As filed with the Securities and Exchange Commission on February 10, 1998
Registration Statement No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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) Classification Code Number) Identification No.)
Pen Interconnect, Inc. James S. Pendleton, Chairman
2351 South 2300 West Pen Interconnect, Inc.
Salt Lake City, Utah 84119 351 South 2300 West
(801) 973-6090 Salt Lake City, Utah 84119
(Address, including zip code, (801) 973-6090
and telephone number, including (Name, address, including zip code,
area code, of registrant's and telephone number, including area
principal executive offices) 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 connectin 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, 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
<PAGE>
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 Proposed Amount of
Title of Each Class of Securities Being Amount Being Maximum Maximum Registration Fee
Registered Registered Offering Price per Aggregate
Share (1) Offering Price
<S> <C> <C> <C> <C>
Common Stock 950,000 $2.59375 $2,464,063 $739.22
======================================= ================= ==================== ==================== ===================
</TABLE>
(1) Estimated for purposes of computing the registration fee pursuant to Rule
457(c) at $2.59375 per Share based upon the average of the high and low prices
of $2.6875 and $2.50, respectively, on February 5, 1998.
<PAGE>
SUBJECT TO COMPLETION, DATED February 10, 1998
Pen Interconnect, Inc.
950,000 Shares of Common Stock
-------------------
This Prospectus relates to the offering of an aggregate of 950,000
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
550,000 shares are issuable upon conversion of Convertible Debentures and
400,000 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 February 5, 1998 as
quoted on the Nasdaq National Market System, were $2.625 and $ 0.53125,
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.
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.
<TABLE>
<CAPTION>
Price Underwriting Proceeds to Proceeds to
to Public (1) Discounts and Company(1) Selling Security
Commissions (1) Holders (1)
<S> <C> <C> <C> <C>
Per Share..........................
Total..........................
============================= ===================== ==================== ================ ===================
</TABLE>
(1) Not determinable at this time.
The date of this Prospectus is February __, 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
<PAGE>
success of the 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.
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.
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.
Technological Obsolescence
The industries that the Company serves are marked by rapid technological
change. The Company must
<PAGE>
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. As of September 30, 1997, the
Company had working capital of only $1,065,778. The Company's working capital
requirements have been met primarily from loans, 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.
Certain key component parts used in the Company's interconnection products
are available from only one or
<PAGE>
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; Robert "Duke" DeForest, President of
the Pen Technology Cable Division; Daniele Reni, President of the PowerStream
Division; and Stephen J. Fryer, its Senior Vice President, Investor Relations
and Marketing. The Company has employment agreements with Messrs. Pendleton and
Wright which expire in January 2001, and with Messrs. Weaver and Reni which
expire in April 2000 and with Mr. Fryer which expires in October 2000. The
Company has obtained $1,000,000 key person life insurance on Messrs. Wright,
Pendleton, and DeForest 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
<PAGE>
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.
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 $1,000,000 (or more if the Company sustains operating losses), a
public float of at least 200,000 shares with a market value of at least
$1,000,000, at least 300 stockholders, a minimum bid price of $1.00 per share
and at least two market makers. In addition, Nasdaq has proposed increasing the
requirements for maintaining National Market System listing to 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. As of
September 30, 1997, the Company would have complied with the new proposed
requirements. 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
<PAGE>
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
4,147,863 shares of Common Stock outstanding as of February 5, 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.
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 February 5, 1998, the current directors own approximately 27% 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 950,000 shares of
Common Stock upon exercise of the Convertible Debentures and warrants would be
approximately $750,000 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
<PAGE>
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
No reportable material developments have occurred since the Company's
filing of January 13, 1998 of its annual report on Form 10-KSB for the fiscal
year ended September 30, 1997.
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 the event that the Settlement stock is
sold at less than such amount, TMCI is obligated to pay the Company the
difference between the sales price and the guaranteed value.
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
<PAGE>
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.
SELLING SECURITY HOLDERS
An aggregate of up to 950,000 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
Selling Security Holders Common Stock Securities to be Common Stock
Prior to Sale Sold After Sale
<S> <C> <C> <C>
RBB Bank Aktiengesellschaft 550,000 550,000 0
JW Charles Securities, Inc. 400,000 400,000 0
</TABLE>
<PAGE>
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.
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.
In addition, all documents filed by the Company pursuant to Sections 13
(a), 13 (c), 14 and 15 (d) of the Exchange Act, prior 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
<PAGE>
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.
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.
950,000 shares of Common Stock
-------------------------------
PROSPECTUS
-------------------------------
February __, 1998
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Securities and Exchange Commission Registration Fee $ 796
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 5,704
------
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
II-1
<PAGE>
(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.
(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
II-2
<PAGE>
3.1 Restated Certificate of Incorporation, as amended (1)
3.2 By-Laws (1)
5.1 Opinion and Consent of Oscar D. Folger, Esq.
10.1 Form of Warrants
10.2 Form of Convertible Debenture
23.1 Consent of Oscar D. Folger, Esq.
23.2 Consent of Grant Thornton LLP
(1) Incorporated by reference from registration statement on Form SB-2, File No.
33-96444-D
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
II-3
<PAGE>
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-4
<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 authorized this
registration statement to be signed on its behalf by the undersigned in Salt
Lake City, Utah as of the 5th day of February, 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 February 5, 1998
- --------------------------
James S. Pendleton
/s/ Wayne R. Wright Vice Chairman and CFO February 5, 1998
- -------------------
Wayne R. Wright (Principal Accounting and
Financial Officer)
/s/ C. Reed Brown Director February 5, 1998
- ---------------------------
C. Reed Brown
/s/ Stephen J. Fryer Director and Senior Vice February 5, 1998
- --------------------
Stephen J. Fryer President of Investor Relations
and Marketing
/s/ James Harward
James Harward Director February 5, 1998
II-5
<PAGE>
Exhibit 10.1
THIS WARRANT AND THE STOCK ISSUABLE UPON THE EXERCISE HEREOF CAN BE TRANSFERRED
ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT,
UNLESS, IN THE OPINION OF COUNSEL OF THE COMPANY OR COUNSEL OF THE REGISTERED
HOLDER, SUCH REGISTRATION IS NOT THEN REQUIRED.
Date of Issuance: December 3, 1997
As of October 20, 1997
Expiration Date: November 26, 2002
THIS CERTIFIES THAT, for value received, the party named immediately below
("Holder"), or permitted transferee in accordance with Section 11 hereof, or its
registered assigns (the "Registered Holder" or "Registered Holders"), is
entitled to purchase from Pen Interconnect, INC., a corporation (the "Company"),
345,000 shares of common stock, par value $.001 per share (the "Common Stock"),
of the Company set forth above, subject to adjustment pursuant to Section 4
hereof, at the price of $2.50 per share of Common Stock, subject to adjustment
pursuant to Section 3 hereof (the "Exercise Price"). These purchase rights are
granted as contemplated by Paragraph 2 of that certain Finder's Agreement dated
as of October 20, 1997, among the Company and Holder, subject to the following
provisions:
Section 1
Certain Definitions
As used in this Warrant, the following terms have the meanings set
forth below:
"Agreement" is the Finder's Agreement dated as of October 20, 1997
among the Company and Holder.
"Agreement Date" means the date of the Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 par value per
share.
"Common Stock Deemed Outstanding" means the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common
Stock deemed at and previous to any given time to be outstanding pursuant to
Section 3 of this Warrant.
<PAGE>
"Date of Issuance" is the date set forth on the front page of this
Warrant, and the terms "date hereof," "date of this Warrant," and similar
expressions shall be deemed to refer to the Date of Issuance.
"Exercise Period" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the Date of Issuance and ending at 5:00 P.M., Eastern Time, on
the fifth anniversary date of the Date of Issuance.
"Fair Value" means a value determined jointly by the Company and the
Registered Holders of Warrants representing at least fifty percent (50%) of the
Common Stock purchasable upon the exercise of all the Warrants then outstanding;
provided that if such parties are unable to reach agreement, such "Fair Value"
shall be determined by an appraiser jointly selected by the Company and the
Registered Holders of Warrants representing at least twenty-five percent (25%)
of the Common Stock purchasable upon the exercise of all the Warrants then
outstanding at the Company's sole expense and cost.
"Market Price" means, as to any security immediately transferable
without restriction, the average of the closing prices of such security's sales
on the principal domestic securities exchange on which such security may at the
time be listed, or, if there have been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day, or, if on any day such security is not so listed, the
average of the bid and asked prices quoted on Nasdaq as of the close of trading
in New York City on such day, in each such case averaged over a period of twenty
(20) consecutive business days consisting of the business day immediately
preceding the day as of which Market Price is being determined and the 19
consecutive business days prior to such day; provided that if such security is
listed on any principal domestic securities exchange or quoted on Nasdaq, the
terms "business day" and "business days" mean a day or days, as applicable, on
which such exchange or Nasdaq is open for trading or quotation, as the case may
be, notwithstanding whether any quotation is available on any particular
business day and, if not, then the Market Price shall be determined based upon
those remaining days during the aforesaid 20 day period for which quotations are
available. If any security is not immediately transferable without restriction,
or is not listed on any principal domestic securities exchange or quoted on
Nasdaq, the Market Price shall be the Fair Value thereof.
"Nasdaq" means the National Market System or the Small Cap Market of
The Nasdaq Stock Market, excluding the Nasdaq Bulletin Board, or successor
interdealer quotation systems having substantially the same listing criteria
that may in the future be used generally by members of the National Association
of Securities Dealers, Inc. for over-the-counter transactions in securities.
"Person" means an individual, a partnership, a corporation, a trust, a
joint venture, an unincorporated organization, a government and any department
and agency thereof.
"Stock" means shares of the Company's Common Stock authorized but
unissued as of the Date of Issuance, issued or issuable upon exercise of this
Warrant, provided that if there is a change such that the securities issued or
issuable upon exercise of this Warrant are issued by an entity other than the
Company, or there is a change in the class of securities so issuable, then the
term "Stock" shall mean shares of any security issued or issuable upon exercise
of the Warrant if such security is issuable in shares, or shall mean units of
any such security issued or issuable, if such security is not issuable in
shares.
"Warrant" and "Warrants" means this Warrant and all other Warrants
issued as contemplated by the Agreement, and all Warrants issued or issuable in
exchange or substitution for this Warrant or any such other warrant pursuant to
the terms hereof or thereof, as the case may be.
<PAGE>
Section 2
Exercise of Warrant
.1 Exercise Period. The Registered Holder may exercise this Warrant, in
whole or in part, at any time and from time to time, during the Exercise Period,
and the exercise hereof may be for such whole number of Stock as the Registered
Holder may, in its sole discretion, decide.
.2 Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised at
such time as the Company has received all of the following items (the "Exercise
Date"):
(i) a completed Exercise Agreement, as described below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(ii) this Warrant (subject to delivery by the Company
of a new Warrant with respect to any unexercised portion, as provided in
Paragraph (b) of Subsection 2.2);
(iii) if this Warrant is not registered in the name of
the Purchaser, an Assignment or Assignments substantially in the form set forth
as Exhibit II hereto, evidencing the assignment of this Warrant to the
Purchaser; and
(iv) if the Purchaser has elected not to make a
Cashless Exercise as provided in Paragraph (b) of this Subsection 2.2, a
certified or bank check or other certified funds payable to the Company in
an amount equal to the product of the Exercise Price multiplied by the number
of Stock being purchased upon such exercise.
(b) Certificates for Stock purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within three (3)
business days after the Exercise Date. However, if the Purchaser has elected to
make a "Cashless Exercise" as herein described, the Company shall deliver
certificates for the number of shares that results from subtracting, from the
total number of Stock otherwise deliverable upon exercise, the number of Stock
whose value, calculated using the highest offer for the sale of Common Stock
quoted on any principal domestic securities exchange or on Nasdaq beginning with
the twentieth (20th) business day immediately preceding the Exercise Date and
ending with the business day immediately preceding the date of the actual
issuance of certificates for Stock purchased upon exercise, is equal to the
value of the payment otherwise required for exercise by Paragraph (a)(iv) of
this Subsection 2.2. Unless this Warrant has expired or all of the purchase
rights represented hereby have been exercised, the Company shall, in addition to
certificates for Stock, prepare upon exercise of this Warrant a new Warrant
representing the rights formerly represented by this Warrant that have not
expired or been exercised. The Company shall, within three (3) business days
after the Exercise Date, deliver such new Warrant to the Persons designated for
delivery in the Exercise Agreement.
(c) Except as otherwise required by Paragraph (b) of this
Subsection 2.2, the Stock issuable upon the exercise of this Warrant shall be
deemed to have been issued to the Purchaser on the Exercise Date, and the
Purchaser shall be deemed for all purposes to have become the record holder of
such Stock on the Exercise Date.
<PAGE>
(d) The issuance of certificates for Stock upon exercise of
this Warrant shall be made without charge to the Registered Holder or the
Purchaser for any issuance tax in respect thereof or any other cost incurred by
the Company in connection with such exercise and the related issuance of Stock.
(e) The Company shall not close its books for the transfer
of this Warrant or of any Stock in any manner that interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Stock is at all times equal to or less than the Exercise Price then in
effect.
.3 Exercise Agreement. The Exercise Agreement shall be substantially in
the form set forth as Exhibit I hereto, except that if Stock is not to be issued
in the name of the Registered Holder of this Warrant, the Exercise Agreement
shall also state the name of the Persons to whom Stock is to be issued, and if
the number of Stock purchased does not include all of such Stock purchasable
hereunder, it shall also state the name of the Persons to whom new Warrants for
the unexercised portion of the rights hereunder are to be delivered.
.4 Fractional Portions of Stock. If a fractional portion of Stock would be
issuable upon exercise of the rights represented by this Warrant, the Company
shall, within three (3) business days after the Exercise Date, deliver to the
Purchaser a check payable to the Purchaser, in lieu of such fractional portion
of Stock, in an amount equal to the Market Price of such fractional portion of
Stock as of the close of business on the Exercise Date.
Section 3
Exercise Price
.1 General.
(a) The initial Exercise Price of this Warrant is set forth
on the front page of this Warrant. In order to prevent dilution of the rights
granted under this Warrant, the Exercise Price shall be subject to adjustment
from time to time pursuant to this Section 3.
(b) If and whenever the Company issues or sells, or in
accordance with Subsection 3.2 is deemed to have issued or sold, any shares of
its Common Stock for a consideration per share less than the Exercise Price in
effect immediately prior to the time of such issuance or sale (except for the
issuance or deemed issuance of securities in a transaction described in
Paragraph (c) of this Subsection 3.1), then immediately upon each such issuance
or sale the Exercise Price shall be reduced to a price determined by multiplying
the Exercise Price in effect immediately prior to the issuance or sale by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock actually outstanding prior to the issuance or sale and (ii) the
number of shares of Common Stock that the minimum aggregate amount receivable by
the Company upon such issuance or sale on that occasion would purchase at the
initial Exercise Price, and the denominator of which shall be the number of
shares of Common Stock actually outstanding and Common Stock Deemed Outstanding
under Subsection 3.2 immediately after such issuance or sale.
(c) The existence and any exercise of any option, warrant,
or other right to purchase Common Stock, that is outstanding on the Agreement
Date shall be excluded from the operation of Paragraph (b) of this Subsection
3.1 and from the operation of Subsection 3.2.
.2 Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted
<PAGE>
Exercise Price under Subsection 3.1 above, the following provisions shall be
applicable:
(a) Issuance of Rights and Options. If the Company in any
manner grants any rights or options to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Exercise Price in effect immediately prior to the
time of the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For purposes of
this paragraph, the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" shall be determined by dividing (i) the total amount, if any,
received by the Company as consideration for the granting of such Options plus
the minimum aggregate amount of additional consideration payable to the Company
upon exercise of all such Options plus, in the case of Options that relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
such Convertible Securities, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options and upon the conversion
or exchange of all Convertible Securities issuable upon the exercise of such
Options.
(b) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, and the price per share
for which Common Stock is issuable upon conversion or exchange of such
Convertible Securities is less than the Exercise Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
shall be determined by dividing (i) the total amount received by the Company as
consideration for the issuance or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities.
(c) Change in Option Price and Conversion Rate.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the conversion or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, then the Exercise Price in
effect at the time of such change shall be reduced to the Exercise Price that
would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration,
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(d) Calculation of Consideration Received. If any Common
Stock, Options, or Convertible Securities are issued or sold or deemed to have
been issued or sold for consideration that includes unrestricted cash, then the
amount of cash consideration actually received by the Company shall be deemed to
be the full monetary value of the unrestricted cash portion thereof. If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for a consideration part or all of which is other than
unrestricted cash, then the amount of the consideration other than unrestricted
<PAGE>
cash received by the Company shall be deemed to be the Reasonable Value of such
consideration.
(e) Integrated Transactions. If any Option is issued in
connection with the issuance or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued without consideration.
(f) Treasury Shares. The number of shares of Common Stock
Deemed Outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any shares so owned or
held shall be considered an issuance or sale of Common Stock.
.3 Subdivision and Combination of Common Stock; Stock Dividends. If the
Company shall at any time after the date hereof (a) issue any shares of Common
Stock or Convertible Securities, or any rights to purchase Common Stock or
Convertible Securities as a dividend upon Common Stock, (b) issue any shares of
Common Stock in subdivision of outstanding shares of Common Stock by
reclassification, stock split or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification, reverse stock split or otherwise, then the
Exercise Price that would apply if purchase rights hereunder were being
exercised immediately prior to such action by the Company shall be reduced only
by multiplying it by a fraction, the numerator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately prior to such dividend,
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately after such dividend,
subdivision or combination.
.4 Certain Dividends and Distributions. If the Company shall declare a
dividend or distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus and otherwise than in Common Stock, Options or
Convertible Securities, the Exercise Price shall be reduced by an amount equal,
in the case of a dividend or distribution in cash, to the amount thereof payable
per share of the Common Stock or, in the case of any other dividend or
distribution, to the Fair Value of such dividend or distribution per share of
Common Stock. For purposes of the foregoing, a dividend or distribution other
than in cash shall be considered payable out of earnings or earned surplus only
to the extent that such earnings or earned surplus are charged an amount equal
to the Fair Value of such dividend or distribution. Such reductions shall take
effect as of the date on which a record is taken for the purpose of such
dividend or distribution, or, if a record is not taken, the date as of which the
holders of Common Stock of record entitled to such dividend or distribution are
to be determined.
.5 Manner of Calculating Adjustments; No De Minimis Adjustments. The
calculation of each adjustment of the Exercise Price shall be made accurate to
the nearest ten- thousandth. No adjustment of the Exercise Price shall be made
if the amount of such adjustment would be less than one cent per share. In such
case any adjustment that otherwise would be required to be made shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment that, together with any adjustment or adjustments so carried forward,
shall amount to not less than one cent per share.
Section 4
Adjustment of Number of
<PAGE>
Stock Issuable upon Exercise
Upon each reduction of the Exercise Price pursuant to Section 3 hereof,
the Registered Holder shall thereafter (until another such reduction ) be
entitled to purchase, at the Exercise Price in effect on the date purchase
rights under this Warrant are exercised, the number of Stock, calculated to the
nearest whole number of Stock, determined by (a) multiplying the number of Stock
purchasable hereunder immediately prior to the reduction of the Exercise Price
by the Exercise Price in effect immediately prior to such reduction, and (b)
dividing the product so obtained by the Exercise Price in effect on the date of
such exercise.
Section 5
Effect of Reorganization,
Reclassification, Consolidation, Merger, Sale or Other Disposition
If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 3.3
hereof), any consolidation or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common Stock), or any sale
or other disposition by the Company of all or substantially all of its assets to
any other corporation, then the Registered Holder shall thereafter upon exercise
of this Warrant be entitled to receive the Stock and other securities and
property of the Company, or of the successor corporation resulting from
consolidation or merger, as the case may be, to which Purchasers of Stock would
have been entitled upon such reorganization, reclassification of capital stock,
consolidation, merger, sale or other disposition if this Warrant had been
exercised immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition. In any such case, appropriate
adjustment (as determined jointly by the Company and the Registered Holders of
Warrants representing at least fifty percent (50%) of the Stock purchasable upon
the exercise of all Warrants then outstanding ) shall be made in the application
of the provisions set forth in this Warrant with respect to the rights and
interests thereafter of the Registered Holder to the end that the provisions set
forth in this Warrant shall thereafter be applicable, as near as reasonably may
be, in relation to any Stock or other securities or property thereafter
deliverable upon the exercise hereof as if this Warrant had been exercised
immediately prior to such reorganization, reclassification of capital stock,
consolidation, merger, sale or other disposition and the Registered Holder
hereof had carried out the terms of the exchange as provided for by such
reorganization, reclassification of capital stock, consolidation, merger, sale
or other disposition. If in any such reorganization, reclassification,
consolidation, merger, sale or other disposition, additional shares of Common
Stock shall be issued in exchange, conversion, substitution or payment, in whole
or in part, for or of a security of the Company other than Common Stock
deliverable from exercise of this Warrant, any such issue shall be treated as an
issue of Common Stock covered by the provisions of Section 3, with the amount of
the consideration received upon the issue thereof being determined under
Paragraph (e) of Subsection 3.2. The Company shall not effect any such
reorganization, consolidation, merger, sale
<PAGE>
or other disposition unless, upon or prior to the consummation thereof, the
successor corporation shall assume by written instrument the obligation to
deliver to the Registered Holder such shares of stock or other securities, cash
or property as such Registered Holder shall be entitled to purchase in
accordance with this Warrant's provisions.
Section 6
Notice of Adjustment
Immediately upon any adjustment of the Exercise Price, the Company
shall send written notice thereof to all Registered Holders, stating the
adjusted Exercise Price and the number of Stock purchasable upon exercise of
this Warrant and setting forth in reasonable detail the method of calculation
for such adjustment. When possible, such notice shall be given in advance and
included as part of any notice required to be given pursuant to Section 7 below.
Section 7
Prior Notice of Certain Events
If at any time:
(a) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than cash dividends) to the
holders of its Common Stock of record;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock of record any additional shares of stock of any
class or any other rights;
(c) there shall be any reorganization or reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with another corporation, or a sale or other disposition of all or substantially
all its assets;
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company shall file any registration statement
pursuant to the Securities Act of 1933, as amended (the "Act")
then, in each such case, the Company shall give prior written notice of the date
on which (i) the books of the Company shall close or a record shall be taken for
such stock dividend, distribution, subscription or other rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or other
disposition, dissolution, liquidation, winding up or filing of a registration
statement shall take place, as the case may be. A copy of each such notice shall
be sent simultaneously to each transfer agent of the Company's Common Stock.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in said dividend, distribution, subscription,
registration or other rights or shall be entitled to exchange their Common Stock
for
<PAGE>
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or other disposition, dissolution,
liquidation, winding up or filing, as the case may be, and in any case
contemplated by Paragraph (d) of Subsection 3.2, shall include the Company's
calculation of Reasonable Value, which shall in such cases be 50% of the Fair
Value of the consideration whose Reasonable Value requires determination. Such
written notice shall be given at least 30 days prior to the record date or the
effective or filing date, whichever is earlier, of the subject action or other
event.
If any action or event not listed above would require adjustment to the
Exercise Price, then the Company shall give prior written notice thereof, in
substance as set forth above, to Registered Holders at their addresses and in
the manner provided in Subsection 15.3.
Section 8
New Pro Rata Purchase Rights
If at any time prior to the expiration of the Exercise Period the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the holders
of Common Stock of record (the "Purchase Rights"), then the Registered Holder
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights that such Registered Holder could have acquired if
such Registered Holder had held the number of Stock acquirable upon exercise of
this Warrant had this Warrant been fully exercised immediately prior to the date
on which a record was taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record was taken, the date as of which the holders of
Common Stock of record were determined for the grant, issuance or sale of such
Purchase Rights.
Section 9
Reservation of Common Stock
The Company shall at all times reserve and keep available for issuance
upon the exercise of the Warrants such number of its authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise in full of
all outstanding Warrants, and upon such issuance such shares of Common Stock
will be validly issued, fully paid and nonassessable.
Section 10
No Stockholder Rights or Obligation
This Warrant shall not entitle the Registered Holder to any voting
rights or other rights as a stockholder of the Company. No provision of this
Warrant, in the absence of affirmative action by the Registered Holder to
purchase Stock, and no enumeration in this Warrant of the rights or privileges
of the Registered Holder, shall give rise to any obligation of such Registered
Holder for the payment of the Exercise Price of Stock acquirable by exercise
hereof (in the absence of such actual exercise) or as a stockholder of the
Company.
<PAGE>
Section 11
Exchangeable for Different Denominations
This Warrant is exchangeable, upon the surrender hereof by the
Registered Holder at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the purchase rights hereunder, as set
forth on the front page hereof, and each of such new Warrants will represent
such portion of such rights as is designated by the Registered Holder at the
time of such surrender. The date the Company initially issued this Warrant,
which is set forth on the front page hereof, shall be deemed to be the "Date of
Issuance" of this Warrant and any Warrant exchanged or substituted therefore,
regardless of the dates on which new Warrants representing the unexpired and
unexercised rights formerly represented by this Warrant are issued.
Section 12
Transferability
Subject only to the transfer conditions referred to in this Section 12,
this Warrant and all rights hereunder are transferable, in whole or in part,
without restriction and without charge to the Registered Holder, upon surrender
of this Warrant with a properly executed Assignment (substantially in the form
of Exhibit II hereto) at the principal office of the Company. This Warrant and
the Stock issued upon exercise hereof may not be offered, sold or transferred
except in compliance with the Act and any applicable state securities laws, and
then only against receipt of an agreement of the Person to whom such offer or
sale is made to comply with the provisions of this Section 12 with respect to
any resale or other disposition of such securities; provided, that no such
agreement shall be required from any Person purchasing this Warrant or any Stock
pursuant to a registration statement effective under the Act. The Registered
Holder agrees that, prior to the disposition of any Stock purchased on the
exercise hereof under circumstances that might require registration of such
Stock under the Act, or any similar statute then in effect, the Registered
Holder shall give written notice to the Company, expressing its intention as to
such disposition. Within one (1) business day after receiving such notice, the
Company shall present a copy thereof to its securities counsel. If, in the
opinion of such counsel, which shall be rendered within five (5) business days
after receiving such notice, or in the opinion of the Registered Holder's own
counsel, the proposed disposition does not require registration of such Stock
under the Act, or any similar statute then in effect, the Company shall, within
two (2) business days of the rendering of such opinion, notify the Registered
Holder of such opinion, whereupon the Registered Holder shall be entitled to
dispose of such Stock in accordance with the terms of the notice delivered by
the Registered Holder to the Company. The above agreement by the Registered
Holder shall not be deemed to limit or restrict in any respect the exercise of
rights set forth in Section 13 hereof.
Section 13
Registration Rights
.1 Demand Rights. At any time during the Exercise Period, the Registered
Holders of Warrants or Stock whose holdings thereof comprise a majority of Stock
purchasable upon the exercise of
<PAGE>
outstanding Warrants and of outstanding Stock not previously covered by a
registration statement as contemplated by this Section 13 (collectively, the
"Warrant Securities") shall have the right to require the Company to (a) prepare
and file with the Commission, within 10 days of the date of a written demand, if
the filing so demanded is then permitted under the Act to be made using Form S-8
or equivalent form that the Commission may hereafter prescribe, or if not, then
within 30 days of the date of a written demand, up to 2 new registration
statements under the Act (or, in lieu of either, a post-effective amendment or
amendments to a registration statement, if then permitted under the Act),
covering all or any portion of the Stock underlying the Warrants, and to use its
best efforts to obtain promptly and maintain the effectiveness thereof for at
least one hundred twenty (120) days and (b) register or qualify the subject
Stock for sale in up to ten (10) states identified by such Registered Holders.
The Company shall bear all expenses incurred in the preparation and filing of
the registration statement or post-effective amendment (and related state
registrations, to the extent permitted by applicable law) and the furnishing of
copies of the preliminary and final prospectus thereof to such Registered
Holders.
.2 "Piggyback" Rights. In addition, if at any time during the Exercise
Period, the Company shall prepare and file one or more post-effective amendments
to a registration statement, or a new registration statement under the Act, with
respect to a public offering of equity or debt securities of the Company,
whether by the Company or by others Persons, then the Company shall include in
any such post-effective amendment or registration statement such information as
may be required to permit a public offering of Warrant Securities held by any
Registered Holders requesting inclusion of their Warrant Securities; provided
that where such offering is to be an underwritten offering, and in the opinion
of the Company's managing underwriter the inclusion of the Warrant Securities
requested to be registered, when added to the other securities being registered,
would exceed the maximum amount of the Company's securities that can be marketed
without otherwise materially and adversely affecting the entire offering, then
the Company may exclude from such offering a portion of the Warrant Securities
requested to be so registered, so that the total number of securities to be
registered is within the maximum number of shares that, in the opinion of the
managing underwriter, may be marketed without otherwise materially and adversely
affecting the entire offering; provided, that the entire amount of any
previously issued securities other than Warrant Securities that are proposed to
be registered shall be excluded before the exclusion of any portion of the
Warrant Securities for which registration was requested. Each Registered Holder
of Warrant Securities for whose account any such securities may be included in a
post-effective amendment or registration statement shall have the unrestricted
right to withhold from inclusion in the underwritten securities, without regard
to whether registration was requested, any or all of that Registered Holder's
Warrant Securities. The Company shall bear all fees and expenses incurred by it
in connection with the preparation and filing of such post-effective amendment
or new registration statement. In the event of such a proposed registration, the
Company shall furnish the then Registered Holders of Warrant Securities with not
less than thirty (30) days' written notice prior to the proposed date of filing
of such post-effective amendment or new registration statement. Such notice
shall continue to be given by the Company to Registered Holders of Warrant
Securities, with respect to subsequent registration statements or post-effective
amendments filed by the Company, until such time as all of the Stock has been
registered or may be sold without registration under the Act or applicable state
securities laws and regulations, and without limitation as to volume pursuant to
Rule 144 under the Act. The Registered Holders of
<PAGE>
Warrant Securities shall exercise the rights provided for in this Subsection
13.2 by giving written notice to the Company, within twenty (20) days of receipt
of the Company's notice of its intention to file a post-effective amendment or
new registration statement.
.3 Use of Prospectus. The Registered Holder, upon receipt of notice
from the Company of the occurrence of an event which requires a post-effective
amendment to a registration statement or an amendment or a supplement to the
prospectus included therein, shall promptly discontinue the sale of his Stock
until it has received copies of a supplemented or amended prospectus from the
Company, and until such receipt, the running of any minimum period of
effectiveness required by Subsection 13.1 shall be tolled.
Section 14
Indemnification
(a) By the Company. The Company shall indemnify, to the full
extent permitted by law, the Registered Holder, its directors and officers (if
applicable) and each person, if any, who controls the Registered Holder within
the meaning of Section 15 of the Act, against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of a material fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of the
prospectus or any preliminary prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as the same are caused by
or contained in any information with respect to the Registered Holder furnished
in writing to the Company by the Registered Holder expressly for use therein.
(b) By the Registered Holder. In connection with any
registration statement in which the Registered Holder is participating, the
Registered Holder shall indemnify, to the full extent permitted by law, the
Company, its directors and officers and each person who controls the Company
(within the meaning of Section 15 of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of the
prospectus or any preliminary prospectus, in light of the circumstances under
which they were made) not misleading, but only insofar as the same are caused by
or contained in any information with respect to the Registered Holder furnished
in writing to the Company by the Registered Holder expressly for use therein.
(c) Indemnification Procedures. Any person who is entitled
to indemnification under this Section 14 shall (i) give prompt written notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent. No indemnifying party shall consent to
<PAGE>
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and other indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) Contribution. If for any reason an indemnification
provision of this Section 14 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of any such loss,
claim, damage, liability or expense in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether any untrue or alleged
untrue statement of a material fact or omission to state material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) Actions by Registered Holder. The Registered Holder
shall, at his cost and expense, complete, execute and deliver all
questionnaires, powers of attorney, undertakings and other documents and
instruments, and take all such other actions, as are from time to time
reasonably requested by the Company.
(f) Survival. The rights and obligations set forth in this
Section 14 shall survive the exercise and surrender of this Warrant.
Section 15
Miscellaneous
.1 Original Issue Taxes. The Company shall pay all United States, state
and local (but not foreign) original issue taxes, if any, upon the issuance of
this Warrant or the Stock deliverable upon exercise hereof.
.2 Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended, and the Company may take any action
herein prohibited or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Registered
Holders of Warrants representing at least fifty percent (50%) of the Stock
obtainable upon the exercise of the Warrants outstanding at the time of such
consent.
<PAGE>
.3 Notices. Any notices required to be sent to a Registered Holder
shall be delivered to the address of such Registered Holder shown on the books
of the Company. All notices referred to herein shall be delivered in person or
sent by registered or certified mail, postage prepaid, and shall be deemed to
have been given when so delivered in person, or on the third business day
following the date so sent by mail. Whether or not Holder or an affiliate
thereof shall then be a Registered Holder, a copy of any notice sent to any
Registered Holder shall be sent to Holder in the manner provided above, at the
following addresses:
.4 Compliance. The Company shall fully compensate Registered Holders
and former Registered Holders for any loss that they may sustain as a result of
the Company's failure to comply with any provision of the Warrant, including but
not limited to any error that the Company may make in adjusting an Exercise
Price under Section 3, in adjusting the number of Stock issuable upon exercise
under Section 4 and in sending notices and taking other required actions under
Sections 6, 7 and 13. This compensation may include, as liquidated damages, at
the individual election of the Registered Holders and former Registered Holders
affected by the Company's failure to comply with any Warrant provision,
adjustments to the Warrant, or the issuance of an additional warrant or Stock,
with a Fair Value at least equal to 130% of the value of any deemed loss
resulting from the Company's failure to comply with any Warrant provision, as
determined by the following formula:
LV = (P1 - P2) X S
Where :
LV = the value of any deemed loss
P1 = the greater of (i) the highest closing offer for one share
of Stock reported by a domestic securities exchange or
Nasdaq, defined for purposes of this calculation only to
mean the National Market System, the Small Cap Market and
the Bulletin Board ("Pink Sheets") of The Nasdaq Stock
Market, and (ii) the highest price paid for the purchase of
one share of Stock on a domestic securities exchange or on
Nasdaq during the period beginning with the date of the
Company's failure to comply with any provision of the
Warrant and ending with the business day preceding the first
date on which Registered Holders and former Registered
Holders have received a compensatory adjustment or issuance
covered by a registration statement effective under the Act
(the "Compensation Period")
P2 = the lowest closing bid for one share of Stock reported by
a domestic
<PAGE>
securities exchange or Nasdaq on any day of the Compensation
Period
S = the total number of Stock that the Registered
Holder or former Registered Holder could have sold
under a registration statement effective under the
Act, but for the Company's failure to comply with the
provisions of the Warrant.
5. Attorney's Fees; Costs. In any litigation against the
Company, including actions for enforcement or interpretation, arising out of the
Warrant, prevailing Registered Holders and former Registered Holders shall be
entitled to recover from the Company reasonable attorney's fees, costs and
expenses.
6. Descriptive Headings; Governing Law. The descriptive
headings of the sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The construction,
validity, and interpretation of this Warrant shall be governed by the laws of
the State of Florida, without giving effect to choice of law or conflict of laws
principals, and the venue shall be Palm Beach County, Florida
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and attested by its duly authorized officers under its corporate seal.
PEN INTERCONNECT, INC.
[THE COMPANY], a corporation
By: /s/ James S. Pendleton
President
[Corporate Seal]
Attest:
Corporate Secretary
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
THE UNDERSIGNED Registered Holder, pursuant to the provisions set forth
by the within Warrant, hereby subscribes for and purchases _____ shares of Stock
covered by such Warrant and herewith elects to make
( ) a Cashless Exercise at the Exercise Price provided by such Warrant.
( ) full cash payment of $___________ for such shares at the Exercise
Price provided by such Warrant.
(Signature)
(Print or type name)
(Address)
NOTICE: The signature on this Exercise Agreement must correspond with
the name as written upon the face of the within Warrant, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement, or
any change whatsoever, and must be Medallion guaranteed by a bank, other than a
savings bank, having an office or correspondent in New York, New York, Boca
Raton or Miami, Florida, or Atlanta, Georgia, or by a firm having membership on
a registered national securities exchange and an office in New York, New York,
Boca Raton or Miami, Florida, or Atlanta, Georgia.
SIGNATURE GUARANTEE
Authorized Signature:
<PAGE>
Name of Bank or Firm:
Dated:
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, __________________________________________, the
undersigned Registered Holder hereby sells, assigns, and transfers all of the
rights of the undersigned under the within Warrant with respect to the number of
Securities covered thereby set forth below, unto the Assignee identified below,
and does hereby irrevocably constitute and appoint_______________________
______________________________________ to effect such transfer of rights on the
books of the Company, with full power of substitution:
<TABLE>
<CAPTION>
No. of Shares
Name of Assignee Address of Assignee of Stock No. of Warrants
<S> <C> <C> <C>
</TABLE>
Dated:
(Signature of Registered Holder)
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name
as written upon the face of the within Warrant, in every particular, without
alteration, enlargement, or any change whatsoever, and must be Medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in New York, New York, Boca Raton or Miami, Florida, or Atlanta,
Georgia, or by a firm having membership on a registered national securities
exchange and an office in New York, New York, Boca Raton or Miami, Florida, or
Atlanta, Georgia.
SIGNATURE GUARANTEE
Authorized Signature:
Name of Bank or Firm:
<PAGE>
Dated:
<PAGE>
Exhibit 10.2
No. _ $50,000 USD
PEN INTERCONNECT, INC.
$ 1,100,000 3% Convertible Debenture
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND ARE BEING OFFERED AND SOLD ONLY TO
ACCREDITED INVESTORS IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT. SUCH SECURITIES MAY NOT BE REOFFERRED FOR SALE OR
RESOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE APPLICABLE
PROVISION OF THE ACT OR ARE EXEMPT FROM SUCH REGISTRATION.
This Debenture is one of a duly authorized issue of Debentures of Pen
Interconnect, Inc., a corporation duly organized and existing under the laws of
the State of Utah (the "Issuer") designated as its Three (3%) Percent
Convertible Debenture due November ___, 1999, in an aggregate face amount not
exceeding One Million One Hundred Thousand (USD $ 1,100,000) Dollars, issuable
in Fifty Thousand ($50,000) Dollars principal amounts.
For Value Received, the Issuer promises to pay to
________________________________ the registered holder hereof and its successors
and assigns (the "Holder"), the principal sum of:
Fifty Thousand United States Dollars,
on November ___, 1999 (the "Maturity Date"), and to pay interest, as outlined
below, at the rate of 3% per annum, on the principal sum outstanding from time
to time for the term of the Debenture or until the Debenture is completely
converted. The interest so payable will be paid to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Issuer regarding registration and transfers of the Debenture (the
"Debenture Register"), provided, however, that the Issuer's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Subscription Agreement dated as of November ___, 1997 between the Issuer and
Holder (the "Subscription Agreement"). Holder shall be entitled to receive
interest, which shall accrue and be payable quarterly, in cash or the Issuer's
common stock, $.01 par value per share ("Common Stock"), at the option of the
Board of Directors of the Issuer. The interest shall be accrued on last day of
each fiscal quarter of the Issuer (March 31, June 30, September 30 and December
31). If the Issuer exercises its option to pay a quarterly dividend in shares of
Common Stock, the number of shares which Holder will receive shall be computed
by dividing the interest due in such quarter by the closing bid price of a share
of the Common Stock on the last day of the quarter in which the interest
accrued. The Holder shall waive its right to receive such interest in the event
this Debenture is converted to Common Stock during the six calendar months
following the date of this Debenture. Accordingly, interest shall be held by the
Issuer until six months following the date of this Debenture. Thereafter,
interest shall be payable ten (10) business days following the end of the fiscal
quarter in which accrued.
<PAGE>
The principal of, and interest on, this Debenture are payable
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, at the address
last appearing on the Debenture register of the Issuer as designated in writing
by the Holder hereof from time to time. The Issuer will pay the principal of and
all accrued and unpaid interest due upon this Debenture on the Maturity Date,
less any amounts required by law to be deducted or withheld, to the Holder at
the last address on the Debenture Register. The forwarding of such check shall
constitute a payment of principal and interest hereunder and shall satisfy and
discharge the liability for principal and interest on the Debenture to the
extent of the sum represented by such check plus any amounts so deducted.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
Holders surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Issuer shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States Income Tax or
other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original Holder hereof and may be transferred or
exchanged in the United States of America only in compliance with Securities Act
of 1933, as amended (the "Act") and applicable state securities laws. Prior to
the due presentment for such transfer of this Debenture, the Issuer and any
agent of the Issuer may treat the person in whose name this Debenture is duly
registered on the Issuer's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and all other purposes, whether
or not this debenture is overdue, and neither the Issuer nor any such agent
shall be affected by notice to the contrary. The transferee shall be bound, as
the original Holder by the same representations and terms described herein and
under the Subscription Agreement.
4. Terms of Conversion.
(a) Conversion Date. The Holder is entitled, at its option, to convert
the Debentures into shares of the Common Stock as follows: on the earlier of (1)
One third (1/3) on the 75th calendar day following the Original Issuance Date,
Two thirds (2/3) on the 105th calendar day following the Original Issuance Date,
and 100% on the 135th calendar day or (2)One third (1/3) on the next business
day following the effective date of the Registration Statement, Two thirds (2/3)
on the 30th calendar day following the effective date of the Registration
Statement, and 100% on the 60th calendar day following the effective date of the
Registration Statement.
(b) Conversion Price. The Holder has the right to convert any
Debentures he owns (except that upon any liquidation of the Issuer, the right of
conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable on the Debentures) into a number of
shares of Common Stock equal to the Debenture Face Value multiplied by the
number of Debentures to be converted divided by the "Conversion Price," which is
defined as the lesser of:
1. Floating Conversion Price. 80% of the average closing bid
price of the Common Stock (the "Average Closing Price"), as
reported by the Nasdaq National Market System, Nasdaq
<PAGE>
SmallCap Market, or NASDAQ Electronic Bulletin Board during
the five trading days immediately preceding the date of
conversion (the "Conversion Date"), or
2. Maximum Conversion Price. $ 2.75 per share
3. Put Option. If the underlying common stock of Pen
Interconnect closes below $ 2.00 for twenty (20) consecutive
trading days, the investor has the right to put all or part of
his unconverted debentures back to the company for full face
value plus any and all unpaid and accrued interest payments.
The company will have 14 days to pay the investor his funds.
In addition, Holder shall be paid interest at a rate yielding three
(3%) percent per annum on the amount of cash due, which shall accrue from the
date of Holder's Notice of Conversion less any interest previously paid by
Issuer.
No fractional shares or script representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded to then
nearest whole share.
(c) Mandatory Conversion. Commencing upon the occurrence of both (1)
the 110th calendar day after the effective date of the Registration Statement
and (2) 20 consecutive trading days in which the Common Stock shall have had a
bid or sale price at or above $5.75 per share, the Issuer shall have the right
to convert the Debentures ten (10) business days following delivery of notice
thereof to the Holder at the Maximum Conversion Price. Such notice shall be
ineffective if during such ten business-day period either: (3) the Common Stock
is suspended from trading on the stock exchange or electronic trading system
upon which it is listed or (4) the effectiveness of the Registration Statement
is suspended by order of the Securities and Exchange Commission.
5. No provision of this Debenture shall alter or impair the obligation
of the Issuer, which is absolute and unconditional, to pay the principal of, and
interest on this Debenture at the place, time, and rate, and in the coin or
currency herein prescribed.
6. The Issuer hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owning hereon,
regardless of an without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder. The Issuer agrees
to pay all costs and expenses, including reasonable attorneys' fees, which may
be incurred by the Holder in collecting any amount due or exercising the
conversion rights under this Debenture.
7. If one or more of the following described "Events of Default" shall
occur,
a. The Issuer shall default in the payment of principal or interest on
this Debenture and continuance for thirty (30) days; or
b. Any of the representations or warranties made by the Issuer herein, or
in the Subscription Agreement shall have been incorrect in any
material respect; or
c. The Issuer shall fall to perform or observe any other material
covenant, term, provision, condition,
<PAGE>
agreement or obligation of the Issuer under this Debenture and such
failure shall continue unaccrued for a period of seven (7) days after
notice from the Holder of such failure; or
d. A trustee, liquidator or receiver shall be appointed for the Issuer or
for a substantial part of its property or business without its consent
and shall not be discharged within thirty (30) days after such
appointment; or
e. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the
Issuer and shall not be dismissed within thirty (30) calendar days
thereafter; or
f. Bankruptcy reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief or debtors shall be instituted by or against the Issuer, and
if instituted against the Issuer, Issuer shall by any action or answer
approve of, consent to or acquiesce in any such proceedings or admit
the material allegations of, or default in answering a petition filed
in any such proceeding; or
g. The Issuer's Common Stock is delisted from trading on the NASDAQ
National Market unless it is thereupon admitted to trading on the
NASDAQ SmallCap Market or a national stock exchange.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments to the contrary notwithstanding, and Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
8. In case any provision of this Debenture is held in arbitration, as
set forth in the Subscription Agreement, to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
9. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Issuer
and Holder with respect hereof. Neither this Debenture nor any terms hereof may
be amended, waived, discharged or terminated other than by a written instrument
signed by the Issuer and the Holder.
10. This Debenture shall be governed by and construed in accordance
with the laws of the State of Utah.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PEN INTERCONNECT, INC.
By:_____________________
Name: James S. Pendleton
Title: CEO
Date: November ___, 1997
("Original Issuance Date")
<PAGE>
Exhibits 5 and 23.1
LAW OFFICES OF OSCAR FOLGER
521 Fifth Avenue
New York, New York 10175
February 6, 1998
Pen Interconnect, Inc.
2351 South 2300 West
Salt Lake City, Utah 84119
Re: Form S-3 Registration Statement
Gentlemen:
We have acted as counsel for Pen Interconnect, Inc., a Utah corporation
(the "Company"), in connection with the registration by the Company of 950,000
shares of Common Stock, par value $0.01 per share (the "Securities"), which are
the subject of a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Act").
As counsel to the Company we have examined and relied upon the original
or copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed necessary
in order to render the following opinion.
On the basis of and subject to the foregoing, it is our opinion that
the Securities issued or to be issued and sold or to be sold by the Company have
been duly authorized and are, or, when issued and sold, will be duly issued and
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Registration Statement. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Securities and Exchange Commission thereunder.
This opinion is to be used only in connection with the offer and sale
of the Securities as variously referred to herein while the Registration
Statement is in effect.
Very truly yours,
/s/ Oscar D. Folger
<PAGE>
Exhibit 23.2
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 for the year ended September 30, 1997 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
February 6, 1998
