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
<PAGE>
(2) A director's conduct with respect to any employee benefit plan for a
purpose he reasonably believed to be in or not opposed to the
interests of the participants in and beneficiaries of the plan is
conduct that satisfies the requirement of Subsection (1)(b).
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contender or its equivalent is not,
of itself, determinative that the director did not meet the standard
of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he
was adjudged liable on the basis that he derived an improper
personal benefit.
(c) Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation is
limited to reasonable expenses incurred in connection with the
proceeding.
16-10a-903 Mandatory Indemnification of Directors.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise, in the
defense of any proceeding, or in the defense of any claim, issue or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to the court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16. Exhibits.
Exhibit No. Description
3.1 Restated Certificate of Incorporation, as amended (1)
3.2 By-Laws (1)
5.1 Opinion and Consent of Oscar D. Folger, Esq. (2)
<PAGE>
10.1 Form of Warrants (2)
10.2 Form of Convertible Debenture (2)
10.3 Form of Finders Fee Agreement (2)
23.1 Consent of Oscar D. Folger, Esq. ( included in Exhibit 5.1 ) (2)
23.2 Consent of Grant Thornton LLP
(1) Incorporated by reference from registration statement on Form SB-2,
File No. 33-96444-D
(2) Previously filed.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any fact or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the high and low and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1) (i) and (1) (ii) do not
apply if the registration statement is on Form S-3, or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That for purposes of determining any liability under the Securities
Act of 1933, each filing of Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-1
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form S-3 and has authorized this
registration statement to be signed on its behalf by the undersigned in Salt
Lake City, Utah as of September 30, 1998.
PEN INTERCONNECT, INC.
By /s/ James S. Pendleton
James S. Pendleton,
Chairman/ Chief Executive Officer
Each person whose signature appears below hereby constitutes and
appoints James S. Pendleton as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration Statement
on Form S-3 and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933. Pursuant to the requirements of the Securities Act of
1933, this registration statement was signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ James S. Pendleton CEO and Chairman September 30, 1998
- --------------------------
James S. Pendleton
/s/ Wayne R. Wright Vice Chairman and CFO September 30, 1998
- -------------------
Wayne R. Wright (Principal Accounting and
Financial Officer)
/s/ C. Reed Brown Director September 30, 1998
C. Reed Brown
/s/ Stephen J. Fryer Director and September 30, 1998
- -------------------- Chief Operating Officer
Stephen J. Fryer
/s/ James E. Harward
- --------------------
James E. Harward Director September 30, 1998
II-2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated December 12, 1997 accompanying the financial
statements of Pen Interconnect, Inc. appearing in the 1997 Annual Report on Form
10-KSB as of September 30, 1997 and for each of the two years then ended which
is incorporated by reference in this Registration Statement. We consent to the
incorporation by reference in the Registration Statement of the aforementioned
report, and to the use of our name as it appears under the caption "Experts."
\s\ Grant Thornton LLP
Salt Lake City, Utah
September 30, 1998
