SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. _____________]
Filed by the Registrant [X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
- --------------------------------------------------------------------------------
PEN INTERCONNECT, INC.
-----------------------
Name of Registrant as Specified in Its Charter
PEN INTERCONNECT, INC.
-----------------------
Name of Person(s) Filing Proxy Statement if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and )-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule O-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined.)______________________________________________________
4) Proposed maximum aggregate value of transaction:___________________
5) Total fee paid:____________________________________________________
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:____________________________________________
2) Form Schedule or Registration Statement No.:_______________________
3) Filing Party:______________________________________________________
4) Date Filed:________________________________________________________
<PAGE>
PEN INTERCONNECT, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 27, 1998
To the Shareholders of Pen Interconnect, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
Pen Interconnect, Inc., a Utah corporation (the "Company"), will be held on
Thursday, August 27, 1998, at 10:00 a.m., local time, at Country Inns & Suites,
3422 South Decker Lane, West Valley City, Utah (the "Meeting"), for the
following purposes:
1. To elect six (6) directors to serve for one year terms, or until
their respective successors shall be duly elected or appointed.
2. To ratify the appointment of Grant Thornton LLP, as independent
auditor for the Company for the fiscal year ending, September 30, 1998 for the
purpose of auditing the financial statements and books of the Company for and
during the period ending on that date.
3. To ratify the issuance of convertible debentures and warrants that
are convertible into common shares of the Company.
4. To ratify the issuance and grant of stock options to certain of the
Company's officers and directors that, in the aggregate, entitle the officers
and directors to acquire up to 675,500 of the Company's common shares.
5. To transact such other business as may properly come before the
Meeting, or any adjournment or postponement thereof.
The Board of Directors has established July 31, 1998 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Meeting. Accordingly, only shareholders of record at the close of business on
that date are entitled to vote at the Meeting, or any adjournment or
postponement thereof.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/Robert Albrecht
------------------
Robert J. Albrecht
Secretary
Salt Lake City, Utah
July 27, 1998
IMPORTANT
Shareholders are cordially invited to attend the Meeting. Regardless of
whether you expect to attend the Meeting in person, we urge you to read the
attached Proxy Statement and sign and date the accompanying proxy card and
return it in the enclosed postage-prepaid envelope. It is important that your
shares be represented at the Meeting. If you receive more than one proxy card
because your shares are registered in different names or notices go to different
addresses, each card should be completed and returned to assure that all of your
shares are voted. Your proxy will not be used if you are present at the Meeting
and desire to vote your shares personally.
<PAGE>
PEN INTERCONNECT, INC.
2351 South 2300 West
Salt Lake City, Utah 84119
----------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
August 27, 1998
----------
Solicitation of Proxies
This Proxy Statement is furnished to the shareholders of Pen
Interconnect, Inc., a Utah corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies from the
Company's shareholders for use at the 1998 Annual Meeting of Shareholders of the
Company to be held on Thursday, August 27, 1998, at 10:00 a.m., local time, at
Country Inns & Suites, 3422 South Decker Lane, West Valley City, Utah, and at
any adjournment or postponement thereof (the "Meeting"). At the Meeting, the
Company's shareholders will be asked to (i) elect six directors, (ii) approve
independent public accountants to audit the Company's financial statements for
the fiscal year ending September 30, 1998, (iii) ratify the issuance of
convertible debentures and warrants that are convertible into common shares of
the Company, (iv) to ratify the issuance and grant of stock options to certain
of the Company's officers and directors that, in the aggregate, entitle the
officers and directors to acquire up to 675,500 of the Company's common shares,
and (v) vote on such other matters as may properly come before the Meeting or
any adjournment or postponement of the Meeting.
Only shareholders of record at the close of business on July 31, 1998
are entitled to notice of and to vote at the Meeting. The approximate date upon
which this Proxy Statement, the enclosed proxy and the attached Notice of Annual
Meeting of Shareholders are first being sent to shareholders is August 10, 1998.
The entire cost of soliciting proxies for use at the Meeting will be
borne by the Company. Proxies will be solicited by use of the mails. Directors,
officers and regular employees of the Company may also solicit proxies by
telephone, telecopier, electronic transmission or personal contact. The Company
will not pay any special compensation, to any person, in connection with the
solicitation of proxies. The cost of the solicitation of proxies will include
the cost of supplying necessary copies of the solicitation materials to the
beneficial owners of those common shares which are held of record by brokers,
dealers, banks, voting trustees and their nominees, including, upon request, the
reasonable expenses which are incurred by such record holders in mailing the
solicitation materials to beneficial owners.
<PAGE>
Proxies
Proxies in the enclosed form will be effective if they are properly
executed, returned to the Company prior to the Meeting, and not revoked. The
common shares represented by each effective proxy will be voted at the Meeting
in accordance with the instructions of the shareholder. If no instructions are
indicated on a proxy, all common shares represented by that proxy will be voted
(i) in favor of the election of the nominees for directors described in this
proxy statement, (ii) in favor of ratification of the appointment of Grant
Thornton LLP as the Company's independent auditors for the fiscal year ending
September 30, 1998, (iii) to ratify the issuance of the convertible debentures
and warrants, (iv) to ratify the issuance and grant of stock options to certain
officers and directors of the Company, and (v) in the discretion of the persons
named in the accompanying Proxy, upon such other matters as may properly come
before the Meeting.
A shareholder giving a proxy pursuant to this solicitation may revoke
it at any time prior to its exercise by delivering to the Secretary of the
Company a written notice of revocation, or a duly executed proxy bearing a later
date, or by attending the Meeting and voting in person. Any written notice
revoking a proxy should be sent to the principal executive offices of the
Company, addressed as follows: Pen Interconnect, Inc., 2351 South 2300 West,
Salt Lake City, Utah 84119 attn: Secretary.
Information on Outstanding Shares and Voting
On the record date, 4,773,910 of the Company's common shares, par value
$.01 per share, were issued and outstanding and there were no preferred shares
outstanding. Each share is entitled to one vote on each matter to be voted upon.
A majority of the votes entitled to be cast at the Meeting is required
for a quorum for the transaction of business at the Meeting. Abstentions and
broker non-votes (i.e., shares held by brokers or nominees as to which the
broker or nominee indicates on a proxy that it does not have discretionary
authority to vote) are each included in the determination of the number of
shares present and voting for purposes of determining the presence of a quorum.
Each is tabulated separately. Under Utah law, once a quorum is established,
shareholder approval with respect to a particular proposal is generally obtained
when the votes cast in favor of the proposal exceed the votes cast against the
proposal. In the election of directors, the six nominees receiving the highest
number of votes will be elected. Abstentions and broker non-votes will not be
considered as votes cast for or against any matter considered at the Meeting and
will not affect the outcome of any matter considered at the Meeting
<PAGE>
<TABLE>
<CAPTION>
PROPOSAL # 1 - ELECTION OF DIRECTORS
Nominees and Information
At the Meeting, six (6) directors are to be elected to serve one year
terms expiring at the annual meeting of shareholders to be held in 1999. All
directors will serve until their successors are duly elected and qualified,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office.
The persons named as proxy holders in the enclosed proxy card (Messrs.
James S. Pendleton and Wayne R. Wright) have advised the Company that, unless a
contrary direction is indicated on the proxy card, they intend to vote for the
six nominees named below. They have also advised the Company that in the event
any of the six nominees are not available for election for any reason, they will
vote for the election of such substitute nominee or nominees, if any, as the
Board of Directors may propose. The Board of Directors has no reason to believe
that any nominee will be unavailable to serve on the Board. The six nominees
receiving the highest number of votes at the Meeting will be elected.
The Company's nominees for the Board of Directors and their respective
business biographies are as follows:
Director
Name Age Principal Occupation Since
---- --- -------------------- -----
<S> <C> <C> <C>
James S. Pendleton 60 Chief Executive Officer; Chairman of the Board of 1985
Directors
Wayne R. Wright 59 Chief Financial Officer; Executive Vice President and 1985
Vice Chairman of the Board of Directors
Stephen J. Fryer 60 Senior Vice President of Marketing and Investor 1995
Relations; Director
C. Reed Brown 51 Vice President and General Counsel for Worldwide, 1989
Inc.; Director
James E. Harward 45 President of ELM Management and Leasing; Director 1997
Milton Haber 75 CFO of Airline Management Corporation N/A
</TABLE>
JAMES S. PENDLETON has been Chairman of the Board and Chief Executive
Officer of the Company since 1985. He also has served as President during this
time except for the period from September 1996 to September 1997. Mr. Pendleton
also serves the Company as Operations Manager for Product Design. From 1974 to
1985, Mr. Pendleton was President and CEO of PenTec Enterprises. From 1972 to
1974, he served as a Sales Manager for W.H. Bintze, an electronics distribution
company. From 1964 to 1972, Mr. Pendleton was an electronics sales
representative for Straube Associates, a company specializing in electronic
components. Prior to joining Straube Associates, Mr. Pendleton served in the
U.S. Navy as an Aviation and Electronics Specialist. Mr. Pendleton attended
Foothill College of Business Administration.
<PAGE>
WAYNE R. WRIGHT has served as Executive Vice President and Chief Financial
Officer of the Company since 1985. From 1984 to 1985, he was Vice President and
CFO of PenTec Enterprises. From 1968 to 1984 he was Controller, Vice President
of Operations and Division General Manager for Beehive International, a computer
peripheral company. From 1967 to 1968, Mr. Wright was the General Accounting
Manager for Litton Data Systems. From 1961 to 1968, he was employed by
Beeline/Frontier Refinery as Division Office Manager. Mr. Wright received his
Bachelor of Science Degree in Accounting and Finance from the University of
Utah.
C. REED BROWN has served as a director of the Company since 1989. He has
been a practicing attorney since 1973 and from 1997 to present has served as
Vice President, General Counsel for Worldwide, Inc. From 1992 to 1996 he served
as Vice President and General Counsel of Exerhealth, Inc. Mr. Brown received his
Bachelor of Science Degree in 1971 from the University of Utah and his J.D. in
1973 from the University of Utah College of Law.
STEPHEN J. FRYER has served as a director of the Company since 1995 and as
a Senior Vice President since October 15, 1996. From 1989 to 1996 Mr. Fryer was
a principal in Ventana International, Ltd., an Irvine, California based venture
capital and private investment banking firm. Mr. Fryer graduated from the
University of Southern California in 1960 with a Bachelors Degree in Mechanical
Engineering and has spent in excess of 28 years in the computer business in the
United States as well as Asia and Europe.
JAMES E. HARWARD received his B.A. from Brigham Young University and his
J.D. from the University of California, Hastings School of Law. He was in
private practice for the following six years. For five years he was an
Administrative Law Judge for the Utah State Tax Commission after which he became
Director of Legal Affairs for the Utah State Industrial Commission. For the two
years following that, he was corporate attorney for Sinclair Oil, and since 1997
he has been President of ELM Management and Leasing.
MILTON HABER has been the CFO of Airline Management Corporation since 1996
and is a private investor. From 1949 through 1983 Mr. Haber was a business
consultant, small business owner and a private investor. He attended Brooklyn
College from 1946 through 1948 after serving in the United States Air Force
during World War II.
Board of Director Meetings and Committees
The Board of Directors held 4 meetings in fiscal year ended September 30,
1997. Each director attended at least 75% of all of the meetings of the Board of
Directors.
2
<PAGE>
<TABLE>
<CAPTION>
The Board of Directors has a standing Audit Committee and Compensation
Committee. The Audit Committee met twice during fiscal year 1997 and the
Compensation Committee met twice during fiscal year 1997.
The responsibilities of the Audit Committee include: (1) the recommendation
of the selection and retention of the Company's independent public accountants;
(2) the review of the independence of such accountants; (3) the review of the
Company's internal control system; and (4) the review of the Company's annual
financial report to shareholders. The Audit Committee is comprised of C. Reed
Brown, James E. Harward and Stephen J. Fryer. The Compensation Committee is
comprised of James E. Harward, C. Reed Brown and Wayne R. Wright.
Compensation of Directors
Members of the Board of Directors employed by the Company do not
receive any separate compensation for their services as directors. Members of
the Board of Directors not employed by the Company receive $525 per meeting.
Directors are reimbursed for their actual expenses incurred in connection with
their attendance at meetings of the Board of Directors.
Directors, Executive Officers and Key Employees
The following table lists the names, ages and positions held by all
directors, executive officers and key employees of the Company as of the date
hereof. Directors generally serve until the next annual meeting of shareholders
and until their successors have been duly elected or appointed. Executive
officers serve at the discretion of the Board of Directors.
Year Elected or
Name Age Position Appointed
---- --- -------- ---------
<S> <C> <C> <C>
James S. Pendleton 60 Chief Executive Officer; Chairman of the Board of 1985
Directors
Wayne R. Wright 59 Chief Financial Officer and Vice Chairman of the 1985
Board of Directors
C. Reed Brown 51 Director. 1989
Stephen J. Fryer 60 Senior Vice President of Marketing and Investor 1995
Relations and Director
James E. Harward 45 Director 1997
L. Carl Rasmussen 65 Vice President of Consumer Sales 1994
Robert "Duke" DeForest 64 President of Pen Technology Division 1991
Alan Weaver 54 President of InCirT Technology Division 1996
Danieli Reni 47 President of PowerStream Technology Division 1997
</TABLE>
3
<PAGE>
Business Biographies
The business biographies of the Company's directors and director
nominees are in the section of this Proxy Statement entitled "Election of
Directors." The following biographies are for the executive officers and key
employees who are not directors or directors nominees.
ALAN WEAVER has served as President of the InCirT Technology Division
of the Company since April 1996. From September 1996 to September 1997 Mr.
Weaver was President of the Company. From September of 1993 until April 1, 1996
Mr. Weaver was the President of InCirT Technology Division of The Cerplex Group,
Inc. From 1990 to September 1993, he was the President of InCirT Technology
Incorporated. Prior to joining InCirT, Mr. Weaver was President of Curtis
Electronics from 1982 to 1990, Manager of Strategic Planning for the
International Groups Product Division of Digital Equipment Corp. from 1980 to
1982, and Director of Operations for the Electronics Division of Northern
Telecom Inc. from 1977 to 1980.
L. CARL RASMUSSEN has served as a Vice President of Sales and Corporate
Accounts of the Company since 1994, and previously was Director of Marketing
from 1987. From 1984 to 1987 he was a self-employed electronics sales
representative. From 1973 to 1984, he served as Director of Marketing, Sales
Manager and in other managerial positions for Beehive International, a computer
peripheral company. Mr. Rasmussen received his Bachelor of Science Degree from
the College of Engineering at Utah State University.
ROBERT "DUKE" DeFOREST joined the Company in 1991 as a Vice President.
In September of 1996, he was named as Senior Vice President of Investor
Relations. From 1989 to 1991, he owned and managed Datavault/Rocky Mtn. Sales, a
company specializing in electronic sales and electronic televaulting. From 1987
to 1989, he was employed as Senior Vice President/Director for Forval America,
Inc., a Japanese marketing company which specializes in the high-speed modem
business. From 1981 to 1987, he was President, Chief Executive Officer and a
Director of Digital Recording Corporation, a public company which specializes in
optical recording. Mr. DeForest has also served as Senior Vice President of
Operations and Vice President of Sales and Marketing for Beehive International.
He received his Bachelor of Science Degree in Electrical Engineering from the
University of Wyoming and a Masters of Science Degree in Electrical Engineering
from the University of Utah.
DANIELI RENI joined the Company in April of 1997 as President of the
PowerStream Technology Division of the Company. From 1978 to 1980 he was
self-employed as an electronic engineer consultant. From 1980 to 1981, he was a
Design Engineer for General Dynamics and from 1981 to 1984, he was Design
Engineer for Teledyne Systems. He was Project Engineer from 1984 to 1987 in the
R&D Department at Quoltron Systems and from 1987 to 1991, he was the Project
Engineer for Power Products for Apple Computer. He became President and Owner of
PowerStream Technology, Inc. in 1991 and operated the company until his
employment with the Company in 1997.
4
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's executive officers and directors, and persons
who beneficially own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") and to
furnish the Company with copies.
Based on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons, the Company
believes that during fiscal year 1997, except as otherwise noted below, each
reporting person has timely filed all requisite reports with the Securities and
Exchange Commission and the NASDAQ.
During fiscal year 1997, the Company granted each of James Pendelton,
Wayne Wright, Steven Fryer, Alan Weaver, James Harward, L. Carl Rasmussen and
Robert "Duke" DeForest, who are directors or officers of the Company, certain
options to purchase common shares from the Company as consideration for their
respective employment with the Company or their respective undertaking to
personally guarantee the Company's obligations to its commercial banking
institutions. In granting such options, the Company misinterpreted certain
provisions of the Company's Stock Option Plan previously adopted by its
shareholders, pursuant to which it intended to grant such options. Accordingly,
believing the grants to be transactions which were exempt from the reporting
requirements of Form 4, each of the respective recipients of the option prepared
and filed with the Securities and Exchange Commission and the NASDAQ an Annual
Statement of Changes in Beneficial Ownership on Form 5, disclosing the
respective grants in a timely manner. In connection with the preparation of its
1997 Annual Report on Form 10-KSB, the Company subsequently determined that the
options were unavailable for issuance under the Company's Stock Option Plan, and
that each of the respective recipients was required to have prepared and filed
with the Securities and Exchange Commission and the NASDAQ a Statement of
Changes in Beneficial Ownership on Form 4 prior to the end of fiscal year 1997.
Thus, each of Messrs. Pendleton, Wright, Fryer and DeForest failed to timely
file three Form 4's which should have reported three transactions which were
subsequently reported on Form 5. Each of Messrs. Weaver, Rasmussen and Harward
failed to file one Form 4 reporting one transaction, each of which was
subsequently reported on Form 5.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the Company's
common shares beneficially owned as of June 30, 1998, (i) by each person who is
known by the Company to own beneficially more than 5% of the Company's common
shares, (ii) by each director and director nominee, (iii) by each of the
Company's named executive officers, and (iv) by all directors, director nominees
an executive officers, as a group, as reported by each such person. Unless
otherwise indicated, each stockholder's address is c/o Pen Interconnect, Inc.,
2351 South, 2300 West, Salt Lake City, Utah, 84119.
5
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Owner Class (1)
---------------- ---------------- ---------
Directors and Executive Officers
<S> <C> <C> <C>
James S. Pendleton (2)(3) 1,035,037 20.8%
Wayne R. Wright (4) 464,109 9.2%
C. Reed Brown (5) 60,000 1.2%
Stephen J. Fryer (6) 53,000 1.1%
Robert "Duke" DeForest (7) 98,800 2.0%
Alan Weaver (8) 36,000 0.7%
James E. Harward (9) 2,000 0.0%
Holders of More Than 5%
James S. Pendleton Family Trust (2) 456,441 9.6%
Virginia C. G. Pendleton Family Trust 363,452 7.6%
(3)
All Executive Officers and Directors as a 1,748,946 32.3%
Group (7 persons) (2)(3)(4)(5)(6)(7)(8)(9)
</TABLE>
1. Based on 4,773,910 outstanding shares of common shares (and assumes
the exercise by each individual of options exercisable within sixty days after
June 30, 1998). The inclusion herein of any shares as beneficially owned does
not constitute an admission of beneficial ownership of those shares. Unless
otherwise indicated, each person listed has sole investment and voting power
with respect to the shares listed. In accordance with the rules of the
Securities and Exchange Commission, each person is deemed to beneficially own
any shares issuable upon exercise of stock options or warrants held by such
person that are currently exercisable or that become exercisable within 60 days
after June 30, 1998.
2. Includes 456,441 common shares held by the James S. Pendleton Family
Trust of which Mr. Pendleton is a trustee and beneficiary, 15,144 shares in Mr.
Pendleton's account in the Company's ESOP, and 200,000 shares that are unissued
but with respect to which Mr. Pendleton has the right to acquire beneficial
ownership through the exercise of stock options within 60 days of the date of
this filing.
3. Includes 363,452 common shares held by the Virginia C. G. Pendleton
Family Trust. Mr. Pendleton has voting control of these shares.
6
<PAGE>
4. Includes 100,000 shares held by the Wayne R. Wright Family Trust,
50,000 shares held by the LaRae Wright Family Trust, of which Mr. Wright is a
trustee and beneficiary, 7,109 shares in Mr. Wright's account in the Company's
ESOP, and 267,000 shares that are unissued but with respect to which Mr. Wright
has the right to acquire beneficial ownership through the exercise of stock
options within 60 days of the date of this filing.
5. Includes 60,000 shares that are unissued but with respect to which
Mr. Brown has the right to acquire beneficial ownership through the exercise of
stock options within 60 days of the date of this filing.
6. Includes 28,500 shares that are unissued but with respect to which
Mr. Fryer has the right to acquire beneficial ownership through the exercise of
stock options within 60 days of the date of this filing.
7. Includes 53,800 shares that are unissued but with respect to which
Mr. DeForest has the right to acquire beneficial ownership through the exercise
of stock options within 60 days of the date of this filing.
8. Includes 36,000 shares that are unissued but with respect to which
Mr. Weaver has the right to acquire beneficial ownership through the exercise of
stock options within 60 days of the date of this filing.
9. Includes 2,000 shares that are unissued but with respect to which
Mr. Harward has the right to acquire beneficial ownership through the exercise
of stock options within 60 days of the date of this filing.
Except as set forth above, the Company knows of no beneficial owner of
five percent or more of the Company's common shares, and does not know of any
arrangement which may at a subsequent date result in a change of control of the
Company.
Compensation of Executive Officers
The following table shows the compensation paid by the Company to its
current chairman and CEO, James S. Pendleton, and the Company's three other most
highly paid executive officers. None of the Company's other executive officer's
total annual salary and bonus exceeded $100,000 for the years presented.
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
James S. Pendleton 1997 $144,236 $ 6,000 $-0-*
1996 $133,500 $45,332 $-0-*
1995 $125,000 $69,278 $-0-*
Stephen J. Fryer 1997 $ 67,053 $45,177 $-0-*
1996 N/A N/A N/A
1995 N/A N/A N/A
Robert DeForest 1997 $ 76,161 $28,622 $-0-*
1996 $ 75,935 $17,148 $-0-*
1995 $ 60,000 $30,000 $-0-*
Alan Weaver 1997 $116,486 $15,450 $-0-*
1996 $ 59,907 $19,638 $-0-*
1995 N/A N/A N/A
OPTION GRANTS IN FISCAL YEAR 1997
Number of Securities Percent of Total Options
Underlying Options Granted to Employees in
Granted Fiscal Year 1997 Exercise
------- ---------------- Price per
Name Share Expiration Date
---- ----- ---------------
<S> <C> <C> <C> <C>
James S. Pendleton 140,000 17.0% $1.70 2007
52,000 6.3% $2.125 2006
8,000 1.0% $1.38 2007
Stephen J. Fryer 50,000 6.0% $1.70 2007
12,500 1.5% $1.38 2007
60,000 7.2% $2.125 2001
Robert DeForest 25,000 3.0% $1.38 2007
56,000 6.7% $2.125 2006
Alan Weaver 25,000 3.0% $2.33 2002
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR
1997 AND FISCAL YEAR END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
Fiscal Year End
Exercisable /
Shares Unexercised Exercisable /
Acquired Unexercised
Name on Exercise Value Realized
<S> <C> <C> <C> <C> <C> <C>
James S. Pendleton -0- None 200,000/ 200,000 $149,000/$149,000
Stephen J. Fryer -0- None 28,500/ 28,500 $ 21,233/$ 21,233
Robert DeForest -0- None 53,800/ 53,800 $ 40,081/$ 40,081
Alan Weaver -0- None 36,000/ 36,000 $ 26,820/$ 26,820
*The tables above do not include certain insurance, the use of a car, and other personal benefits, the total value of which
does not exceed $50,000 or 10% of any listed person's salary and bonus.
</TABLE>
Employment Agreements
The Company has employment agreements with each of James S. Pendleton,
Wayne R. Wright, Robert "Duke" DeForest, L. Carl Rasmussen, Stephen J. Fryer and
Alan Weaver. The Company's agreements with Messrs. Pendleton, Wright, DeForest
and Rasmussen are all dated April 1, 1996. The Company's agreement with Mr.
Weaver is dated May 1, 1996 and its agreement with Mr. Fryer is dated October
15, 1996. The term of each agreement is five years, except for Mr. Weaver's
agreement which has a term of three years. The agreements are substantially
similar and the material and terms of the agreements are described in the
following paragraph.
The agreements include all the terms of employment including, each
employee's duties, the duration of the contract, compensation (which includes
salary, bonus, commissions and vacation), car allowances, insurance coverage,
and deferred compensation and stock options. Each agreement also contains a non
competition clause, provisions for early termination, and confidentiality
provisions.
Certain Relationships and Related Transactions
The following information summarizes certain transactions, either
engaged in within the last two (2) years or proposed to be engaged in by the
Company and the individuals described above.
7
<PAGE>
In 1989, the Company loaned Mr. Pendleton $370,335, bearing interest at
10% per annum. The note was satisfied in full as of September 30, 1996. Interest
income received was $5,006 during fiscal year 1996.
During fiscal year 1995, the Company guaranteed personal indebtedness
of Mr. Pendleton in the maximum amount of $180,000. This indebtedness was paid
in full during fiscal year 1996, and the guarantee has been released.
During fiscal year 1997, the Company paid to ELM Management and Leasing
approximately $55,000 for payrolling and employee benefit services. Mr. Harward
is the President of ELM Management and Leasing.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR ALL OF THE SIX DIRECTOR NOMINEES.
PROPOSAL #2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTING
At the meeting, shareholders will be asked to elect, ratify and approve
the Company's independent public accountants for the fiscal year ending
September 30, 1998. Currently, Grant Thornton LLP ("Grant Thornton") acts as the
Company's principal accountant, and has acted in that capacity since March,
1995.
The Company does not anticipate that any representative of Grant
Thornton will be present at the Meeting. If a representative is present, he or
she will have the opportunity to make a statement, and will be expected to be
available to respond to appropriate questions from shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE TO RATIFY THE SELECTION
OF GRANT THORNTON AS INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE COMPANY FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 1998.
PROPOSAL #3 - RATIFICATION OF THE ISSUANCE OF
CONVERTIBLE DEBENTURES AND WARRANTS CONVERTIBLE INTO
COMMON SHARES OF THE COMPANY
On October 22, 1997 and June 17, 1998, the Company issued convertible
debentures and warrants convertible into the Company's common shares to certain
investors and consultants. The Company has registered 950,000 common shares on
Form S-3 for issuance upon conversion of the convertible debentures and warrants
issued on October 22, 1997 and shall register additional common shares for
issuance upon conversion of the debentures and exercise of the warrants issued
on June 17, 1998.
8
<PAGE>
On October 22, 1997, the Board of Directors of the Company approved an
agreement with J W Charles Securities to act as consultants for the Company. As
compensation, the Company agreed to pay to J W Charles consulting fees in cash
and warrants for its services. The Board of Directors approved the issuance of
up to 400,000 warrants for such services. The warrants permit the holder to
purchase one share of the Company's common stock at a conversion price of $2.50
per share. The warrants can be exercised at any time until the fifth anniversary
of their issuance. If all of the warrants are exercised the Company could
receive approximately $1,000,000 in net proceeds which shall be used for
operating capital. There is no guaranty that the Company will receive any
proceeds, however, since the warrants may not be exercised.
On October 22, 1997, the Board of Directors of the Company approved the
issuance of up to $1,500,000 of 3% convertible debentures (the "Debentures")
with a maximum term of 24 months. The debentures will mature, unless earlier
converted by the holders, into shares of common stock of the Company. The
Company has agreed to file a registration statement with the United States
Securities and Exchange Commission with respect to the Debentures. The
Debentures are convertible by the holders thereof into the number of shares of
common stock equal to the face amount of the Debentures being converted divided
by the lesser of (i) eighty percent (80%) of the closing bid price of the
Company's common stock as reported on the NASDAQ Small Cap market on the day of
conversion, or (ii) $2.75. The Debentures may be converted in three equal
installments beginning on the earlier of (i) the 75th day of their issuance, and
continuing through the 135th day of their issuance, or (ii) the day following
the effective date of the Registration Statement, through the 60th day following
the effective date of the Registration Statement. The Company may cause the
Debentures to be converted into shares of common stock after the 110th day
following the effective date of the Registration Statement, if the common stock
has traded at or above $5.50 per share for twenty consecutive trading days.
On June 17, 1998, the Company entered into a Securities Purchase
Agreement with DMC Bach International Ltd., Inc., a British Virgin Islands
corporation ("Bach"), pursuant to which the Company issued $1,000,000 in the
principal amount of its 3% convertible Debentures and a Warrant to purchase
100,000 of the Company's common shares. Bach purchased the Debentures and the
Warrant for $1,000,000 in cash. The Debentures were issued in increments of
Fifty Thousand Dollars and are due on December 31, 1999 (the "Maturity Date").
The Company is required to pay Bach interest on the principal amount outstanding
from time to time under the Debentures quarterly in arrears at the rate of 3%
per annum accruing from the date of initial issuance. The first interest payment
is due on October 1, 1998. The accrual of interest will be suspended for each
day on which the closing bid price on the NASDAQ market for the Company's common
shares equals or exceeds $5.00 per share. The Debentures are convertible at any
time beginning ninety (90) days after the date of issuance. The conversion rate
is the lesser of (i) 100% of the average closing bid price of the Company's
common shares for the five consecutive trading days proceeding the initial
issuance of the Debentures or (ii) 80% of the market price. The "market price"
is the average closing bid price of the Company's common shares on the five
trading days immediately proceeding the conversion date. The entire unpaid
balance and accrued interest outstanding on the Maturity Date shall
automatically convert into common stock in accordance with the conversion rates
specified above. If conversion of the Debentures requires the Company to issue a
number of common shares that is greater than 20% of the total number of common
shares issued and outstanding as of the date of issuance of the Debentures, then
the Company must either (i) obtain shareholder approval for such issuance (which
approval shall be obtained if the Company's shareholders vote to approve this
proposal #3) or (2) issue the common shares that exceed such 20% threshold at
100% of the market price.
9
<PAGE>
The Warrant that the Company issued to Bach permits Bach to purchase up
to 100,000 of the Company's common shares at an initial exercise price per share
of 110% of the market value on the date of the Warrant. The market value is
equal to the average closing bid price of a share of the Company's common stock
for the five days proceeding the date of the Warrant. The Warrant expires on
December 31, 2003.
The Debentures and the Warrant contain protections for Bach against
dilution. They also contain default and remedy provisions customary in
securities of their kind. The Company entered into a Registrations Rights
Agreement as of June 17, 1998 pursuant to which it agreed to register the
Company's common shares that Bach could acquire upon conversion of the
Debentures or exercise of the Warrant (the "Registerable Securities"). The
Company was required to register the Registerable Securities within 30 days from
the closing date (June 18, 1998) either on Form S-3 or an amendment to any
pending Company registration statement on Form S-3. The Company has not yet
registered the Registerable Securities, but remains obligated to do so. Any such
registration statement or amendment must also state that it covers an
indeterminate number of additional shares as may be issuable on conversion of
the Debentures and the exercise of the Warrant resulting from any adjustment in
the conversion price of the Debentures or Warrant or to prevent dilution
resulting from stock splits or stock dividends.
The shareholders are being asked to ratify the issuance of the
convertible debentures and the warrants and to authorize the issuance of common
shares upon conversion of the convertible debentures and warrants pursuant to
NASDAQ Rules. The affirmative vote of a majority of the common shares present,
in person or by proxy, and entitled to vote at the Meeting is required to ratify
the issuance of the convertible debentures and warrants and to approve the
issuance of common shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE TO RATIFY THE ISSUANCE
OF THE CONVERTIBLE DEBENTURES AND THE WARRANTS
PROPOSAL #4 - RATIFICATION OF STOCK OPTION GRANTS
At the meeting, the shareholders will be asked to ratify the Company's
grant of stock options to its officers and directors to acquire up to 675,500 of
the Company's common shares. The Company granted the options described in this
Proposal #4 during the Company's fiscal years ending September 30, 1996 and
September 30, 1997. The grants were not made under the Company's stock option
plan and, therefore, must be approved by the Company's shareholders. Except for
the options granted to Mr. Weaver, as described in the following table, the
Company granted the options to such officers and directors in consideration of
their agreements to (i) take a reduced salary for those years, or (ii) accept
reductions in their benefits from the Company, or (iii) guaranty Company
indebtedness, or (iv) do some combination of the above. The options described in
this Proposal #4 are, where appropriate, included in the description of stock
ownership in this Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management." The following table describes the
stock option grants.
10
<PAGE>
<TABLE>
<CAPTION>
Number of
Date of Grant Shares Exercise
Month/Year Subject to Price Per Consideration for
Grantee Option Share Option Grants
------- ------ ----- -------------
<S> <C> <C> <C> <C>
Wayne Wright August 1997 140,000 $1.70 Put up collateral and cosigned $500,000
Finova Note
August 1997 50,000 $1.70 Salary reduction for 1997/1998
June 1996 25,000 $1.38 Salary reduction for 1996/1997
February 52,000 $2.125 Put up collateral and personally guaranteed
1996 note and line of credit from National Bank
of Canada
James S. Pendleton August 1997 140,000 $1.70 Personal guaranty of $500,000 Finova Note
February 52,000 $2.125 Put up collateral and personally guaranteed
1996 note and line of credit from National Bank
of Canada
June 1996 8,000 $1.38 Voluntary reduction in car allowance for
1997
Stephen J. Fryer March 1996 50,000 $1.70 Personal guaranty of $500,000 Finova Note
June 1997 12,500 $1.38 Voluntary reduction in salary for 1997
Robert Duke Deforest June 1997 25,000 $1.38 Voluntary reduction in salary for 1997/1998
October 1996 56,000 $2.125 Voluntary reduction in salary for 1996/1997
C. Reed Brown February 1997 40,000 $1.70 Foregoing of compensation for services over
and above his ordinary services
Alan Weaver February 1997 25,000 $2.33 Issued as incentive stock options
</TABLE>
11
<PAGE>
The Board of Directors believes that the stock option grants described
in this Proposal #4 were necessary in order to induce these officers and
directors to take actions which helped the Company to maintain adequate cash
flow.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE TO RATIFY THE ISSUANCE AND
GRANT OF THE STOCK OPTIONS TO THE COMPANY'S OFFICERS
AND DIRECTORS AS DESCRIBED IN THIS PROPOSAL #4.
Shareholder Proposals
To be considered for inclusion in the Proxy Statement and for
consideration at the Meeting, shareholder proposals must be submitted on a
timely basis. Proposals for the 1999 Annual Meeting of Shareholders must be
received by the Company no later than April 1, 1999 in order that they be
included in the proxy statement and form of proxy relating to that meeting. The
Company anticipates holding its Annual Meeting earlier in 1999 than this year.
Therefore, the Company recommends that shareholders who wish to submit proposals
contact the Company substantially earlier than such date. Any such proposals, as
well as any questions related thereto, should be directed to the Secretary of
the Company.
Other Matters
The Board of Directors is not aware of any other business which may
come before the Meeting. If any other matters should properly come before the
Meeting, the persons named on the enclosed proxy card will vote all proxies in
accordance with their best judgment on such matters.
Additional Information
The Company will provide, without charge to any person from whom a
proxy is solicited by the Board of Directors, upon written request of such
person, a copy of the Company's Annual Report on Form 10-KSB/A, including the
financial statements and schedules thereto (as well as exhibits thereto, if
specifically requested), required to be filed with the Securities and Exchange
Commission. Written requests for such information should be directed to:
Investor Relations Department, Pen Interconnect, Inc., 2351 South 2300 West,
Salt Lake City, Utah 84119.
12
<PAGE>
Incorporation by Reference
This Proxy Statement incorporates by reference the Company's Financial
Statements and the information contained under the heading "Management's
Discussion and Analysis or Plan of Operations" from the Company's Form 10-KSB/A
for fiscal year 1997.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ Robert J. Albrecht
-----------------------
Robert J. Albrecht
Secretary
August 14, 1998
PROXY FOR PEN INTERCONNECT, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
August 27, 1998
The undersigned hereby appoints JAMES S. PENDLETON and WAYNE R. WRIGHT,
and either of them, as proxies for the undersigned, with full power of
substitution, to represent the undersigned and to vote, as designated below, all
of the common shares of Pen Interconnect, Inc., which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of Pen Interconnect, Inc.
to be held on August 27, 1998, and at any and all adjournments and postponements
thereof.
1. ELECTION OF DIRECTORS
Nominees: James S. Pendleton, Wayne R. Wright, C. Reed Brown, Stephen
J. Fryer, James C. Harward and Milton Haber.
[ ] FOR all nominees listed above; except as marked to
the contrary in accordance with the instruction below
(Instruction: To withhold authority to vote FOR any
individual nominee strike a line through the
nominee's name in the list above.)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
above.
2. Proposal to ratify the selection of Grant Thornton LLP as the
independent public accountants for Pen Interconnect, Inc. for
the fiscal year ending September 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the issuance of convertible debentures and
warrants that are convertible into common shares of the
Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to ratify the issuance and grant of stock options to
certain of the Company's officers and directors that, in the
aggregate, entitle such officers and directors to acquire up
to 675,500 of the Company's common shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, on such other matters as may properly
come before the Meeting, including the election of any person
to any position for which a bona fide nominee is named in the
Proxy Statement and such person is unable to serve or for good
cause will not serve.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and, when
properly executed, will be voted in the manner directed herein by the
undersigned. If no direction is given, this Proxy will be voted IN FAVOR of all
nominees named in proposal 1 and FOR proposals 2, 3 and 4.
Dated: _________________________, 1998
(Signature of Shareholder)
(Signature of Shareholder if held jointly)
Exact Name(s) of Shareholder(s)
PLEASE PRINT
Please sign exactly as your name appears
herein. Where shares are held jointly in
names of two or more persons ALL should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in full
partnership name by authorized Partner.
Please mark, sign, date and return this Proxy promptly in
the enclosed envelope. No postage need be affixed
if mailed in the United States.
