<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE JPM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1702908
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ROUTE 15 NORTH
LEWISBURG, PA 17837
(717) 524-8200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
JOHN H. MATHIAS
ROUTE 15 NORTH
LEWISBURG, PA 17837
(717) 524-8200
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
COPIES OF ALL COMMUNICATIONS TO:
SCOTT C. PENWELL, ESQ. DAVID W. POLLAK, ESQ.
DUANE, MORRIS & HECKSCHER LLP MORGAN, LEWIS & BOCKIUS LLP
P.O. BOX 1003 101 PARK AVENUE
305 NORTH FRONT STREET NEW YORK, NY 10178-0060
HARRISBURG, PA 17108-1003 (212) 309-6058
(717) 237-5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.000067.............. 3,680,000 $23.88 $87,878,400 $26,630
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes up to 480,000 shares which the Underwriters have the option to
purchase from the Registrant to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated October 9, 1997
PROSPECTUS
3,200,000 SHARES
JPM[LOGO]
COMMON STOCK
-------------
Of the 3,200,000 shares of Common Stock, par value $.000067 per share (the
"Common Stock"), offered hereby, 2,000,000 shares are being sold by The JPM
Company (the "Company") and 1,200,000 shares are being sold by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Shareholders.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "JPMX." On October 9, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $24.50 per share. See "Price Range of
Common Stock."
-------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
-------------
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.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions(1) Company(2) Selling Shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share............. $ $ $ $
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Total(3).............. $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to 480,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
-------------
The Common Stock offered by this Prospectus is offered by the Underwriters
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to
certain further conditions. It is expected that delivery of the Common Stock
offered hereby will be made at the offices of Lehman Brothers Inc., New York,
New York on or about , 1997.
-------------
LEHMAN BROTHERS
ADVEST, INC.
JANNEY MONTGOMERY SCOTT INC.
, 1997.
<PAGE>
ARTWORK WILL INCLUDE THE FOLLOWING:
FRONT INSIDE COVER:
.JPM Logo
.The Earth with white lights intended to identify JPM global locations
.A woman dressed in a tailored suit wearing a small telephone headset
.Copper wires and connectors
.Hands manipulating wires in production
.A 3-D, CAD diagram of a connector
.Dimensional and fading words:
.Manufacturing--Cable Assemblies; Wire Harnesses; Electromechanical
Subassemblies
.Servicing--Computer; Networking; Telecommunications; Industries
.Customer Logo'd wire reels
THE BACK INSIDE COVER:
.Computer terminals
.Telephone keypad or buttons
.A cell phone or cell tower as a faded image
.An ATM machine or sign
.People
.Product photos
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON
STOCK PRIOR TO THE PRICING OF THIS OFFERING FOR THE PURPOSE OF MAINTAINING THE
PRICE OF THE COMMON STOCK, THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THIS OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be available at
the following Regional Offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Company makes filings of reports,
proxy statements and other information pursuant to the Exchange Act with the
Commission electronically, and such materials may be inspected and copied at
the Commission's Web site (http://www.sec.gov) by using the Company's Central
Index Key (CIK) Code 0001007581. In addition, material filed by the Company
can be inspected at the offices of the Nasdaq Stock Market, 1735 K St., NW,
Washington, DC 20006, on which the shares of Common Stock are listed.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents previously filed with the Commission pursuant to the
Exchange Act:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (certain portions of which have been restated in the
Company's Current Report on Form 8-K dated September 2, 1997);
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996, March 31, 1997 and June 30, 1997;
3. The Company's Current Reports on Form 8-K dated March 12, June 4 and
September 2, 1997 (which includes the Company's consolidated financial
statements for the fiscal year ended September 30, 1996 restated to
reflect a merger with Denron, Inc. accounted for as a pooling of
interests);
4. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed under the Exchange Act on April
29, 1996; and
5. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since September 30, 1996.
In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such reports and documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (in the case of any
3
<PAGE>
statement in an incorporated document filed with the Commission prior to the
date of this Prospectus or in any other subsequently filed document that 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.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been incorporated by reference herein
(other than exhibits to such documents which are not specifically incorporated
by reference into such documents). Such requests should be directed to William
D. Baker, Vice President, Chief Financial Officer and Treasurer, The JPM
Company, Route 15 North, Lewisburg, Pennsylvania 17837; telephone: (717) 524-
8200.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See "Risk
Factors" for information that should be considered by prospective investors.
THE COMPANY
The Company is a leading independent manufacturer of cable assemblies and
wire harnesses for original equipment manufacturers ("OEMs") in the computer,
networking and telecommunications sectors of the global electronics industry.
The Company has operated continuously since 1949 and today manufactures a wide
spectrum of products which transfer power or transmit voice, data or video
within the OEMs' equipment or to external connections. Principal applications
of the Company's products include computers and computer peripherals, network
routers and switches, self-service terminals (including automatic teller
machines), PBX switching equipment, cellular digital switching equipment,
industrial electrical controls and medical electronic equipment. By integrating
its design and engineering capabilities with its customers' product development
activities, the Company customizes its products to satisfy its customers'
particular needs in a price-competitive manner.
Based on available industry data, the Company believes that the total
addressable market for cable assemblies and wire harnesses in the sectors in
which the Company competes was approximately $7.0 billion worldwide and $3.5
billion in North America in 1996. Both markets are expected to grow by
approximately 9.5% annually. The Company's opportunities for growth in the
cable assembly and wire harness industry are primarily driven by: (i) supplier
consolidation led by large multi-national OEMs; (ii) global expansion of the
computer, networking and telecommunications industries accompanied by
accelerated product development cycles; and (iii) continued worldwide
outsourcing by large multi-national OEMs. In response to OEMs' increasing
requirements for local support and worldwide sourcing of cable assemblies and
wire harnesses, the Company has broadened its manufacturing capabilities
through the expansion of existing facilities and acquisitions. The Company
currently provides domestic and international distribution, manufacturing and
local engineering and design service to targeted OEMs through its seven ISO-
certified facilities located in the United States, Mexico and Europe and
through its manufacturing services arrangements in Asia.
The Company's objective is to become the preferred global supplier for cable
assemblies and wire harnesses to leading OEMs in the computer, networking and
telecommunications market sectors. Key elements of the Company's strategy to
achieve this objective are:
. provide customers with the highest level of customer service through
teams comprised of sales, quality assurance, engineering, purchasing and
manufacturing personnel;
. enhance its relationships and broaden its product penetration with
existing OEM customers such as Compaq, Diebold, IBM, Lucent
Technologies, Nortel and Unisys by providing extensive support and
value-added services while maintaining flexible manufacturing
capabilities;
. create new relationships with large and mid-sized OEMs, such as those
recently established with Alcatel, Qualcomm, Siemens, Solectron and 3M;
. expand worldwide manufacturing and local support to meet growing demand
generated from both existing and new customers;
. capitalize on its independence from connector and wire manufacturers by
impartially selecting components integrated into its products to satisfy
more precisely and cost effectively a customer's demands or
requirements;
. emphasize continuous quality improvements in its ISO-certified
manufacturing facilities; and
. introduce applied automation to increase productivity, shorten
manufacturing times, improve safety and increase product and process
reliability.
The Company's principal executive offices are located at Route 15 North,
Lewisburg, Pennsylvania 17837 and its telephone number is (717) 524-8200.
5
<PAGE>
RECENT DEVELOPMENTS
Denron Merger. In June 1997, the Company acquired Denron, Inc. ("Denron"), a
manufacturer of cable assemblies and wire harnesses in San Jose, California
(the "San Jose Facility"), in a transaction accounted for as a pooling of
interests by issuing 791,170 shares of Common Stock in exchange for all of the
outstanding common stock of Denron. The value of the shares issued was
approximately $23,000,000. The Denron acquisition provides the Company with an
expanded customer base and local manufacturing facilities to better serve
targeted OEMs on the West Coast. As a result of the Denron acquisition, the
Company also obtained manufacturing services arrangements with companies in
Taiwan providing the Company with multiple points of delivery in the Far East,
including the People's Republic of China.
Corma Acquisition. In August 1997, the Company acquired manufacturing
facilities in Bor, Czech Republic (the "Bor Facility") and a related sales,
engineering and distribution facility in Leuchtenberg, Germany (the
"Leuchtenberg Facility") from Corma Elektrotechnische Produktions GmbH and
Corma spol. s.r.o. (collectively, "Corma") for approximately $2,000,000 in
cash. The acquisition of the Bor Facility and the Leuchtenberg Facility
provides additional ISO-certified facilities to the Company enabling it to
further support and expand the Company's European customer base, which includes
Interbold, the joint venture between IBM and Diebold for ATMs in the European
market.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company........ 2,000,000 shares
By the Selling
Shareholders......... 1,200,000 shares
Total............... 3,200,000 shares
Common Stock to be
outstanding after the
offering............... 8,970,245 shares(a)
Use of Proceeds......... To reduce bank borrowings, add manufacturing capacity,
enhance information systems and for general corporate
purposes, including acquisitions and working capital.
See "Use of Proceeds."
Nasdaq National Market
Symbol................. JPMX
</TABLE>
- --------
(a) Does not include 903,954 shares of Common Stock subject to options
outstanding as of September 30, 1997, and 359,450 shares of Common Stock
reserved for future issuance upon the exercise of options which may be
granted under the Company's 1995 Employee Stock Option Plan and the
Company's 1995 Outside Directors Stock Option Plan.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $31,553 $34,268 $41,418 $54,042 $85,516
Gross profit......................... 5,039 4,995 6,991 8,491 14,706
Income from operations............... 979 774 1,244 2,979 6,900
Net income........................... 291 197 307 936 3,083
Net income (loss) applicable to
Common Stock........................ 51 (43) 67 659 2,943
Net income (loss) per common share... $ 0.01 $ (0.01) $ 0.02 $ 0.14 $ 0.48
Weighted average common shares
outstanding......................... 4,280 4,280 4,280 4,390 5,683
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
---------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net sales........................................ $ 61,882 $ 85,642
Gross profit..................................... 9,841 17,596
Income from operations........................... 4,203 9,494(a)
Net income....................................... 1,658 5,464
Net income applicable to Common Stock............ 1,518 5,464
Net income per common share...................... $ 0.25 $ 0.73
Weighted average common shares outstanding....... 5,194 7,436
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
SEPTEMBER 30, ----------------------
1996 ACTUAL AS ADJUSTED(B)
------------- ------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $10,206 $14,322 $
Total assets.............................. 39,862 46,017
Short-term debt........................... 2,169 2,694
Long-term debt, less current portion...... 3,264 3,831
Shareholders' equity...................... 19,927 25,645
</TABLE>
- --------
(a) Includes a $743,000 charge related to the merger with Denron.
(b) As adjusted to give effect to the sale by the Company of 2,000,000 shares
of Common Stock offered hereby (after deducting the underwriting discounts
and commissions and estimated offering expenses) and the application of the
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
7
<PAGE>
RISK FACTORS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth below and elsewhere in
this Prospectus. The following risk factors should be carefully considered
before purchasing the Common Stock offered hereby.
Reliance on Key Customers. Historically, relatively few customers have
accounted for a substantial portion of the Company's net sales and the Company
expects a significant portion of its future net sales to remain concentrated
within a limited number of customers. During the nine months ended June 30,
1997, sales to Diebold, Incorporated ("Diebold"), Northern Telecom Limited
("Nortel") and International Business Machines Corporation ("IBM") accounted
for 17%, 16% and 14% of total sales of the Company, respectively. In fiscal
1996, sales to Diebold and IBM represented 18% and 15% of total sales of the
Company, respectively. In addition, sales to the Company's six largest
customers represented 51% of total sales in fiscal 1996 and 68% of total sales
in the nine months ended June 30, 1997. Because the Company's customers are
consolidating their suppliers, it is possible that the Company may lose one or
more of its major customers as a result of such consolidation. A significant
decrease in business from, or the loss of, any of its major customers would
have a material adverse effect on the Company. Although the Company regularly
seeks to identify new key customers, the development of relationships with
such customers is normally an extended process which can take 18 months or
more. See "Business--Sales and Marketing."
Variability of Quarterly Results. The Company's quarterly and annual
operating results have fluctuated significantly in the past, and may fluctuate
significantly in the future, depending upon a variety of factors, including
the timing of its customers' product life cycles; the Company's reliance on
key customers; the Company's management of growth and acquisitions, including
costs related to such acquisitions; changes in pricing by the Company, its
competitors, customers or suppliers; the mix of products sold; possible
disruptions of operations caused by expanding existing facilities or moving
into new facilities, or by extraordinary weather conditions which could hamper
production and shipments; political and economic instability in foreign
markets; seasonal patterns of spending; manufacturing inefficiencies
associated with the start up of new customers and new products and the ability
to produce products in volume to meet customer requirements; and various
competitive factors including price-based competition and competition from
vendors employing other technologies. In addition, the Company is subject to
fluctuations in the annual business cycles of its OEM customers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Quarterly Results."
A substantial portion of the Company's sales in a given quarter depends upon
obtaining orders for cable assemblies and wire harnesses to be manufactured
and shipped within the same quarter in which those orders are received. While
the Company monitors its customers' needs, it typically has a small backlog
relative to total sales, and a significant portion of its orders are placed on
a demand-pull basis for production and delivery within a few days. In
addition, substantially all of the cable assemblies and wire harnesses sold to
certain customers are components that customers incorporate into certain
models or products of their own. Decisions by such customers to emphasize
certain models or to discontinue certain products may have a material adverse
effect on the Company. As a result, the timing of revenue may be affected by
increases or decreases in the Company's customers' production volume in
response to fluctuations in their customers' demands, introduction of
replacement parts and balancing of customers' inventory to their production
requirements, all of which reflect the shortening product life cycles inherent
in the electronics industry.
Management of Growth and Acquisitions. The Company is experiencing
significant growth and intends to continue to expand its operations both
domestically and internationally. The Company's net sales have increased from
$41.4 million in fiscal 1994 to $85.5 million in fiscal 1996. Continued growth
of the size and complexity of its business has placed and is expected to
continue to place strain on the Company's management, production, technical,
financial and other resources. To manage growth effectively, the Company must
add manufacturing capacity and personnel while maintaining a high level of
quality and manufacturing efficiency and must continue
8
<PAGE>
to enhance its operational, financial and management systems, successfully
expand, train and manage its employee base and attract additional executive
management. There can be no assurance that the Company will be able to
continue its growth or manage such growth effectively and the failure to do so
could have a material adverse effect on the Company's business, financial
condition or results of operations.
In addition, the Company's future growth may depend in part upon its success
in identifying suitable new acquisitions. There can be no assurance that the
Company will be able to continue to identify, acquire, successfully integrate
or profitably manage additional businesses, if any, without substantial costs,
delays or other operational or financial difficulties to the Company. Further,
acquisitions may involve a number of special risks, including adverse effects
on the Company's operating results, diversion of management's attention,
failure to retain key personnel, risks associated with unanticipated events
and amortization of acquired intangible assets, some or all of which could
have a material adverse effect on the Company's business, financial condition
or results of operations. In addition, if competition for acquisition
candidates develops or increases, the cost of acquiring businesses could
increase materially. The Company expects to use a combination of cash and
securities as consideration for future acquisitions. In the event that the
Common Stock does not maintain a sufficient valuation or if potential
acquisition candidates are unwilling to accept the Company's securities as
consideration, the Company will be required to use more cash resources to
continue its acquisition strategy. In addition, if the Company is unable to
generate cash for future acquisitions from existing operations or if external
financings are not sufficient or available, the Company's acquisition strategy
could be adversely affected. There can be no assurance that such financings
will be available if and when needed or on terms acceptable to the Company.
Unfavorable developments at a single acquired company could have a material
adverse impact on the reputation and business of the Company as a whole. In
addition, there can be no assurance that acquired businesses, if any, will
achieve anticipated financial performance. The inability of the Company to
implement and manage its acquisition strategy successfully may have an adverse
effect on the business or future prospects of the Company.
International Operations. During the past three years, the Company has added
important sales, distribution or manufacturing sites in the Czech Republic,
Germany, Mexico, the People's Republic of China, Singapore and Taiwan. Sales
and operations outside of the United States are subject to certain inherent
risks, including potential border crossing difficulties, currency
fluctuations, inflationary pressures, unexpected changes in regulatory
requirements, tariffs and barriers, changes in political climate, difficulties
in coordinating, managing and expanding foreign operations, labor union
issues, government-mandated compensation regulations, increases in employee
turnover and potentially adverse tax consequences. Any of the foregoing could
have a material adverse effect on the Company's business, financial condition
and results of operations. In particular, although the Company's international
sales are primarily denominated in U.S. dollars, portions of the Company's
expenses are denominated in Mexican pesos and Deutsche marks. The Company is
not currently engaging in hedging transactions to reduce the risk associated
with currency exchange fluctuations. Currency exchange fluctuations in Mexico,
Germany and other countries where the Company does business could materially
adversely affect the Company's business, financial condition and results of
operations.
Dependence on Key Suppliers. During 1996, the Company estimates that
purchases of wire and cable and purchases of connectors represented
approximately 25% and 50%, respectively, of the Company's total material
purchases. During this period, the Company estimates it purchased
approximately 45% and 30% of its wire and cable from Nordex, a division of
Cable Design Technologies ("Nordex"), and Madison Cable Corporation
("Madison"), a division of AMP Incorporated ("AMP"), respectively, and
approximately 50% of its connectors from AMP. AMP competes with the Company in
the cable assembly and wire harness business. In addition, other suppliers to
the Company may begin manufacturing cable assemblies and wire harnesses, which
may adversely affect the Company's business by directly competing with the
Company or by ceasing or delaying the sale of materials to the Company.
Although the Company believes that wire, cable and connectors are generally
available from several domestic and international sources, customers often
specify that the Company purchase these components from particular
manufacturers. Accordingly, the loss of or interruption in the supply from any
of the Company's key suppliers could have a material adverse effect on the
Company. See "Business--Suppliers."
9
<PAGE>
Dependence on Key Personnel. The Company's success depends to a significant
extent on its key management and technical personnel, particularly John H.
Mathias, its Chairman of the Board and Chief Executive Officer, and James P.
Mathias, its President and Chief Operating Officer. Certain members of senior
management, including John and James Mathias, are subject to employment
agreements which are terminable by either party upon thirty days prior written
notice. Competition for employees with requisite technical, management and
other skills is intense. The loss of any of the Company's existing key
personnel or the inability to attract and retain key employees in the future
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Employees" and "Management."
Competition. The Company operates in an international market characterized
by intense competition. The Company competes with many other businesses, a
number of which have substantially greater financial, management and marketing
resources than the Company. The Company's competitors include: (i) connector
manufacturers, including AMP, Amphenol Corporation ("Amphenol"), Berg
Electronics Corporation ("Berg"), Minnesota Mining and Manufacturing Company
("3M") and Molex Incorporated ("Molex"); (ii) contract manufacturers,
including Sanmina Corporation ("Sanmina") and K*TEC Electronics Corporation
("K*TEC"), a division of Kent Electronics Corporation; and (iii) independent
manufacturers, including Volex Group plc ("Volex"), Foxconn International,
Incorporated ("Foxconn") and a number of smaller regional manufacturers. The
Company believes that customers select manufacturers of cable assemblies and
wire harnesses primarily based on competitive factors such as quality,
production capacity, breadth of product line, engineering support capability,
price, local support capability, systems support and financial strength. There
can be no assurance that the Company will be able to successfully compete in
the future. See "Business--Competition."
Proprietary Information and Technological Change. The Company believes that
its ability to compete with other manufacturers is dependent on its technical
and design expertise, its production processes and in part on its ability to
anticipate and respond to new technologies and applications and incorporate
such changes in its products and services. The Company relies on a number of
trade secrets and other unpatented proprietary information in its operations.
Although the Company seeks to protect proprietary information through the use
of confidentiality agreements, there can be no assurance that this will
prevent the unauthorized disclosure or use of the Company's technical
knowledge, practices and procedures. The Company currently holds no patents
and does not generally rely on patented technology. There can be no assurance
that others will not independently develop products similar to those of the
Company, duplicate the Company's products or obtain patents which will require
the Company to design around such patents, if such design is possible. No
claims have been asserted against the Company for infringement of the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future. See "Business--Proprietary Information."
Risk of Loss of ISO Certification. The Company is ISO-certified at each of
its manufacturing locations. The ISO certification assures customers of
certain minimum manufacturing standards and thereby allows the Company to use
a single set of manufacturing standards for all processes and products, rather
than customizing manufacturing standards for each customer. The Company's
facilities are subject to periodic recertification to ensure continued
compliance with ISO standards which have continued to become more stringent.
Because the Company's customers have increasingly required their suppliers to
be so certified, a loss of this certification may materially affect the demand
for the Company's products, its relationship with its customers and the need
to customize manufacturing operations for each customer.
Risks Associated with Unallocated Proceeds of Offering. The Company
currently intends to use a portion of the net proceeds of this offering to
repay bank borrowings outstanding as of the closing of this offering in an
approximate aggregate amount of $8.5 million (as of September 30, 1997), add
manufacturing capacity in the United States and overseas and invest in
enhanced information systems.
Except for the repayment of bank borrowings, addition of manufacturing
capacity and investment in information systems, the Company has not designated
any specific use for the remaining net proceeds from the
10
<PAGE>
sale by the Company of the Common Stock offered hereby. The Company intends to
use the remaining net proceeds primarily for working capital and general
corporate purposes, including the potential investment in or acquisition of
complementary businesses, products or technologies. While the Company may be,
from time to time, engaged in discussions regarding potential investments or
acquisitions, the Company does not currently have any agreements regarding
such potential investments or acquisitions. Accordingly, management will have
significant flexibility in applying the net proceeds from this offering. There
can be no assurance that any unused net proceeds can or will be invested to
yield a significant return. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Government Regulation. The Company is subject to a variety of foreign,
federal, state and local laws, rules and regulations relating to, among other
things, the health and safety of its work force, emissions to the air,
discharge to the waters and the generation, handling, storage and
transportation of waste and other materials. The Company believes that it is
currently in compliance in all material respects with such laws, rules and
regulations. However, failure to so comply could result in substantial
liability to the Company, suspension or cessation of the Company's operations,
restrictions on the Company's ability to expand at its present locations or to
acquire additional equipment or result in other significant expense. See
"Business--Manufacturing."
Concentration of Stock Ownership; Anti-Takeover Protections. After giving
effect to this offering, the Mathias family and present directors, executive
officers and their respective affiliates will beneficially own approximately
33.6% of the outstanding Common Stock (32.0% if the Underwriters' over-
allotment option is exercised in full). Consequently, these shareholders are
able and will continue to be able to exercise significant influence over all
matters requiring shareholder approval, including the election of directors
and approval of significant corporate transactions. This influence, together
with applicable statutory provisions under Pennsylvania law and certain
measures included in the Company's articles of incorporation, including the
ability of the Board of Directors to issue one or more series of preferred
stock without shareholder approval and the election of directors in three
classes on a staggered basis, could deter or delay unsolicited changes in
control of the Company. See "Principal and Selling Shareholders" and
"Description of Capital Stock--Anti-Takeover Provisions."
Limited Public Market; Possible Volatility of Stock Price. The Common Stock
has traded on the Nasdaq National Market since April 1996 and has a limited
public market history. There can be no assurance that future market prices for
the shares of Common Stock will equal or exceed the price to the public set
forth on the cover page of this Prospectus. The trading price of the Common
Stock has been, and is likely to continue to be, highly volatile and could be
subject to wide fluctuations in response to quarterly fluctuations in
operating results; announcements of technological innovations or new products
by the Company or its competitors; changes in financial estimates by
securities analysts; fluctuations in economic and financial market conditions,
or other events or factors. In addition, the stock market has experienced
significant price and volume fluctuations that have particularly affected the
market price of equity securities of many companies and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
Shares Eligible for Future Sale. Sales of a significant number of shares of
Common Stock in the public market after this offering may have an adverse
effect on the market price of the Common Stock. The Company, its officers and
directors and the Selling Shareholders have agreed not to offer, sell, pledge
or otherwise dispose of any shares of Common Stock held by them or acquired by
them pursuant to the exercise of any options, other than the shares being sold
hereunder by the Selling Shareholders, for a period of 90 days after the date
of this Prospectus without the prior written consent of Lehman Brothers Inc.,
subject to certain limited exceptions. Upon expiration of this period,
3,082,927 shares of the Common Stock that are deemed to be "restricted
securities" pursuant to Rule 144 under the Securities Act will be immediately
eligible for sale in the public market in reliance upon Rule 144, subject to
volume and other restrictions contained therein, and additional shares will be
eligible for sale under Rule 144 from time to time thereafter. See "Shares
Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered hereby by the Company are estimated to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $ per share and after deducting estimated
underwriting discounts and commissions and offering expenses. The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Shareholders. Of the net proceeds, the Company plans to use approximately
$8.5 million for the repayment of bank borrowings outstanding as of the
closing of this offering, approximately $6.0 million to add manufacturing
capacity and approximately $1.5 million for investment in enhanced information
systems. The Company may use a portion of the net proceeds from this offering
for the investment in or acquisition of complementary businesses, products or
technologies. While the Company may be, from time to time, engaged in
discussions regarding potential investments or acquisitions, the Company does
not currently have any agreements regarding such potential investments or
acquisitions. The remaining net proceeds are expected to be used to provide
funds for working capital and general corporate purposes.
The bank borrowings to be repaid consist of a bank revolving line of credit
incurred to finance the working capital needs of the Company, of which
approximately $8.5 million was outstanding at September 30, 1997. The line of
credit, which is payable upon demand, bears interest at either the bank's
prime rate minus 0.25% or, at the Company's election, the bank's LIBOR rate
plus 1.25% (8.25% and 6.94%, respectively, at September 30, 1997).
PRICE RANGE OF COMMON STOCK
The Common Stock has been trading publicly on the Nasdaq National Market
under the symbol "JPMX" since April 30, 1996, the first trading date of the
Common Stock in the Company's initial public offering of Common Stock (the
"Initial Public Offering.") The following table sets forth, for the periods
indicated, the range of quarterly high and low closing sale prices for the
Common Stock on the Nasdaq National Market:
<TABLE>
<CAPTION>
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
Calendar 1996:
Second quarter (from April 30, 1996)........................... $ 9.25 $ 7.50
Third quarter.................................................. 9.38 7.38
Fourth quarter................................................. 19.25 8.88
Calendar 1997:
First quarter.................................................. $23.00 $16.00
Second quarter................................................. 38.00 15.25
Third quarter.................................................. 42.25 23.00
Fourth quarter (through October 8, 1997)....................... 24.63 23.88
</TABLE>
As of September 30, 1997, there were approximately 150 record holders of
Common Stock. On October 9, 1997, the last reported sale price on the Nasdaq
National Market for the Common Stock was $24.50 per share.
12
<PAGE>
DIVIDEND POLICY
The Company has never paid dividends on shares of its Common Stock. The
Company intends to retain future earnings for use in its business and does not
anticipate paying cash dividends on its Common Stock in the foreseeable
future. The payment of dividends in the future, if any, will be determined by
the Board of Directors of the Company and will depend on the Company's
financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of June 30, 1997, on an actual basis and on an as adjusted basis to
give effect to the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby at an assumed offering price of $ per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................ $ 2,694 $
======= ===
Long-term debt, less current portion....................... $ 3,831 $
------- ---
Shareholders' equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; none issued and outstanding................. --
Common Stock, $.000067 par value, 40,000,000 shares
authorized; 6,920,511 common shares issued and
outstanding actual and 8,920,511 shares issued and
outstanding as adjusted (a)............................. --
Additional paid-in capital............................... 16,466
Retained earnings........................................ 9,179
------- ---
Total shareholders' equity............................. 25,645
------- ---
Total capitalization................................. $29,476 $
======= ===
</TABLE>
- --------
(a) Does not include 903,954 shares subject to options outstanding as of
September 30, 1997.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" for, and as of the end
of, each of the years in the five-year period ended September 30, 1996, are
derived from the audited Consolidated Financial Statements of the Company,
including the consolidated balance sheets at September 30, 1995 and 1996 and
the related consolidated statements of operations and of cash flows for the
three years ended September 30, 1996 and notes thereto appearing elsewhere
herein. The data for the nine months ended June 30, 1996 and 1997 have been
derived from unaudited financial statements also appearing herein. In the
opinion of management, such unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of the unaudited interim periods. The
selected consolidated financial data should be read in conjunction with the
Consolidated Financial Statements of the Company as of September 30, 1995 and
1996, and for each of the years in the three-year period ended September 30,
1996, the related notes to such consolidated financial statements, "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $31,553 $34,268 $41,418 $54,042 $85,516
Cost of sales..................... 26,514 29,273 34,427 45,551 70,810
------- ------- ------- ------- -------
Gross profit...................... 5,039 4,995 6,991 8,491 14,706
Selling, general and
administrative expenses.......... 4,060 4,221 5,747 5,512 7,806
------- ------- ------- ------- -------
Income from operations............ 979 774 1,244 2,979 6,900
Other income (expense)............ (516) (419) (424) (979) (1,142)
------- ------- ------- ------- -------
Income before income taxes,
minority interest and change in
accounting principle............. 463 355 820 2,000 5,758
Provision for income taxes........ 172 158 358 865 2,252
------- ------- ------- ------- -------
Income before minority interest
and change in accounting
principle........................ 291 197 462 1,135 3,506
Minority interest................. -- -- -- (199) (423)
Change in accounting for income
taxes............................ -- -- (155) -- --
------- ------- ------- ------- -------
Net income........................ 291 197 307 936 3,083
Cumulative dividends on Preferred
Stock............................ 240 240 240 277 140
------- ------- ------- ------- -------
Net income (loss) applicable to
Common Stock..................... $ 51 $ (43) $ 67 $ 659 $ 2,943
======= ======= ======= ======= =======
Net income (loss) per common
share............................ $ 0.01 $ (0.01) $ 0.02 $ 0.14 $ 0.48
======= ======= ======= ======= =======
Weighted average common shares
outstanding...................... 4,280 4,280 4,280 4,390 5,683
======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 61,882 $ 85,642
Cost of sales......................................... 52,041 68,046
---------- ----------
Gross profit.......................................... 9,841 17,596
Selling, general and administrative expenses.......... 5,638 7,359
Costs related to merger............................... -- 743
---------- ----------
Income from operations................................ 4,203 9,494
Other income (expense)................................ (794) (388)
---------- ----------
Income before income taxes, minority interest and
change in accounting principle....................... 3,409 9,106
Provision for income taxes............................ 1,328 3,642
---------- ----------
Income before minority interest and change in
accounting principle................................. 2,081 5,464
Minority interest..................................... 423 --
---------- ----------
Net income............................................ 1,658 5,464
Cumulative dividends on Preferred Stock............... 140 --
---------- ----------
Net income applicable to Common Stock................. $ 1,518 $ 5,464
========== ==========
Net income per common share........................... $ 0.25 $ 0.73
========== ==========
Weighted average common shares outstanding............ 5,194 7,436
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, 1997
--------------------------------------- --------------------
AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED (A)
------- ------- ------- ------- ------- ------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 435 $ 928 $ 948 $ 164 $10,206 $14,322
Total assets............ 13,343 13,699 16,645 25,427 39,862 46,017
Short-term debt......... 3,837 3,168 3,888 6,937 2,169 2,694
Long-term debt, less
current portion........ 2,480 2,598 2,407 4,292 3,264 3,831
Shareholders' equity.... 3,377 3,460 3,688 4,866 19,927 25,645
</TABLE>
- --------
(a) As adjusted to give effect to the sale by the Company of 2,000,000 shares
of Common Stock offered hereby (after deducting the underwriting discounts
and commissions and estimated offering expenses) and the application of
the net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of the
operations of the Company should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus. The
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act that involve risks and uncertainties. Factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in "Risk Factors"
and elsewhere in this Prospectus.
OVERVIEW
The Company is a leading independent manufacturer of cable assemblies and
wire harnesses for OEMs in the computer, networking and telecommunications
sectors of the global electronics industry. The Company manufactures a wide
spectrum of products which transfer power or transmit voice, data or video
within the OEMs' equipment or to external connections. Principal applications
of the Company's products include computers and computer peripherals, network
routers and switches, self-service terminals (including automatic teller
machines), PBX switching equipment, cellular digital switching equipment,
industrial electrical controls and medical electronic equipment. Substantially
all of the Company's business is contract manufacture of cable assemblies and
wire harnesses. By integrating its design and engineering capabilities with
its customers' product development activities, the Company customizes its
products to satisfy its customers' particular needs in a price-competitive
manner.
Consistent with its marketing strategy, a substantial portion of the
Company's products are sold to a limited number of customers. The Company's
strategy is to focus on industry leaders in the computer, telecommunications
and networking markets with whom it can develop mutually beneficial
relationships. The Company continuously seeks to expand the number of products
it supplies to existing customers, as well as to develop similar relationships
with selected new OEM customers within its targeted markets. Because of the
complexity of these relationships, sales cycles can be extremely long,
sometimes taking 18 months or more to develop. The Company's operating results
can fluctuate significantly both annually and quarterly because of customers'
product life cycles and new product introductions by new and existing
customers.
In addition to its domestic facilities, the Company operates facilities
located in Guadalajara, Mexico (the "Guadalajara Facility"). The functional
currency of the Guadalajara Facility is the U.S. dollar. All sales and
receivables, over 90% of raw material purchases, all cash equivalents and all
borrowings are denominated in U.S. dollars. However, certain costs, including
the majority of labor and factory overhead costs, are denominated in Mexican
pesos. As a result, fluctuations in the peso to U.S. dollar exchange rate
directly affect the Company's results of operations. In addition, future
regulatory changes in Mexico could also affect the Company's operating
results, including mandatory increases in the minimum wage of 10% scheduled
for December 1997 and an additional 10% scheduled for April 1998.
The Company's gross margins are mainly impacted by new customer and new
product start-up costs, raw material acquisition costs, product mix and
manufacturing productivity. New customer and product start-up costs which are
typically incurred prior to the recognition of associated revenue, include
engineering costs related to product and process development, manufacture and
approval of prototypes and training of production employees.
16
<PAGE>
The following table presents, as a percentage of net sales, certain selected
consolidated financial data for each of the three fiscal years completed
September 30, 1994, 1995 and 1996, and for the nine months ended June 30, 1996
and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 83.1 84.3 82.8 84.1 79.5
-------- -------- -------- ------- -------
Gross profit................. 16.9 15.7 17.2 15.9 20.5
Selling, general and
administrative expenses..... 13.9 10.2 9.1 9.1 9.5(a)
-------- -------- -------- ------- -------
Income from operations....... 3.0 5.5 8.1 6.8 11.0
Other income (expense)....... (1.0) (1.8) (1.3) (1.3) (0.5)
-------- -------- -------- ------- -------
Income before income taxes,
minority interest and change
in accounting principle..... 2.0% 3.7% 6.8% 5.5% 10.5%
======== ======== ======== ======= =======
</TABLE>
- --------
(a) Includes a $743,000 (0.9%) charge related to the merger with Denron.
RESULTS OF OPERATIONS
The Company's current and historical results reflect its acquisition of
Denron through a pooling of interests transaction on June 4, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Denron Merger."
Comparison of the Nine Month Period Ended June 30, 1997 with the Nine Month
Period Ended June 30, 1996
Net sales for the nine month period ended June 30, 1997 increased
$23,760,000, or 38.4% compared to the same period one year earlier. The net
sales increase for the nine month period was primarily the result of internal
sales growth through increased volumes with existing customers.
Gross profit increased $7,755,000, or 78.8%, to $17,596,000 for the nine
month period when compared to the corresponding period one year earlier. Gross
profit as a percentage of net sales increased to 20.5% from 15.9%, for the
nine month period compared to the same period one year earlier. The increase
in gross margin as a percentage of net sales for the nine month period was
primarily the result of a favorable product mix, decreased raw material costs
related to the Company's ability to acquire materials at lower prices because
of increased purchase volumes and the greater absorption of fixed costs
because of greater sales volumes. The ability to acquire materials at lower
prices is attributable to higher volume purchase discounts.
Selling, general and administrative ("SG & A") expenses increased
$2,464,000, or 43.7%, for the nine month period, compared to the same period
one year earlier. As a percent of net sales, SG & A expenses increased to 9.5%
from 9.1% for the nine month period compared to the same period one year
earlier. Before the $743,000 charge for costs related to the merger with
Denron, the current period SG & A expenses percentage was 8.6%. In addition to
the charge for costs related to the merger, the SG & A expenses increase was
attributable to the compensation expense necessary to support the Company's
growth and to commissions paid on the sale of certain of the Company's
products.
The Company's effective tax rate for the nine month period remained at 40%.
Net earnings increased $3,946,000, or 260%, to $5,464,000, compared to the
same period one year earlier. The net earnings increase during the nine month
period was primarily due to the increased sales and margins as discussed
above.
17
<PAGE>
Earnings per share increased to $0.73 from $0.25 for the nine month period,
compared to the same period one year earlier. Earnings per share for the
period was negatively affected by $0.06 for the $743,000 charge for costs
related to the merger with Denron.
Comparison of Fiscal Year 1996 with Fiscal Year 1995
Net sales for fiscal 1996 increased by $31,474,000, or 58.2%, as compared to
fiscal 1995. This increase came from three sources: the inclusion of net sales
of Electronica Pantera, S.A. de C.V. ("Pantera") for the full fiscal year;
sales to new OEM customers; and increased sales to certain existing customers.
Pantera's net sales for the twelve months were $12,675,000 higher than its
five months' 1995 sales. Sales to new customers including those at Pantera
totaled $10,790,000.
Gross profit increased by $6,215,000, or 73.2%, in fiscal 1996 as compared
to fiscal 1995. As a percentage of net sales, gross profit increased from
15.7% to 17.2%. The increased gross margin was primarily due to decreased raw
material costs related to the Company's ability to obtain larger volume
discounts on raw material purchases and increased overhead absorption as a
result of increased sales volume, offset in part by slightly lower unit
selling prices in 1996 compared to 1995 resulting from volume-based price
decreases to certain customers.
SG & A expenses for fiscal 1996 increased $2,294,000, or 41.6%, as compared
to fiscal 1995, primarily as a result of the inclusion of Pantera for a full
fiscal year, increased amortization expense and increased compensation
expense.
Interest expense for fiscal 1996 increased by $44,000, or 5.3%, as compared
to fiscal 1995. The increase was associated with slightly higher borrowing
levels and increased borrowing rates through the Company's Initial Public
Offering. After that date, the Company paid down its short-term borrowings.
Other expense increased primarily due to foreign currency losses in 1996 as
compared to gains in 1995 offset by the absence of debt conversion expense
incurred in 1995.
The effective income tax rate for fiscal 1996 was 39.1% as compared to 43.3%
in fiscal 1995. The decrease in the effective income tax rate was primarily
due to greater pre-tax income which decreased the impact on the tax rate of
the non-deductible amortization of intangible assets and the absence of non-
deductible debt conversion expense incurred in 1995.
Net income for fiscal 1996 increased $2,147,000, or 229.4%, to $3,083,000 as
compared to fiscal 1995 net income of $936,000. Net income increased during
the year mainly because of increased sales and gross margins as discussed
above.
Fiscal 1996 and 1995 net income was reduced by $423,000 and $199,000,
respectively, for the minority interest in Pantera, which was acquired by the
Company in connection with its Initial Public Offering. In addition to
cumulative dividends declared in 1996 and 1995 of $140,000 and $240,000, the
Company declared a participating Preferred Stock dividend in the amount of
$36,000 in 1995.
Comparison of Fiscal Year 1995 with Fiscal Year 1994
Net sales for fiscal 1995 increased by $12,624,000, or 30.5%, as compared to
fiscal 1994. This increase was from three sources: the inclusion of net sales
of Pantera since May 1995; sales to new OEM customers; and increased sales to
certain existing customers. The consolidation of five months of Pantera's net
sales accounted for $5,243,000 of the increased sales. Sales to new customers
totaled $2,762,000 and net sales increased to existing customers by
$4,619,000.
Gross profit increased by $1,500,000, or 21.5%, in fiscal 1995 as compared
to fiscal 1994. As a percentage of net sales, gross profit decreased from
16.9% to 15.7%. The reduced gross margin was mainly related to the costs
associated with the Company's decision to discontinue doing business with
certain customers and to focus its strategy on targeted customers.
18
<PAGE>
SG & A expenses for fiscal 1995 decreased $235,000, or 4.1%, as compared to
fiscal 1994, primarily as a result of the reduction of compensation expenses
at the San Jose Facility.
Interest expense for fiscal 1995 increased by $427,000, or 106.8% as
compared to fiscal 1994. Financing associated with the Pantera acquisition as
well as interest incurred by Pantera on its working capital loans were
responsible for $200,000 of the increase. The remainder of the increase was
associated with slightly higher borrowing levels and increased borrowing
rates. Other expense increased primarily because the Company recognized a non-
recurring, non-cash expense of $165,000 associated with the conversion of the
Company's Series A debentures in fiscal 1995 into shares of the Common Stock,
offset by $129,000 of foreign currency gains.
The effective income tax rate for fiscal 1995 was 43.3% as compared to 43.7%
in fiscal 1994.
Fiscal 1995 net income was reduced by $199,000 for the minority interest in
Pantera, which was acquired by the Company in connection with its Initial
Public Offering. In addition to cumulative dividends declared in 1995, the
Company declared a participating Preferred Stock dividend in the amount of
$36,000. There was no such participating dividend declared in fiscal 1994.
19
<PAGE>
QUARTERLY RESULTS
The following table presents certain unaudited consolidated quarterly
financial information for the fourth quarter of fiscal 1995, fiscal 1996 and
the first three quarters of fiscal 1997. In the opinion of the Company's
management, this information has been prepared on the same basis as the
audited consolidated financial statements appearing elsewhere in this
Prospectus and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth herein. Operating results for any quarter are not necessarily indicative
of results for any future period or for a full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $16,745 $19,213 $20,800 $21,869 $23,634 $26,721 $30,160 $28,761
Cost of sales........... 14,166 16,186 18,161 17,694 18,769 21,684 24,144 22,218
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 2,579 3,027 2,639 4,175 4,865 5,037 6,016 6,543
Selling, general and
administrative
expenses............... 1,676 1,758 1,804 2,076 2,168 2,280 2,566 3,256(a)
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 903 1,269 835 2,099 2,697 2,757 3,450 3,287
Interest expense, net... 263 266 282 195 140 110 146 195
Other income (expense).. (140) (81) -- 30 (208) 299 (50) (186)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes, minority
interest and change in
accounting principle... $ 500 $ 922 $ 553 $ 1,934 $ 2,349 $ 2,946 $ 3,254 $ 2,906
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 84.6 84.2 87.3 80.9 79.4 81.2 80.1 77.3
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 15.4 15.8 12.7 19.1 20.6 18.8 19.9 22.7
Selling, general and
administrative
expenses............... 10.0 9.2 8.7 9.5 9.2 8.5 8.5 11.3(a)
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 5.4 6.6 4.0 9.6 11.4 10.3 11.4 11.4
Interest expense, net... 1.6 1.4 1.4 0.9 0.6 0.4 0.5 0.7
Other income (expense).. (0.8) (0.4) 0.0 0.1 (0.9) 1.1 (0.2) (0.6)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes, minority
interest and change in
accounting principle... 3.0% 4.8% 2.6% 8.8% 9.9% 11.0% 10.7% 10.1%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(a) Includes a $743,000 charge related to the merger with Denron.
The Company's quarterly and annual operating results have fluctuated
significantly in the past and may fluctuate significantly in the future,
depending upon a variety of factors. See "Risk Factors--Variability of
Quarterly Results."
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the nine months of fiscal 1997 provided cash in
the amount of $2,094,000, primarily attributable to net income and
depreciation which offset increases in accounts receivable and inventory, as
compared to cash used in the amount of $281,000 during the same period one
year earlier. Net cash provided from operating activities during 1996 and 1995
was $138,000 and $1,894,000, respectively. The cash provided during 1996 was
from net income, depreciation and increases in accounts payable and accrued
expenses which exceeded cash utilized to finance increases in accounts
receivable and inventory, as a result of increased sales growth. The cash
generated in 1995 was largely the result of net income and management of
working capital components.
Working capital at June 30, 1997 was $14,322,000, an increase of $4,116,000
from September 30, 1996. Working capital was $10,206,000 at September 30,
1996, an increase of $10,042,000 from September 30, 1995.
20
<PAGE>
The increase in working capital was primarily the result of net proceeds from
the Company's Initial Public Offering, as well as accounts receivable and
inventory growth in response to current sales levels and inventory growth in
anticipation of future sales.
During the nine month period ending June 30, 1997, the Company had capital
expenditures of $2,593,000, comprised mainly of production equipment. During
fiscal 1996, the Company expended $2,731,000 for capital expenditures.
Financing activities utilized cash in the amount of $4,895,000 to pay down
short-term debt and $1,185,000 to pay down long-term debt in fiscal 1996. The
Company paid $600,000 in dividends on its preferred stock in fiscal 1996. As a
result of the Company's Initial Public Offering, outstanding preferred stock
was in part converted into common stock (232,635 shares) and in part redeemed
(for $1,937,000 in cash) in April 1996. See "Initial Public Offering."
Credit Facilities
In May 1997, the Company entered into a new bank revolving line of credit
which permits the Company to draw up to $20,000,000 collateralized by the
Company's inventories and accounts receivable. The interest rate on the new
line is the bank's prime lending rate minus .25% or, at the Company's
election, a LIBOR-based rate measured on a sliding scale tied to the Company's
debt to net worth ratio. The line of credit provides for advances up to the
lesser of $20,000,000 or 90% of the Company's qualified accounts receivable
plus 80% of raw materials and finished goods inventory. The line of credit
provides certain restrictions with regard to acquisitions, mergers,
dissolution, capital expenditures and the incurrence of additional
indebtedness; and prohibits loans to or investments in other entities or
persons. At June 30, 1997, the Company was in compliance with all loan
covenants. The line of credit may be terminated on demand. As of June 30,
1997, borrowings under this line of credit facility amounted to $2,001,000
against an availability of $16,007,000 at an interest rate of 8.25%.
The Company's San Jose Facility also has a bank revolving line of credit to
permit the Company to draw up to $2,000,000 collateralized by the San Jose
Facility's inventories and accounts receivable. The line of credit bears
interest at the bank's prime lending rate plus .75%. The line of credit
provides for advances up to a percentage of (i) eligible accounts receivable
at 75% plus (ii) raw material inventory; provides for the maintenance of
various financial ratios; provides certain restrictions with regard to
acquisitions, mergers, dissolution, and the incurrence of additional
indebtedness; and prohibits payment of dividends and loans to or investments
in other entities or persons. At June 30, 1997, the Company was in compliance
with all loan covenants. The line of credit expired July 31, 1997. As of June
30, 1997, borrowings under this line of credit facility amounted to $1,321,000
against an availability of $2,000,000 at an interest rate of 9.25%.
The Company believes that after the application of the net proceeds from
this offering, its cash flow from operations, current short-term investments
and credit facilities will be sufficient to satisfy its working capital
requirements and capital expenditure needs over at least the next twelve
months. The Company expects to spend approximately $3,500,000 on capital
expenditures during fiscal 1998. However, depending on its rate of growth,
profitability and potential acquisition activity, the Company may require
additional equity or debt financing to meet its working capital requirements,
capital expenditure, additional manufacturing capacity or acquisition needs.
Initial Public Offering
On April 30, 1996, the Company completed its Initial Public Offering of
2,100,000 shares, of which 1,876,800 shares were sold by the Company. The
Company's underwriters exercised their over-allotment option to purchase an
additional 315,000 shares of Common Stock on May 30, 1996. Net proceeds to the
Company from the Initial Public Offering were approximately $14,000,000 after
deducting the associated underwriting discount and expenses of the offering.
The net proceeds were used to acquire the remaining 40% of Pantera for
$3,400,000, to reduce the Company's debt in an amount of approximately
$8,100,000 and to pay dividends on and redeem the Company's preferred stock in
an amount of approximately $2,500,000.
21
<PAGE>
Also in connection with the closing of the offering, 104,244 shares of
Common Stock were issued upon conversion of the Company's Series B Debentures
and 232,635 shares of Common Stock were issued in exchange for the Class A
preferred shares not redeemed at the time of the offering.
Denron Merger
On June 4, 1997, the Company completed a merger with Denron by exchanging
791,170 shares of Common Stock for all of the outstanding common stock of
Denron. The merger has been accounted for as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16. Accordingly, all
prior period consolidated financial statements presented have been restated to
include the combined results of the operations, financial position and cash
flows of Denron as though it had always been a part of the Company.
Prior to the merger, Denron's fiscal year ended on March 31. In recording
the merger, Denron's March 31, 1995 and prior years' financial statements have
been combined with the Company's September 30, 1995 and prior years' financial
statements. Denron's 1996 financial information has been restated to a year
ended September 30, 1996, to conform with the Company's fiscal year end. As a
result, Denron's results of operations for the six months from April 1 through
September 30, 1995 have been included as an adjustment to the Company's
opening retained earnings as of October 1, 1995 (the beginning of fiscal
1996).
There were no transactions between the Company and Denron prior to the
merger, and immaterial adjustments were recorded to conform Denron's
accounting policies.
In connection with the merger in the third quarter, the Company recorded a
charge to operating expenses of $743,000 for direct costs pertaining to the
merger transaction. Merger transaction costs consisted primarily of fees for
investment bankers, attorneys, accountants, financial printing and related
charges.
Inflation
The Company does not believe that inflation had a significant impact on its
results of operations during the last three fiscal years.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for stock options or other similar equity instruments. Companies
must either adopt this new method or disclose the pro forma income statement
effects in their financial statements. This statement is effective for the
Company's fiscal year ending September 30, 1997. The Company intends to elect
to disclose the pro forma income statement effects of SFAS 123; therefore,
SFAS 123 will not affect the Company's financial position or results of
operations.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" (SFAS 128), which establishes new standards for
computing and presenting earnings per share ("EPS"). SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with a complex capital structure. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
earlier adoption is not permitted. EPS included in the accompanying financial
information is computed in accordance with APB Opinion No. 15, "Earnings Per
Share." Had the provisions of SFAS 128 been effective for the periods
presented, the Company's basic EPS and diluted EPS on a pro forma basis would
be as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
----- ------ ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic EPS....................... $0.01 ($0.01) $0.02 $0.15 $0.51 $ 0.27 $ 0.80
Diluted EPS..................... $0.01 ($0.01) $0.02 $0.15 $0.48 $ 0.25 $ 0.73
</TABLE>
22
<PAGE>
Subsequent Events
On August 20, 1997, the Company acquired certain assets from Corma for
approximately $2,000,000 in cash. The Company had previously announced a
manufacturing services agreement with Corma to manufacture products to support
the Company's customers in Europe including Interbold, the joint venture
between IBM and Diebold for ATMs in the European market.
On September 2, 1997, the Company announced that based on its then-current
shipment rates, it expected revenues and net income per share for the Company's
fourth fiscal quarter ending September 30, 1997 to be lower than the then-
current consensus analysts' estimates of approximately $31,000,000 in revenue
and net income of $0.31 per share. The Company attributed these anticipated
results to a continuation of seasonal slowness in July and early August and the
timing of new product introductions with several major customers. See "Risk
Factors--Variability of Quarterly Results."
23
<PAGE>
BUSINESS
INTRODUCTION
The business of the Company was started in Lewisburg, Pennsylvania by Jay P.
Mathias in 1949 as a contract supplier of cable assemblies and wire harnesses
for the home entertainment industry. With the development and growth of the
electronics industry, the Company strategically positioned itself as an
independent manufacturer of cable assemblies and wire harnesses for original
equipment manufacturers ("OEMs") in the computer, networking and
telecommunication sectors of the global electronics industry. In response to
OEMs' increasing requirements for local support and worldwide sourcing of
cable assemblies and wire harnesses, the Company has broadened its
manufacturing capabilities through the expansion of existing facilities and
acquisitions. Today, the Company provides domestic and international
distribution, manufacturing and local engineering and design service to
targeted OEMs through its seven ISO-certified facilities located in the United
States, Mexico and Europe. The Company provides additional support for its
customer base in Asia through manufacturing services arrangements with
companies in Taiwan providing the Company with multiple points of delivery in
the Far East, including the People's Republic of China.
The Company's opportunities for growth in the cable assembly and wire
harness industry are primarily driven by: (i) supplier consolidation led by
large multi-national OEMs; (ii) global expansion of the computer, networking
and telecommunications industries accompanied by accelerated product
development cycles; and (iii) continued worldwide outsourcing by large multi-
national OEMs. The Company has positioned itself to participate in the growth
of the cable assembly and wire harness industry and continually seeks
opportunities to expand its worldwide manufacturing and support organization
through domestic and international strategic acquisitions and affiliations and
the construction of new facilities. As part of its strategy to provide global
support to its customers and to capitalize on consolidation trends within the
highly fragmented cable assembly and wire harness industry, the Company has
completed three acquisitions since 1995 and has expanded its domestic
operations.
In May 1995, the Company acquired a 60% interest in Pantera, located in
Guadalajara, Mexico and in April 1996 acquired the remaining 40% interest in
conjunction with the Company's Initial Public Offering. The acquisition
expanded the Company's North American production facilities and provided the
Company with low-cost, high-quality manufacturing capabilities which enabled
the Company to further penetrate its targeted markets. The acquisition
expanded the Company's relationship with IBM and added new customers,
including Hewlett-Packard Company ("Hewlett-Packard") and Texas Instruments
Inc.
In October 1996, the Company opened a 60,000 square foot facility in Beaver
Springs, Pennsylvania (the "Beaver Springs Facility") to support the growing
manufacturing requirements of the Company's existing customers and to provide
additional manufacturing capacity for new customers.
In June 1997, the Company acquired Denron, a manufacturer of cable
assemblies and wire harnesses in San Jose, California. The acquisition
expanded the Company's relationship with Hewlett-Packard and added new
customers, including 3Com Corporation ("3Com") and Bay Networks Inc. ("Bay
Networks"). As a result of the Denron acquisition, the Company obtained local
manufacturing, prototype and design capabilities on the West Coast and
manufacturing services arrangements with companies in Taiwan providing the
Company with additional low-cost manufacturing capacity and with multiple
delivery points in the Far East, including the People's Republic of China.
In August 1997, the Company acquired manufacturing facilities in Bor, Czech
Republic and a related sales, engineering and distribution facility in
Leuchtenberg, Germany from Corma. The acquisition of the Bor Facility and the
Leuchtenberg Facility provides the Company with additional, low-cost, high
quality, ISO-certified facilities to meet the international demands of the
Company's domestic customers and positions the Company to further expand its
relationships with domestic and European customers.
24
<PAGE>
INDUSTRY OVERVIEW
Cable assemblies and wire harnesses connect electronic devices to each other
and to related equipment or power sources. These products are assembled from
bulk, coaxial, fiber optic or other cables and discrete wire that are attached
to one or more electronic connectors. Cable assemblies and wire harnesses are
found in a broad range of electronic products, including computers and
computer peripherals, network routers and switches, self-service terminals
(including automatic teller machines), PBX switching equipment, cellular
digital switching equipment, industrial electrical controls and medical
electronic equipment. Based on available industry data, the Company believes
that the total addressable market for cable assemblies and wire harnesses in
the sectors in which the Company competes was approximately $7.0 billion
worldwide and $3.5 billion in North America in 1996, both of which are
expected to grow by approximately 9.5% annually.
Growth in the cable assembly and wire harness industry was initially fueled
by large OEMs outsourcing the manufacture of cable assemblies and wire
harnesses required to complete their products. Continued growth in cable
assembly and wire harness manufacturing opportunities is the result of the
following trends:
. Consolidation of Suppliers. The cable assembly and wire harness industry
is highly fragmented, with over 2,300 suppliers worldwide and 900
suppliers in North America. OEMs increasingly seek to establish closer
relationships with key suppliers and are consolidating their purchases
into fewer, more capable suppliers with compatible strategies and
objectives. To deliver maximum value to an OEM, a supplier must provide
low total acquisition costs while maintaining sufficient capacity,
quality, technological capability, product variety, systems support,
financial strength and worldwide sourcing to meet the OEM's expanding
requirements. Consolidation of suppliers can lower unit costs for both
the OEM and the supplier by permitting them to leverage larger purchase
volumes.
. Accelerated Product Development. The demand for electronic products has
grown substantially in recent years with the proliferation of computers
for network and multimedia applications, expanding use of
telecommunications products such as cellular telephones and increased
use of electronic components. Moreover, rapid advances in technology
have greatly accelerated the pace of product development, particularly
in the telecommunications and computer industries, resulting in shorter
product life cycles accompanied by correspondingly shorter product
development cycles. OEMs increasingly depend on suppliers to participate
in the design process in order to introduce new technology, to insure
design manufacturability and to facilitate rapid time to market demands.
Utilizing the supplier at the product concept phase may also help defray
internal development costs to the OEM by reducing redesign at subsequent
product development stages.
. Reduced Inventory Levels. As competition has intensified, inventory
management has become a significant issue in the electronics industry
due to inventory carrying costs, reduced product life cycles, space
utilization constraints and the increased variety of features offered
within devices. OEMs prefer suppliers who can comply with just-in-time
delivery, direct shipment and bin replenishment programs, thereby
further reducing the OEMs' overhead cost. Such inventory reduction
efforts have reduced the purchase order lead time OEMs provide
suppliers. Historically, purchase order lead times were commonly eight
to ten weeks; most OEMs now place orders for delivery within 30 days and
many for delivery within one week. Suppliers must adapt to these changes
by reducing their own manufacturing cycles through more sophisticated
materials procurement and management systems and maintaining a flexible
workforce.
. Increased Electronic Commerce. Electronic commerce capabilities can
significantly reduce OEMs' transaction costs and reduce procurement
process cycle times. Suppliers who have capabilities such as bar-coding,
electronic data interchange ("EDI"), electronic mail and document
transfer, electronic funds transfer and similar paperless systems can
assist OEMs in reducing costs while further supporting a responsive and
interactive relationship.
. Importance of ISO Certification. Due to the importance of maintaining
consistent manufacturing quality standards in a global economy, the
International Organization for Standardization has created a
25
<PAGE>
quality systems model designated the ISO 9000 series. This model
establishes total quality standards and documentation requirements for
manufacturing, design and service companies. Consistent with their
demands for high quality standards, many OEMs have adopted these
standards for themselves and have begun to require that their suppliers
be ISO-certified. In addition to demonstrating the commitment of both
the OEM and the supplier to quality manufacturing, ISO certification can
reduce the OEMs' supplier management expenses by providing objective
evidence of quality assurance.
. Increased Use of Molded Assemblies. With the development of government
and industry standards requiring reductions in electromagnetic
interference and radio frequency interference emissions from electronic
equipment, molded cable assemblies have grown as a cost-effective
alternative to stamped metal backpieces as a method for jacketing
shielded connector ends. Molded cable assemblies have also evolved into
a preferred method for jacketing connector ends for OEMs who need or
desire greater customization for reasons of product configuration
(bends, angles or dimensions) or aesthetics (color, logo or shape).
. Adoption of Industry Standards. Although OEM-designed cable assemblies
and wire harnesses continue to be characterized by a high degree of
product customization, the industry trend has recently favored standard
protocols, interfaces and interconnect devices. Most of these standards,
which address both performance and physical configuration, are
coordinated by independent industry groups. Production of cable
assemblies meeting these standards requires suppliers with sophisticated
technological capabilities who also can produce quality cable assemblies
in a cost-effective manner.
STRATEGY
The Company's objective is to become the preferred global supplier for cable
assemblies and wire harnesses to leading OEMs in the computer, networking and
telecommunications market sectors. Key elements of the Company's strategy to
achieve this objective are:
Focus on Customer Service. The Company's efforts are focused on identifying
and satisfying customer needs and supporting the customer relationship on an
ongoing basis. The Company seeks to develop extensive working relationships
with its customers through internal customer focus teams comprised of sales,
quality assurance, engineering, purchasing and manufacturing personnel and
customer service specialists working collectively to focus on customer
satisfaction. To strengthen its market penetration and customer relationships
in key geographic regions, the Company establishes customer support teams at
the customer's site, consisting of sales personnel, design engineers and
production planners. These teams enable the Company to assist customers in the
design and redesign of cable assemblies and wire harnesses, thereby
reinforcing the Company's responsiveness to and support for those customers.
In addition, the Company offers its customers several value-added services and
features, which reduce customers' total acquisition costs or improve their
operations, including bar-coding, EDI, direct shipment of cable assemblies to
customer installation sites, packaging of assemblies in order of use (sequence
packaging), and ship-to-stock and just-in-time inventory support. The Company
believes that its high level of customer service helps to expand its
relationship with its existing customers and attract new customers. The
Company has received numerous awards from its customers for its product
quality and customer service.
Enhance Current OEM Relationships. The Company's strategy is to expand its
relationships with existing customers and become their primary supplier of
cable assemblies and wire harnesses on a global basis. The Company has been
able to expand its relationships with existing OEM customers by manufacturing
a broad range of products, providing extensive support services such as design
and engineering capabilities, both internally and at the customers' locations,
and by maintaining flexible manufacturing and distribution capabilities that
allow it to deliver product to its customers on a global basis with the same
quality and service they receive domestically.
Target Selected New OEM Relationships. The Company seeks to develop new
long-term relationships with large and mid-sized OEMs in its target industry
sectors that are market and technology leaders with
26
<PAGE>
significant product growth potential. In developing such relationships, the
Company conducts extensive research regarding the prospective customers'
organizations and seeks to establish substantive contacts at multiple levels
within those organizations. The Company recently qualified as an approved
supplier to, and received purchase orders from, several new customers,
including Alcatel Alsthom CGE, SA ("Alcatel"), Siemens Business Communication
Systems, Inc. ("Siemens"), Solectron Corporation ("Solectron"), 3M and
Qualcomm Incorporated ("Qualcomm").
Expand Domestically and Internationally. The Company continually seeks
opportunities to expand its worldwide manufacturing and local support
organization to meet the growing demand generated from both the Company's
existing international OEM customer base and new customers. The Company seeks
to expand its operations through both domestic and international strategic
acquisitions and affiliations and the construction of new facilities. During
the past 18 months, the Company has increased its domestic and international
presence through the addition of a 60,000 square foot manufacturing facility
in Beaver Springs, Pennsylvania and through the acquisitions of the
Guadalajara, San Jose, Bor and Leuchtenberg Facilities.
Capitalize on Independence. The Company works closely with but is
independent of all of its suppliers of connector and cable components. As a
result, the Company can impartially select components integrated into its
products to satisfy more precisely and cost-effectively a customer's demands
or requirements. In contrast, several of the Company's competitors are owned
by or strategically allied with connector or cable manufacturers.
Emphasize Continuous Quality Improvements. The Company is committed to
quality planning, assurance and improvement throughout its operations,
including manufacturing and administrative systems, as illustrated by the ISO
9000 certification at each of its manufacturing facilities. Such certification
provides the Company's current and prospective customers with confidence that
the quality assurance systems utilized in the Company's manufacturing and
related operations satisfy specified minimum standards, and customers have
begun to require that their suppliers be so certified. The Company has
expanded its quality assurance systems beyond the ISO 9000 requirements,
including increased application of statistical process control techniques.
Increase Automation. The Company introduces automation into as many of the
key production areas as possible to increase productivity, shorten
manufacturing times, improve safety and increase product and process
reliability. In addition to automating processes typically performed manually,
the Company also utilizes existing technology to generate competitive
advantages. Recent automation and technology improvements include a low
temperature, low pressure premold process and a composite material mold die,
both of which reduce tooling costs and improve design and development cycle
time.
PRODUCTS AND APPLICATIONS
The Company designs and manufactures a broad range of customized cable
assemblies and wire harnesses which transfer power or transmit voice, data or
video within the OEMs' equipment or to external connections. Using a wide
range of basic wire, cable and connectors manufactured by a variety of
suppliers, the Company adapts common designs and applied technologies to
customize these assemblies to meet the customers' needs. The Company seeks to
create an interactive program of product development and service with each
customer by adapting its custom solutions to technological advances and
customer needs by integrating its design and engineering capabilities with the
customer's product development cycles.
The products manufactured by the Company for external applications (i.e., to
connect OEM devices to each other or to power sources) are cable assemblies
that are used in a wide variety of applications for both power supply and data
transmission. Copper and fiber optic data cable assemblies may be used to
interconnect two or more electronic products with multiple functional
capabilities, such as a computer and computer peripherals (e.g., printers,
storage devices, servers or video display equipment) or they may be used to
transmit voice and data in diverse telecommunications applications, including
digital PBX transmissions and ATM banking transactions.
The products manufactured by the Company for internal applications (i.e.,
within the OEMs' equipment) are primarily wire harnesses, which are multiple
branch, multiple interconnect assemblies manufactured for
27
<PAGE>
installation into specific channels or along the interior edges of the
equipment cabinets for distribution of both power and data. Other internal
products include flat ribbon cable assemblies, such as small computer systems
interface, twisted pair-to-flat, round-to-flat and high speed transmission
assemblies, specialty coaxial cable assemblies, other twisted pair assemblies
and electromechanical subassemblies incorporating printed circuit boards,
fans, solenoids, switches, power supplies or similar components into harnesses
and cables.
The following chart sets forth the principal categories of products
manufactured by the Company and their principal applications:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRINCIPAL APPLICATIONS
---------------- ----------------------
<S> <C>
Molded Cable Assemblies. Cable Mainframe and mid-range computers,
assemblies featuring custom workstations, personal computers, servers,
die-formed plastic over cable network routers and switches, self-service
connector ends, which provides terminals, PBX switching equipment and
advantages of durability, industrial electrical controls
customization and aesthetics
- -------------------------------------------------------------------------------
Bulk Cable Assemblies. Cable Mainframe and mid-range computers,
assemblies consisting of workstations, personal computers, servers,
multiple combinations of wire self-service terminals, PBX switching
types and gauges with metal or equipment, industrial electrical controls,
plastic connector housings that network routers and switches
are primarily used to transmit
power and data between multiple
pieces of equipment
- -------------------------------------------------------------------------------
Wire Harnesses. Multiple Mainframe and mid-range computers, servers,
branch, multiple interconnect self-service terminals, PBX switching
assemblies for distribution of equipment, industrial electrical controls,
power and data within customer medical centrifuges and medical analytical
equipment equipment
- -------------------------------------------------------------------------------
Flat Ribbon Cable Printers, disk drives, mainframe and mid-
Assemblies. Cable assemblies range computers, workstations, personal
characterized by individual computers, servers, industrial electrical
conductors bonded in a side-by- controls, medical analytical equipment,
side arrangement, specifically network routers and switches
designed for applications where
flexibility and space
constraints are critical
- -------------------------------------------------------------------------------
Coaxial Cable Mainframe and mid-range computers,
Assemblies. Discrete or workstations, servers, PBX switching
bundled, the individual cables equipment, wireless telecommunications
are characterized by a center switching systems
conductor encased within a
dieletric and surrounded by an
overall shield and jacket
- -------------------------------------------------------------------------------
Electromechanical Integration into specific OEM end products
Subassemblies. Turn-key, or such as printed circuit board manufacturing
contract, manufacturing in equipment, self-service terminals, security
which finished cable assemblies systems, medical analytical equipment
produced by the Company are
combined with metal, plastic,
electrical and electronic
components to make a more
complex assembly
- -------------------------------------------------------------------------------
Fiber Optic Cable Mainframe computers, wireless
Assemblies. Combinations of telecommunications, switching systems,
cable and specialized network installations
connectors that carry pulses of
light, rather than electrical
current, to deliver data,
thereby offering the advantages
of greater speed and security,
lighter weight, higher capacity
and better signal integrity
</TABLE>
28
<PAGE>
SALES AND MARKETING
The Company's efforts are focused on identifying and satisfying customer
needs and supporting the customer relationship on an ongoing basis. The
Company seeks to develop extensive working relationships with its customers
through internal customer focus teams comprised of sales, quality assurance,
engineering, purchasing and manufacturing personnel and customer service
specialists working collectively to focus on customer satisfaction. To
strengthen its market penetration and customer relationships in key geographic
regions, the Company establishes customer support teams at the customer's
site, consisting of sales personnel, design engineers and production planners.
These teams enable the Company to assist customers in the design and redesign
of cable assemblies and wire harnesses, thereby reinforcing the Company's
responsiveness to and support for those customers.
The Company's sales cycle with respect to new customers normally is an
extended process pursuant to which the OEM qualifies the Company as a
supplier. This progressive process typically involves exchanges of information
through written surveys, presentations, site visits, formal audits, sample
quotations and first piece builds. At the same time, the Company conducts
extensive research regarding the OEM's organization and seeks to establish
contacts at multiple levels within that organization. This cycle can take 18
months or more from the initial contact to the first production order. The
Company recently qualified as an approved supplier to, and received purchase
orders from, several new customers, including Alcatel, Qualcomm, Siemens,
Solectron and 3M. For existing customers, the Company seeks to expand its
sales through multi-level relationships with design engineers and other
decision-makers within the OEMs' organization.
The Company's sales and marketing program is organized to enhance the
Company's approach with respect to new and existing OEM customers. The sales
and marketing effort directed at new customers is managed by the Company's
Vice President of Marketing and Sales. Under his direction, the Company
employs five sales executives responsible for the Midwestern, Northeastern,
Southeastern, Southwestern and European territories. The sales and marketing
organization is supported by customer service specialists, design engineers
who promote and support concurrent engineering at customers' sites, as well as
a marketing manager for providing research and strategic information to the
team. Established accounts are managed by customer service specialists and
design engineers within the Company's manufacturing operations.
During the nine months ended June 30, 1997, sales to Diebold, Nortel and IBM
accounted for 17%, 16% and 14% of total sales of the Company, respectively.
During the fiscal year ended September 30, 1996, sales of the Company's
products to Diebold and IBM represented 18% and 15%, respectively, of the
Company's total sales. In addition, sales to the Company's six largest
customers represented 51% of total sales in fiscal 1996 and 68% of total sales
in the nine months ended June 30, 1997. The Company often sells its products
to multiple divisions, product groups and geographic locations within each of
its major customers, where purchasing decisions generally are made by multiple
personnel within each such division or group. Suppliers generally must first
be selected or approved by the customers, usually by a corporate commodity
team charged with the responsibility of locating and qualifying the fewest
suppliers who meet specified overall purchasing objectives. For example, one
customer has a corporate purchasing organization that qualifies suppliers and
components, negotiates corporate contracts and coordinates forecasts. However,
the responsibility for placing and scheduling orders, evaluating supplier
quality and delivery performance and coordinating shipments is maintained at
the thirteen customer sites worldwide. The Company believes that the industry
trend within larger OEMs toward consolidating suppliers has complemented the
Company's customer relationship strategy and that the increased decision-
making autonomy of local operations of large customers heightens the
importance of an integrated and responsive relationship with multiple buyers
within a single organization.
29
<PAGE>
The following chart sets forth representative customers in the computer,
networking and telecommunications sectors:
COMPUTER NETWORKING TELECOMMUNICATIONS
- ------------------ -------------- ------------------
Compaq Computer Corporation Bay Networks, Inc. Cellnet Data
Systems, Inc.
Diebold, Incorporated Cisco Systems, Inc. Harris
Corporation
Hewlett-Packard Company Network Equipment
Technologies, Inc.
International Business Symbios Logic, Inc. Lucent
Machines Corporation Technologies Inc.
NCR Corporation 3Com Corporation Northern Telecom
Limited
Unisys Corporation
MANUFACTURING
The Company manufactures substantially all of its products on a build-to-
order basis and to the forecasts of its customers. The Company operates
manufacturing facilities in Lewisburg and Beaver Springs, Pennsylvania;
Winnsboro, South Carolina; San Jose, California; Guadalajara, Mexico; and Bor,
Czech Republic and has manufacturing services arrangements with companies in
Taipei, Taiwan and in the People's Republic of China. Each of the Company's
manufacturing facilities is capable of producing the full range of the
Company's products.
Concurrent Engineering. The Company maintains rapid prototype capabilities
at each of its plants for designing and developing customized products for its
customers. Each prototype team works with blueprints, sketches, red-lined
drawings or sample cables to create a fully-documented, finished assembly for
installation in customer prototypes or test units. This capability provides
the customer with an integrated design/development cycle whereby the Company
furnishes on-site design engineering including component selection and
prototype manufacturing capabilities resulting in shorter development cycles
and faster time-to-market requirements. The Company's engineering staff is
also responsible for specifying or designing and ordering any tooling or
special fixturing that is required for production of new cable assemblies or
wire harnesses. Much of the custom tooling, including mold dies, is designed
and built by the Company's own machine shop, which features CAD tool design
capabilities, computer-numerically-controlled boring and milling, multiple
lathes, electro-discharge machine tool finishing capability, computer-
controlled heat treating of tool steel and several machinists. The Company
also works with its component suppliers in new product and new technology
development.
Team Production. The vast majority of the Company's products are
manufactured by cross-trained, customer-focused teams working in cells or on
continuous flow manufacturing lines. This team approach enhances quality,
responsiveness and flexibility, permitting the Company to meet customer
requirements for shorter lead times and greater scheduling flexibility. The
teams support customer just-in-time inventory shipment requirements, including
bin replenishment programs, and allow direct shipments to installation sites
with cables packed in order of use for ease of installation. Each team
prioritizes its own workload, balancing issues of set-up, economic lot sizing,
operator skills availability, equipment scheduling and material availability
with customer delivery requirements. Cross-training of employees is an
integral feature of this team approach. All employees, including members of
the production teams, receive quality skills training focusing on the benefits
of statistical process control techniques that may be applied on critical
processes in their respective work areas. Manufacturing engineering teams also
evaluate process capabilities through statistical data analysis and capability
studies.
Quality Assurance Systems. The Company emphasizes extensive and detailed
quality assurance systems throughout its operations. Each facility is
Underwriters' Laboratory listed, approved by the Canadian Standards
Association and ISO 9000 certified by an independent accreditation
organization. ISO 9000 is part of a standard developed by the International
Organization for Standardization, a worldwide federation of national standards
bodies which establishes a framework for structuring and documenting
operations. The Company believes that its quality assurance systems, as
evidenced by the ISO 9000 certification and supported by its production team
30
<PAGE>
approach, provide customers further assurance as to the Company's commitment
to quality processes required by the competitive market environment.
As part of its quality assurance procedures, members of the Company's cross-
trained production teams meet at least monthly to review quality data and to
discuss ideas for process or product improvements. In addition, the Company
tests its finished cable assemblies and wire harnesses to customer
specifications. The Company also utilizes computer-controlled programmable
testers for testing discrete components within wire harnesses and cable
assemblies such as resistors, capacitors, diodes, transistors and lamps. For
fiber optic cable, a light source and power meter are used for measuring the
attenuation losses in the finished assembly. The Company's engineering staff
strictly controls the process of introducing new cable assemblies into the
manufacturing operations by developing production instructions and visual aids
from customer prints and applicable specifications. As a result, the majority
of the products sold by the Company are delivered to customers on a ship-to-
stock basis or are shipped directly to the customer's job site, without
further testing or inspection of the products once shipped by the Company and,
therefore, with reduced product acquisition cost for the customer.
Manufacturing Process. The Company introduces automation into as many of the
production areas as possible to improve productivity, shorten manufacturing
lead times, improve safety and increase product and process reliability. The
Company applies automation, both in preparing wire and cable for further
processing and in the actual assembly process. The Company uses automated
electronic cut-and-stamp machines with attendant ink-jet printers or wire
markers and wire pre-feeders to prepare small and medium discrete wire and
small bulk cable for further processing. Hundreds of various presses, hand
tools and applicators are used for crimping terminals onto the processed
wires. The Company also utilizes computer driven lead termination machines
that can combine stamping, cutting, stripping and crimping of discrete wire
into a single operation. For certain specific applications, the Company
designs and builds its own specialty equipment, which the Company believes
provides a significant manufacturing advantage by automating processes
typically performed manually. Examples of such specialty equipment include
automatic cable measuring, cutting and coiling equipment for large bulk cables
and specialized guillotine stripping machines and pneumatic strippers for a
variety of cable types and shapes.
The Company believes it is one of the industry leaders in the manufacture of
molded cable assemblies, which feature overmolded connector ends that
typically consist of a PVC jacket formed over the connector in a high pressure
molding machine. The Company has developed a proprietary premold process that,
unlike the traditional premolding procedure, does not require the use of
molding machines. Through this process, the Company is effectively able to
double its molding capacity, which the Company believes is sufficient for its
current and foreseeable near-term molding needs. This premold process is
performed in a low temperature and low pressure environment, thereby
minimizing the risk of stress-related defects. At the same time, because the
tooling necessary for the process is produced by the Company, lead times and
costs are reduced.
The Company is subject to a variety of foreign, federal, state and local
laws, rules and regulations relating to, among other things, the health and
safety of its work force, emissions to the air, discharge to waters and the
generation, handling, storage and transportation of waste and other materials.
The Company believes that it is currently in compliance in all material
respects with such laws, rules and regulations.
SUPPLIERS
Historically, the Company has purchased a significant portion of its wire,
cable and connectors from a limited number of unrelated suppliers. During
1996, the Company estimates it purchased approximately 45% and 30% of its wire
and cable from Nordex and Madison, respectively, and approximately 50% of its
connectors from AMP. AMP competes with the Company in the supply of cable
assemblies and wire harnesses. The Company believes that such materials could
be purchased from several domestic and international sources, such that the
Company should be able to obtain replacement sources of supply in the event of
the loss of any current supplier. Although customers often require that
materials produced by a particular supplier be used in manufacturing their
customized products, in the event of the loss of any supplier, the Company
believes that
31
<PAGE>
customers would be likely to qualify alternative suppliers or, if necessary,
redesign their products to accommodate materials from replacement suppliers.
However, no assurance can be given that the loss of a key supplier would not
have a material adverse effect on the Company.
The Company's Materials Management Council, which is comprised of the Vice
President of Materials and a representative from each manufacturing facility,
oversees a supplier management program that focuses on improving supplier
relationships. The Company requires as a prerequisite that its suppliers
satisfy value, quality and timely performance standards. The actual purchasing
decisions of the Company are based on the suppliers' ability to demonstrate
creativity and initiative in communications, technical innovation, cost
reduction capabilities and engineering and processing assistance. The Company
evaluates its suppliers on a monthly basis with respect to material quality
and on-time delivery performance and shares those evaluations with the
applicable suppliers.
COMPETITION
The Company operates in an international market characterized by intense
competition. While the Company does not believe that any of its competitors
provides the breadth of product line with the quality and at the prices
offered by the Company, competition within particular portions of the
Company's business comes from a broad range of companies. Several of the
Company's competitors are much larger and have greater financial, management
and marketing resources than the Company. The Company's competitors include:
(i) connector manufacturers, including AMP, Amphenol, Berg, 3M and Molex; (ii)
contract manufacturers, including Sanmina and K*TEC; and (iii) independent
manufacturers, including Volex, Foxconn and a number of smaller regional
manufacturers. Competition within the industry is based on quality, production
capacity, breadth of product line, engineering support capability, price,
local support capability, systems support and financial strength.
PROPRIETARY INFORMATION
The Company relies on trade secrets and other unpatented proprietary
information in its operations. While the Company believes that it has
developed certain proprietary production methods, there can be no assurance
that others will not develop similar or better methods. The Company's senior
management employees have entered into confidentiality agreements and the
Company seeks to enter into such agreements with its customers and suppliers
as it deems appropriate. There can be no assurance, however, that such
agreements will effectively prevent disclosure of the Company's confidential
information.
32
<PAGE>
FACILITIES
The Company's worldwide manufacturing operations are qualified under ISO
9000 international quality control standards. The following table sets forth
certain information regarding the Company's facilities:
<TABLE>
<CAPTION>
DATE CONSTRUCTED,
ACQUIRED OR FIRST
OCCUPIED BY THE
LOCATION APPROXIMATE SIZE TYPE OF INTEREST DESCRIPTION OF USE COMPANY
--------------- ---------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Lewisburg, 136,000 sq. ft. Owned Corporate 1960
Pennsylvania headquarters,
manufacturing and
warehousing
Guadalajara, 70,000 sq. ft. Leased Manufacturing, 1995
Mexico warehousing and
offices
Beaver Springs, 60,000 sq. ft. Leased Manufacturing, 1996
Pennsylvania warehousing and
offices
Winnsboro, 47,000 sq. ft. Owned Manufacturing, 1982
South Carolina warehousing and
offices
San Jose, 40,000 sq. ft. Leased Manufacturing, 1997
California warehousing and
offices
Bor, 13,000 sq. ft. Leased Manufacturing 1997
Czech Republic
Leuchtenberg, 6,000 sq. ft. Leased Warehousing, sales 1997
Germany and engineering
</TABLE>
Although management of the Company believes that its facilities are adequate
to meet its current requirements, the Company may require additional
manufacturing capacity depending upon its future rate of growth. See "Use of
Proceeds."
EMPLOYEES
As of September 30, 1997, the Company had approximately 2,800 full-time
employees, including approximately 2,100 production operators, 450 in
engineering and other manufacturing support functions, 75 in executive,
finance and administrative functions, 50 in sales and customer service
functions, and 34 in materials management functions. The Lewisburg,
Guadalajara, Beaver Springs, Winnsboro, San Jose, Bor and Leuchtenberg
Facilities have approximately 538, 1,279, 257, 225, 366, 90 and eight full-
time employees, respectively. At the Guadalajara Facility, 150 of the hourly
production employees are members of Confederacion de Trabajadores Mexicanos
(the Confederation of Mexican Workers) and are covered by a collective
bargaining agreement that is negotiated annually. None of the Company's other
employees are union members or are covered by a collective bargaining
agreement. The Company has never experienced a labor strike or other labor-
related work stoppage. Periodically, during times of increased production, the
Lewisburg, Beaver Springs and Winnsboro Facilities employ temporary employees,
who may constitute 10-15% of the total employees at these facilities. The
Company considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings nor, to
the Company's knowledge, is any material legal proceeding threatened.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
John H. Mathias(1) ........ 51 Chairman of the Board and Chief Executive
Officer
James P. Mathias(1) ....... 47 President and Chief Operating Officer,
Director
John M. Spangler .......... 43 Senior Vice President, Telecommunications and
Business Automation Division
Wayne A. Bromfield......... 50 Executive Vice President, General Counsel,
Secretary, Director
Robert R. Langton ......... 43 Vice President of Marketing and Sales
William D. Baker .......... 50 Vice President, Chief Financial Officer and
Treasurer
Maria Luisa Lozano ........ 54 Director General, Pantera
Robert R. Verbosh ......... 57 Director General, Pantera
Janet B. Mathias(1)(2) .... 53 Director
Bruce M. Eckert(2)(3) ..... 53 Director
Clifford M. Melberger(2)(3) 58 Director
..........................
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
John H. Mathias has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1981 and as a member of the Company's
Board of Directors since 1978. He began his career with the Company as an
Industrial Engineer in 1973 and subsequent thereto held other positions
including Director of Management Information Systems and Vice President of
Administration. Mr. Mathias received both his B.S. degree in Business
Administration and Master's degree in Mathematics from Bucknell University.
James P. Mathias has served as President and Chief Operating Officer of the
Company since 1981 and as a member of the Company's Board of Directors since
1978. Previous positions that Mr. Mathias has held at the Company include Vice
President of Operations as well as Production Control and Inventory Manager
and Production Engineer.
John M. Spangler has served as Senior Vice President, Telecommunications and
Business Automation Division of the Company since June 1997. Mr. Spangler
joined the Company in 1990 as Corporate Controller, Treasurer and Director of
Finance and Management Information Systems. He received his B.S. degree in
Business Administration from Bucknell University.
Wayne A. Bromfield has served as a director of the Company since 1981 and
Executive Vice President, Secretary and General Counsel since September 1,
1997. Prior to joining the Company in his management capacity, Mr. Bromfield
served as a Judge of the Pennsylvania Court of Common Pleas of Union and
Snyder counties since 1986 and as President Judge since 1990. Mr. Bromfield
received his B.A. degree from Duke University and his J.D. degree from
Dickinson School of Law.
Robert R. Langton has served as Corporate Director of Marketing and Sales of
the Company since 1991 and was promoted to Vice President of Marketing and
Sales in November 1995. He joined the Company in 1987 as Engineering Manager
and was promoted to Corporate Director of Quality Assurance in 1988. He
received his B.S. degree in Business Administration from Bucknell University.
34
<PAGE>
William D. Baker has served as Vice President, Chief Financial Officer and
Treasurer of the Company since January 1996, when he joined the Company. In
1995, Mr. Baker served as an independent consultant. Prior thereto, Mr. Baker
served as Vice President, Chief Financial Officer and Secretary of Racotek,
Inc., a manufacturer of software and hardware for the telecommunications
market, from 1993 to 1994 and served as Vice President and Chief Financial
Officer of Artisoft, Inc., a manufacturer of local area network software and
hardware for personal computer networks, from 1990 to 1993. He received his
B.A. degree in Business Administration from St. Francis College.
Maria Luisa Lozano has served as Director General of Pantera since co-
founding the business in 1985. Ms. Lozano held previous positions with Warwick
Electronics, AC/DC Electronics, Space Labs, and Burroughs Corporation (now
Unisys). She received her B.S. degree in Chemistry from the University of
Guadalajara Polytech.
Robert R. Verbosh has also served as Director General of Pantera since co-
founding the business in 1985. Mr. Verbosh served 26 years with Burroughs
Corporation, including the position of General Manager of its Guadalajara
plant.
Janet B. Mathias has served as a member of the Company's Board of Directors
since 1978 and from 1981 to September 1997 served as Secretary of the Company.
She served as a Director of Registration Services for the National Commission
on Certification of Physician Assistants, Inc. from 1975 to 1990. Since that
time, Ms. Mathias has managed her personal investment portfolio. Ms. Mathias
received her B.A. degree in economics from Bucknell University.
Bruce M. Eckert has served as a director of the Company since 1981. Mr.
Eckert has been a Partner in Lewis, Eckert, Robb & Company, a financial and
management consulting company, since 1981, and President of Eastern Alliance
Insurance Co., an insurance company, since 1986. From July 1989 to July 1994,
he was also Chairman, CEO and a director of Rockwood Casualty Insurance Co., a
provider of casualty insurance. He received his B.A. degree from Yale
University and his J.D. degree from Dickinson School of Law.
Clifford M. Melberger has served as a director of the Company since July
1997. Mr. Melberger is the President of Diversified Records Services, Inc., a
national information management and documents imaging company. He received his
B.S. degree in Business Administration and his M.S. degree in Education
Administration from Bucknell University.
John H. Mathias, James P. Mathias and Janet B. Mathias are children of the
Company's founder, Jay P. Mathias.
THE BOARD OF DIRECTORS
The Board of Directors is divided into three classes with respect to term of
office, with each class to include one-third of the whole number of the Board
of Directors or as near thereto as possible. The term of office of the Class A
Directors (John H. Mathias, Wayne A. Bromfield and Clifford M. Melberger),
Class B Directors (James P. Mathias and Bruce M. Eckert) and Class C Directors
(Janet B. Mathias) expires as of the date of the 1999, 2000 and 1998 annual
meetings of the shareholders, respectively. At each annual meeting of the
shareholders, that number of directors whose terms then expire are elected to
serve for a term of three years and until their successors are duly elected
and qualified.
The Board of Directors has an Executive Committee, Compensation Committee
and Audit Committee to assist in the discharge of its responsibilities. The
Executive Committee has been delegated all of the powers of the Board of
Directors to the extent permitted under the Pennsylvania Business Corporation
Law. The Compensation Committee has the authority and performs all the duties
related to the compensation of the employees of the Company and administers
the Company's employee benefit and stock option plans. The Audit Committee,
among other things, makes recommendations concerning the engagement of
independent auditors, reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors and reviews the
adequacy of the Company's internal accounting controls. The Audit and
Compensation Committees are comprised of at least a majority of non-employee
directors.
35
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table lists information concerning the beneficial ownership of
the Company's Common Stock at September 30, 1997, by (i) each person known to
the Company to beneficially own more than 5% of the Common Stock, (ii) each of
the five most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000 in the fiscal year ended September 30, 1997
("Named Executive Officers") and each director, (iii) all executive officers
and directors as a group and (iv) the Selling Shareholders, both before and
after giving effect to the sale of 3,200,000 shares of Common Stock in this
offering. As of such date, there were 6,970,245 shares of Common Stock
outstanding and approximately 150 record holders of shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
OFFERING (2) AFTER OFFERING
--------------------- SHARES --------------------
NUMBER BEING NUMBER
NAME(1) OF SHARES PERCENT OFFERED OF SHARES PERCENT
- ------------------------- ------------ -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS
AND DIRECTORS
John H. Mathias(3)....... 1,121,151 16.1% 150,000 971,151 10.8%
James P. Mathias(4)...... 1,087,267 15.5 150,000 937,267 10.4
Janet B. Mathias(5)...... 928,553 13.3 150,000 778,553 8.7
Bruce M. Eckert(6)....... 278,059 4.0 -- 278,059 3.1
Wayne A. Bromfield(7).... 261,135 3.7 -- 261,135 2.9
John M. Spangler(8)...... 237,156 3.4 -- 237,156 2.6
Maria Luisa Lozano(9).... 26,600 * -- 26,600 *
Robert Verbosh(10)....... 26,600 * -- 26,600 *
Clifford M. Melberger.... -- * -- -- *
All executive officers
and directors as a group
(11 persons)(11)........ 3,532,927 49.2 450,000 3,082,927 33.6
ADDITIONAL SELLING
SHAREHOLDERS
Ronald C. and Marita H.
Mills................... 316,469 4.5 296,884 19,585 *
John M. and Linda E.
Denman.................. 310,469 4.5 296,884 13,585 *
Viva R. Denman........... 39,558 * 39,558 -- *
Joseph H. and Pamela K.
Ward.................... 39,558 * 39,558 -- *
Harold H. Renz........... 38,558 * 38,558 -- *
Herbert and Irma E.
Renz.................... 38,558 * 38,558 -- *
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of each person in the table under the caption Named Executive
Officer and Directors is: c/o The JPM Company, Route 15 North, Lewisburg,
PA 17837.
(2) Includes shares of Common Stock issuable upon the exercise of stock
options granted under the Company's stock option plans which are
exercisable within 60 days of September 30, 1997. As used in this table,
"beneficial ownership" means the sole or shared power to vote or direct
the voting of a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed as of any date to have
"beneficial ownership" of any security that such person has the right to
acquire within 60 days after such date.
(3) Includes: (a) 155,000 shares of Common Stock held with his spouse as
joint tenants; (b) 22,500 shares of Common Stock held with his spouse as
tenants in common; (c) 100,000 shares of Common Stock held individually
by his spouse; (d) 25,200 shares of Common Stock held in a custodial
account for the benefit of his daughter; and (e) 125,000 shares of Common
Stock held in the Smoketown Limited Partnership.
36
<PAGE>
Also includes 77,691 shares of Common Stock owned by the John H. Mathias
Trust, of which John H. Mathias is the residuary beneficiary but as to
which he has no voting or dispositive power. See footnotes (6) and (7)
below;
(4) Includes: (a) 10,000 shares of Common Stock held individually by his
spouse; (b) 30,400 shares of Common Stock held in a custodial account for
the benefit of his children; (c) 125,000 shares of Common Stock held in
the Afallon Family Limited Partnership; and (d) 40,376 shares of Common
Stock issuable upon the exercise of stock options granted by the Company
to his spouse which are exercisable within 60 days of September 30, 1997.
Also includes 77,691 shares of Common Stock owned by the James P. Mathias
Trust, of which James P. Mathias is the residuary beneficiary but as to
which he has no voting or dispositive power. See footnotes (6) and (7)
below.
(5) Includes 77,253 shares of Common Stock owned by the Janet B. Mathias
Trust, of which Janet B. Mathias is the residuary beneficiary but as to
which she has no voting or dispositive power. See footnotes (6) and (7)
below.
(6) Includes: (a) an aggregate of 232,635 shares of Common Stock held by the
John H. Mathias Trust, James P. Mathias Trust and Janet B. Mathias Trust,
as to which Mr. Eckert shares voting and dispositive power as a trustee
but disclaims beneficial ownership; (b) 12,424 shares of Common Stock
held in trust by Lewis, Eckert, Robb & Co. Profit Sharing Plan for the
benefit of Bruce M. Eckert, for which Mr. Eckert serves as the Trustee;
and (c) 33,000 shares of Common Stock issuable upon the exercise of stock
options granted by the Company which are exercisable within 60 days of
September 30, 1997.
(7) Includes: (a) 500 shares of Common Stock owned by his daughter; (b) an
aggregate of 232,635 shares of Common Stock held by the John H. Mathias
Trust, James P. Mathias Trust and Janet B. Mathias Trust, as to which Mr.
Bromfield's spouse shares voting and dispositive power as a trustee but
disclaims beneficial ownership; and (c) 28,000 shares of Common Stock
issuable upon the exercise of stock options granted by the Company which
are exercisable within 60 days of September 30, 1997.
(8) Includes 80,000 shares of Common Stock held by the Profit Sharing Plan
for the benefit of John Spangler. Also includes 60,376 shares of Common
Stock issuable upon the exercise of stock options granted by the Company
which are exercisable within 60 days of September 30, 1997.
(9) Includes 10,000 shares of Common Stock issuable upon the exercise of
stock options granted by the Company which are exercisable within 60 days
of September 30, 1997.
(10) Includes 10,000 shares of Common Stock issuable upon the exercise of
stock options granted by the Company which are exercisable within 60 days
of September 30, 1997.
(11) Includes 213,428 shares of Common Stock issuable upon the exercise of
stock options granted by the Company which either are currently
exercisable or will become exercisable within 60 days of September 30,
1997. The percent of class assumes all outstanding exercisable options
granted to directors and executive officers have been exercised and,
therefore, on a pro forma basis 7,183,673 shares of Common Stock would be
outstanding prior to this offering and 9,183,673 shares of Common Stock
would be outstanding after this offering.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock, par
value $.000067 per share, and 10,000,000 shares of Preferred Stock, no par
value. After giving effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby, there will be approximately 8,970,245 shares of
Common Stock outstanding. There are no shares of Preferred Stock outstanding.
The description of the Company's capital stock contained in this Prospectus is
based, in part, on the Company's Amended and Restated Articles of
Incorporation, as amended on January 25, 1996 (the "Articles").
COMMON STOCK
At September 30, 1997, there were 6,970,245 outstanding shares of Common
Stock held by approximately 150 holders of record. After completion of this
offering, there will be approximately 8,970,245 shares of Common Stock
outstanding (based on the number of shares outstanding on September 30, 1997).
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Because holders of Common Stock
do not have cumulative voting rights, holders of a majority of the shares
voting for the election of directors can elect all of the members of the Board
of Directors. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. Subject to preferences
that may be applicable to any outstanding shares of Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available therefor. The Company does not currently intend to pay
cash dividends on its Common Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable and the shares of Common
Stock to be issued upon completion of this offering will be fully paid and
non-assessable.
PREFERRED STOCK
There are 10,000,000 shares of Preferred Stock authorized, with no shares
outstanding.
The Board of Directors is authorized without further action by the Company's
shareholders to provide for the issuance of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the designations, powers, preferences and rights of
the shares of each such series and any qualifications, limitations or
restrictions thereof and to increase or decrease the number of shares of any
such series. The Board of Directors may authorize and issue Preferred Stock
with voting, dividend, conversion, liquidation and other rights that could
adversely affect the voting power and other rights of the holders of Common
Stock. In addition, the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no current plans to issue any shares of Preferred Stock.
LIMITATION OF LIABILITY; INDEMNIFICATION
The Company's Articles and its Amended and Restated Bylaws (the "Bylaws")
limit the liability of its directors to the maximum extent permitted by
Pennsylvania law. Thus, a director of the Company would not be personally
liable for monetary damages for any action taken, or any failure to take any
action, unless the director has breached or failed to perform the duties of
his office and the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. Such limitation does not apply to any
responsibility or liability pursuant to criminal statute or liability for the
payment of taxes pursuant to local, state or federal law.
The Company's Bylaws require the Company to indemnify its directors and
officers against expenses and certain other liabilities arising out of their
conduct on behalf of the Company to the maximum extent and under
38
<PAGE>
all circumstances provided by law. In addition, the Bylaws authorize the
Company to maintain liability insurance for its directors and officers.
The Company has obtained directors' and officers' liability insurance. There
can be no assurance, however, that the Company will be able to continue such
insurance on reasonable terms or at all. At present, there is no pending
litigation or proceeding, and the Company is not aware of any threatened
litigation or proceeding, involving any director, officer, employee or agent
where indemnification will be required or permitted under the Company's
Articles and Bylaws.
ANTI-TAKEOVER PROVISIONS
Certain Provisions of the Articles and Bylaws
The Company's Articles and Bylaws contain certain provisions that may delay,
defer or prevent a change in control of the Company and make removal of
management more difficult. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions which may involve an actual or
threatened change in control of the Company. The provisions also are intended
to discourage certain tactics that may be used in proxy fights.
The Bylaws provide for the Board of Directors to be divided into three
classes serving staggered terms. As a result, only one class of directors will
be elected at each annual meeting of the shareholders, and the time required
to elect a new majority to the Board of Directors will be extended. Moreover,
the Bylaws provide that members of the Board of Directors may be removed
without cause by the affirmative vote of the holders of a majority of the
voting power of the then outstanding voting stock of the Company. The Bylaws
grant to the Board the authority to set from time to time the size of the
Board within a range between three and eleven directors. The Bylaws provide
that only the Board of Directors may fill vacancies on the Board. Under the
Bylaws, a special meeting of shareholders may only be called by (i) the
Chairman of the Board, (ii) the President or (iii) any three members of the
Board of Directors.
Further, the Bylaws grant to the Board of Directors the authority to
consider an array of factors, including non-economic factors, in deciding
whether to approve an acquisition of the Company. See "--Pennsylvania
Statutory Anti-Takeover Provisions" In addition, the Bylaws permit amendment
of the Bylaws by an affirmative vote of a majority of the holders of the then
outstanding voting stock of the Company, or the affirmative vote of two thirds
of the members of the Board of Directors, subject to the power of the
shareholders to change such action.
The Bylaws also establish advance notice procedures with regard to
shareholder proposals. These procedures provide that notice of shareholder
proposals at any annual meeting of shareholders must generally be received in
writing by the Secretary of the Company not less than 120 days nor more than
150 days prior to the meeting. The Company may reject a shareholder proposal
that is not made in accordance with such procedures. The Company may also
reject a shareholder proposal that does not, as required by the Bylaws,
contain certain information concerning the matters to be brought before the
meeting or the shareholder submitting the proposal. Business transacted at any
special meeting of shareholders is limited to the purposes stated in the
notice of such special meeting.
The foregoing provisions of the Company's Articles and Bylaws could have the
effect of discouraging a third party from attempting to obtain control of the
Company, even though such attempt might be beneficial to the Company and its
shareholders, and could have a depressive effect on the market price of the
Common Stock. Also, the foregoing provisions, together with the ability of the
Board of Directors to issue Preferred Stock without further shareholder
action, could delay or frustrate the removal of incumbent directors or a
change in control of the Company even if such removal or change would be
beneficial to shareholders of the Company.
39
<PAGE>
Pennsylvania Statutory Anti-Takeover Provisions
Pennsylvania has also adopted certain laws that may be deemed to have an
"anti-takeover" effect. One provision permits directors, in considering the
best interests of the Company, to consider the effects of any action upon its
employees, suppliers, customers, shareholders and creditors and the
communities in which the Company maintains facilities as well as other
pertinent factors, with the result that no one group, including shareholders,
is required to be the dominant or controlling concern of directors in
determining what is in the best interests of the Company.
The Company also is subject to various provisions under Pennsylvania law, as
described below, which are triggered, in general, if any person or group
acquires, or in certain cases discloses an intent to acquire, 20% or more of
the voting power of a corporation which is subject to Sections 25(e)-(h) of
the Pennsylvania Business Corporation Law of 1988, as amended, (generally, an
"interested shareholder") other than pursuant to a registered firm commitment
underwriting or, in certain cases, pursuant to the approval of the board of
directors.
Control Transactions. This provision generally provides that if any
person or group becomes an interested shareholder, the remaining
shareholders may demand from such interested shareholder the fair value of
their shares, including a proportionate amount of any control premium.
Business Combinations. This provision generally prohibits any person or
group that acquires at least 20% of the voting power of a corporation from
effecting a business combination with the corporation, such as a merger, an
asset sale and certain recapitalizations, for a period of up to five years
from the date such control was acquired. A corporation may opt out of this
provision on a case-by-case basis by approving a particular business
combination in compliance with applicable Pennsylvania statutory provisions
prior to the date such person or group acquires 20% of the voting power.
Control-Share Acquisition. This provision generally prevents a person or
group that crosses certain stock ownership thresholds of 20%, 33 1/3% or
50% for the first time from voting those shares the ownership of which puts
that person or group over the relevant threshold unless voting power is
restored to such shares within certain limited periods by a majority vote
of shareholders as a whole and a majority vote of disinterested
shareholders at a shareholders meeting. Failure to obtain such approval
exposes such person or group to the risk of a forced sale of the shares of
the corporation. Even if voting rights are restored by approval of a
resolution of shareholders, those rights will lapse and be lost if any
proposed control-share acquisition which is the subject of the shareholder
approval is not consummated within 90 days after shareholder approval is
obtained. Also, any business combinations occurring after the restoration
of voting power may require the acquiring person to pay severance
compensation to Pennsylvania employees of the corporation whose employment
is terminated within 90 days before or 24 months after the restoration of
voting power.
Disgorgement. This provision generally requires any person or group that
acquires 20% or more of the voting power of a corporation to disgorge to
the corporation all profits realized from the sale of equity securities of
the corporation within 18 months after acquiring this control status if the
person or group purchased equity securities of the corporation within 24
months prior to, or 18 months after, the acquisition of control status.
Each of these provisions will make it difficult and time-consuming for any
person or group to acquire the Company without the consent of the existing
shareholders. The Company may opt out of one or more of these provisions only
by an amendment to the Company's Articles of Incorporation approved by both
the Board of Directors and the shareholders. With respect to the control-share
acquisition and disgorgement provisions, such amendment was required to be
adopted within 90 days after the date the Company's shares were first
registered under the Exchange Act. The Company has not and does not intend to
opt out of any of these provisions.
TRANSFER AGENT
The Company's transfer agent is StockTrans, Inc., Ardmore, Pennsylvania.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,970,245 shares of
Common Stock outstanding (based on the number of shares outstanding on
September 30, 1997). The 2,000,000 shares of Common Stock offered by the
Company and the 450,000 shares offered by certain Selling Shareholders hereby,
the 2,415,000 shares sold in the Company's Initial Public Offering, and
791,170 shares issued in connection with the Denron merger and registered on a
Form S-3, along with certain other shares sold pursuant to Rule 144 or the
exercise of stock options, will be freely transferable without restriction or
further registration under the Securities Act, unless purchased by affiliates
of the Company as that term is defined by Rule 144 under the Securities Act.
The remaining 3,082,927 shares of Common Stock will be "restricted securities"
as that term is defined under Rule 144 and, accordingly, may not be sold
unless they are registered under the Securities Act or unless an exemption
from registration, such as the exemption provided by Rule 144 under the
Securities Act, is available.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "Affiliates" of
the Company as that term is defined under the Securities Act, who has
beneficially owned restricted shares for at least one year is entitled to
sell, within any three-month period, a number of shares that does not exceed
the greater of (i) one percent of the then outstanding Common Stock
(approximately 89,700 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding such sale. In addition, such
person may only sell such shares through unsolicited brokers' transactions.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and the availability of current public information about the
Company. However, a person who is not an Affiliate of the issuer for at least
90 days and who has beneficially owned such shares for at least two years is
entitled under Rule 144 to sell such shares without regard to the volume or
the other resale requirements described above.
In addition, the Company has registered 1,425,000 shares of Common Stock
issuable pursuant to its stock option plans. As of September 30, 1997, options
to purchase 903,954 shares were outstanding, of which options to purchase
364,450 shares were exercisable or become exercisable within 60 days, and
359,450 shares were reserved for future awards. Shares issued upon the
exercise of options generally will be eligible for sale in the public market,
subject, in certain cases, to the lock-up agreements described below and
volume and other restrictions.
The Company has agreed not to offer, sell, pledge or otherwise dispose of
any shares of Common Stock for the period ending 90 days after the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under the 1995 Stock Option Plan and the 1995
Outside Directors Stock Option Plan. In addition, the Company may issue shares
of Common Stock in connection with any acquisition of another company if the
terms of such issuance provide that such Common Stock shall not be resold
prior to the expiration of the period referenced in the preceding sentence.
The directors and executive officers of the Company and the Selling
Shareholders have agreed that they will not, without the prior written consent
of Lehman Brothers Inc., offer, sell, pledge or otherwise dispose of any
shares of Common Stock beneficially owned by them (including approximately
3,082,927 shares eligible for sale under Rule 144) after this offering for a
period of 90 days from the date of this Prospectus.
In connection with the Denron merger, the Denron shareholders and the
Company entered into a Registration Rights Agreement. Pursuant to the
Registration Rights Agreement, the Company agreed to file with the Commission
a Registration Statement on Form S-3, or other applicable form, within ninety
(90) days after the June 4, 1997 closing date, to register the 791,170 shares
of Common Stock received by the Denron shareholders in exchange for their
Denron common stock (the "Denron Registration Statement"). The Denron
Registration Statement was filed on September 4, 1997. Pursuant to the
Registration Rights Agreement, the Denron shareholders may also request the
Company, subject to the terms and conditions set forth therein, to
41
<PAGE>
register the shares of the Company's Common Stock received by them in the
Denron merger. Under the Registration Rights Agreement, the Company is also
obligated to pay expenses of these registrations. All of the shares of Common
Stock of the Company currently owned by certain Selling Shareholders and
registered under the Denron Registration Statement are subject to the 90 day
lock-up described above.
No prediction can be made as to the effect, if any, that market sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of
its equity securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the form
of which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, the Company and the Selling Shareholders have agreed
to sell to each of the Underwriters named below, and each of such
Underwriters, has severally agreed to purchase from the Company and the
Selling Shareholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
------------ ------------
<S> <C>
Lehman Brothers Inc. ........................................
Advest, Inc..................................................
Janney Montgomery Scott Inc. ................................
---------
Total...................................................... 3,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions, and
that if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all of the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Company and the Selling Shareholders have been advised that the
Underwriters propose to offer the shares of Common Stock in part directly to
the public at the offering price set forth on the cover page of this
Prospectus, and in part to certain selected dealers (who may include the
Underwriters) at such public offering price less a selling concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain brokers and
dealers. After this offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 480,000 additional shares of Common Stock, at the public offering
price, less the aggregate underwriting discounts and commissions shown on the
cover page of this Prospectus, exercisable solely to cover over-allotments, if
any. Such option may be exercised at any time until 30 days after the date of
the Underwriting Agreement. To the extent that the option is exercised, the
Underwriters will be committed, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table and the
Company will be obligated, pursuant to such over-allotment option to sell such
shares of Common Stock to the Underwriters.
The Company has agreed that, without the prior written consent of Lehman
Brothers Inc., it will not, subject to certain limited exceptions, directly or
indirectly, offer, sell, pledge or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exchangeable for any such shares,
for the period ending 90 days after the date of this Prospectus. All of the
executive officers and directors of the Company and the Selling Shareholders,
subject to certain limited exceptions, have agreed pursuant to lock-up
agreements that, without the
42
<PAGE>
prior written consent of Lehman Brothers Inc., they will not, directly or
indirectly, offer, sell, pledge or otherwise dispose of any shares of Common
Stock or any securities convertible into or exchangeable for any such shares
for the period ending 90 days after the date of this Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute, under certain circumstances, to payments
that the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to
these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Common Stock.
In addition, if the Underwriters over-allot (i.e., if they sell more shares
of Common Stock than are set forth on the cover page of the Prospectus), and
thereby create a short position in the Common Stock in connection with this
offering, the Underwriters may reduce that short position by purchasing Common
Stock in the open market. The Underwriters also may elect to reduce any short
position by exercising all or part of the over-allotment option described
herein.
The Underwriters also may impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase shares of Common Stock
in the open market to reduce a short position or to stabilize the price of the
Common Stock, they may reclaim the amount of the selling concession from the
selling group members who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it discourages resales of the shares of Common Stock by
purchasers in this offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such offer is made.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
The Underwriters have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby to any accounts over which they
exercise discretionary authority.
Janney Montgomery Scott Inc. ("Janney"), one of the Underwriters, acted as a
financial advisor in connection with the Denron merger. The Company paid
Janney $100,000 for its services in connection with preparation of a fairness
opinion for the Denron merger and reimbursed Janney for its reasonable out-of-
pocket expenses (including reasonable fees and expenses of its legal counsel)
and agreed to indemnify Janney and certain related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of the Denron engagement.
43
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock being offered by this Prospectus
will be passed upon for the Company by Duane, Morris & Heckscher LLP,
Harrisburg, Pennsylvania. Certain legal matters will be passed upon for the
Underwriters by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1995 and 1996 and for each of the years in the three year period ended
September 30, 1996 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES(S)
--------
<S> <C>
THE JPM COMPANY--CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants................................................................ F-2
Consolidated Balance Sheet at September 30, 1995, September 1996, and June 30, 1997 (unaudited).. F-3
Consolidated Statement of Operations for the years ended September 30, 1994, 1995 and 1996 and
for the nine months ended June 30, 1996 and 1997 (unaudited).................................... F-4
Consolidated Statement of Shareholders' Equity for the years ended September 30, 1994, 1995 and
1996 and for the nine months ended June 30, 1997 (unaudited).................................... F-5
Consolidated Statement of Cash Flows for the years ended September 30, 1994, 1995 and 1996 and
for the nine months ended June 30, 1996 and 1997 (unaudited).................................... F-6
Notes to Consolidated Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The JPM Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of The
JPM Company and its subsidiaries (the "Company") at September 30, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As described in Note 1, the Company changed its method of accounting for
income taxes in 1994.
PRICE WATERHOUSE LLP
Philadelphia, PA
November 14, 1996,
except as to the pooling of
interests with
Denron, Inc. which is as of June 4,
1997
F-2
<PAGE>
THE JPM COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------- -----------
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,280 $ 1,411 $ 1,477
Accounts receivable (net of allowance of $85,
$129 and $199)................................. 6,503 12,254 13,261
Inventories, net................................ 6,695 11,342 13,972
Other current assets............................ 76 66 277
Deferred income taxes........................... 257 842 840
------- ------- -------
Total current assets.......................... 14,811 25,915 29,827
Property, plant and equipment, net................ 6,903 8,536 10,893
Notes receivable--related parties................. 584 206 --
Excess of cost over fair value of net assets
acquired and other intangible assets, net........ 2,757 4,640 4,421
Other assets...................................... 372 565 876
------- ------- -------
$25,427 $39,862 $46,017
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................... $ 6,299 $ 1,532 $ 2,001
Current maturities of long-term debt............ 638 637 693
Accounts payable................................ 4,320 6,877 6,590
Accrued expenses................................ 2,493 4,486 4,514
Income taxes payable............................ 508 1,090 618
Deferred income taxes........................... 389 1,087 1,089
------- ------- -------
Total current liabilities..................... 14,647 15,709 15,505
Long-term debt.................................... 3,902 3,264 3,831
Subordinate debentures (related party amounts of
$315 in 1995).................................... 390 -- --
Deferred compensation liability................... 365 509 583
Deferred income taxes............................. 359 453 453
Minority interest................................. 898 -- --
------- ------- -------
20,561 19,935 20,372
------- ------- -------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value, 10,000 shares
authorized, Class A, $31.43 stated value, 112
shares issued and outstanding September 30,
1995........................................... 3,515 -- --
Common Stock, $.000067 par value, 40,000 shares
authorized, issued 6,921 shares at June 30,
1997, 6,809 shares at September 30, 1996 and
8,180 shares at September 30, 1995............. -- -- --
Additional paid-in capital...................... 635 16,212 16,466
Retained earnings............................... 1,041 3,715 9,179
Less: Treasury Stock, at cost, 3,900 shares at
September 30, 1995............................. (325) -- --
------- ------- -------
Total shareholders' equity.................... 4,866 19,927 25,645
------- ------- -------
$25,427 $39,862 $46,017
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $ 41,418 $ 54,042 $ 85,516 $ 61,882 $ 85,642
Cost of sales................ 34,427 45,551 70,810 52,041 68,046
-------- -------- -------- -------- --------
6,991 8,491 14,706 9,841 17,596
Selling, general and
administrative expenses..... 5,747 5,512 7,806 5,638 7,359
Costs related to merger...... -- -- -- -- 743
-------- -------- -------- -------- --------
1,244 2,979 6,900 4,203 9,494
-------- -------- -------- -------- --------
Other income (expense):
Interest expense........... (400) (827) (871) (731) (451)
Interest expense--related
parties................... (50) (51) (12) (12) --
Interest income--related
parties................... 14 39 -- -- --
Other, net................. 12 (140) (259) (51) 63
-------- -------- -------- -------- --------
(424) (979) (1,142) (794) (388)
Income before income taxes,
minority interest and change
in accounting principle..... 820 2,000 5,758 3,409 9,106
Provision for income taxes... 358 865 2,252 1,328 3,642
-------- -------- -------- -------- --------
Income before minority
interest and change in
accounting principle........ 462 1,135 3,506 2,081 5,464
Minority interest............ -- 199 423 423 --
Change in accounting for
income taxes................ 155 -- -- -- --
-------- -------- -------- -------- --------
Net income................... 307 936 3,083 1,658 5,464
Cumulative dividends on
Preferred Stock............. 240 277 140 140 --
-------- -------- -------- -------- --------
Net income applicable to
Common Stock................ $ 67 $ 659 $ 2,943 $ 1,518 $ 5,464
======== ======== ======== ======== ========
Net income per common share
before change in accounting
principle................... $ 0.05 $ 0.14 $ 0.48 $ 0.25 $ 0.73
Change in accounting for
income taxes................ (0.03) -- -- -- --
-------- -------- -------- -------- --------
Net income per common share.. $ 0.02 $ 0.14 $ 0.48 $ 0.25 $ 0.73
======== ======== ======== ======== ========
Weighted average number of
shares of Common Stock
outstanding................. 4,280 4,390 5,683 5,194 7,436
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------ --------------------- ADDITIONAL ----------------- TOTAL
NUMBER STATED NUMBER OF PAID-IN RETAINED NUMBER OF SHAREHOLDERS'
OF SHARES VALUE SHARES PAR VALUE CAPITAL EARNINGS SHARES COST EQUITY
--------- ------- ---------- --------- ---------- -------- ---------- ----- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30,
1993................... 111,840 $ 3,515 7,865,000 $ -- $ 50 $ 221 3,900,000 $(325) $ 3,461
Common stock
repurchase............. -- -- -- -- -- -- 150,000 (102) (102)
Treasury stock
issuance............... -- -- -- -- -- -- (150,000) 102 102
Preferred stock
dividends paid......... -- -- -- -- -- (80) -- -- (80)
Net income.............. -- -- -- -- -- 307 -- -- 307
-------- ------- ---------- ----- ------- ------ ---------- ----- -------
BALANCE AT SEPTEMBER 30,
1994................... 111,840 3,515 7,865,000 -- 50 448 3,900,000 (325) 3,688
Subordinated debenture
conversion............. -- -- 315,000 -- 585 -- -- -- 585
Preferred stock
dividends paid......... -- -- -- -- -- (343) -- -- (343)
Net income.............. -- -- -- -- -- 936 -- -- 936
-------- ------- ---------- ----- ------- ------ ---------- ----- -------
BALANCE AT SEPTEMBER 30,
1995................... 111,840 3,515 8,180,000 -- 635 1,041 3,900,000 (325) 4,866
Preferred stock
dividends paid......... -- -- -- -- -- (600) -- -- (600)
Issuance of common
stock.................. -- -- 2,191,800 -- 13,959 -- -- -- 13,959
Preferred stock
redemption and exchange
for common stock....... (111,840) (3,515) 232,635 -- 1,578 -- -- -- (1,937)
Debenture conversion to
common stock........... -- -- 104,244 -- 365 -- -- -- 365
Treasury Stock
retirement............. -- -- (3,900,000) -- (325) -- (3,900,000) 325 --
Net income.............. -- -- -- -- -- 3,083 -- -- 3,083
Denron net income April
1 to September 30, 1995
(See Note 1)........... -- -- -- -- -- 191 -- -- 191
-------- ------- ---------- ----- ------- ------ ---------- ----- -------
BALANCE AT SEPTEMBER 30,
1996................... -- -- 6,808,679 -- 16,212 3,715 -- -- 19,927
Issuance of common stock
(unaudited)............ -- -- 111,832 -- 254 -- -- -- 254
Net income for the nine
months ended June 30,
1997 (unaudited)....... -- -- -- -- -- 5,464 -- -- 5,464
-------- ------- ---------- ----- ------- ------ ---------- ----- -------
BALANCE AT JUNE 30, 1997
(UNAUDITED)............ -- $ -- 6,920,511 -- $16,466 $9,179 -- -- $25,645
======== ======= ========== ===== ======= ====== ========== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 307 $ 936 $ 3,083 $ 1,658 $ 5,464
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization..... 850 883 1,343 1,010 1,334
Debt conversion expense........... -- 165 -- -- --
Foreign currency translation
(gain) loss...................... -- (129) 143 (12) (154)
Provision for doubtful accounts... (1) (14) 44 30 94
Loss (gain) on sale of property,
plant and equipment.............. 4 -- (5) (5) 31
(Gain) on sale of non-operating
property -- related parties...... -- (48) -- -- --
Deferred taxes.................... (26) 124 230 116 5
Minority interest................. -- 199 423 423 --
Deferred compensation expense..... 92 94 118 90 74
Cumulative effect of accounting
change........................... 155 -- -- -- --
Change in assets and liabilities,
net of effects from businesses
acquired:
(Increase) decrease in accounts
receivable...................... (865) (113) (5,683) (4,624) (1,249)
(Increase) decrease in
inventories..................... (917) (716) (3,907) (2,132) (2,630)
(Increase) decrease in other
assets.......................... (70) 601 (80) (91) (298)
Increase (decrease) in accounts
payable......................... 1,000 56 2,139 2,122 (286)
Increase (decrease) in accrued
expenses........................ 464 (64) 1,844 785 180
Increase (decrease) in income
taxes payable................... 295 (80) 446 349 (471)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities........... 1,288 1,894 138 (281) 2,094
------- ------- ------- ------- -------
Cash flows from investing
activities:
Payments for assets and businesses
acquired, net of cash acquired of
$1,584 in fiscal 1995............ (558) (2,204) (3,400) (3,400) --
Capital expenditures.............. (1,194) (1,271) (2,731) (2,100) (2,593)
Proceeds from sale of property,
plant and equipment.............. 14 39 5 37 211
Proceeds from sale of non-
operating property--related
parties.......................... -- 50 -- -- --
Collections of notes receivable--
related parties.................. 10 75 408 380 206
Deferred compensation plan
contributions.................... (65) (102) (118) (68) (77)
Loans to related parties.......... (102) (39) (30) -- --
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities............. (1,895) (3,452) (5,866) (5,151) (2,253)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Net borrowings (repayments) under
credit facilities................ 766 652 (4,895) (4,699) 476
Proceeds from issuance of long-
term debt........................ 499 3,010 517 525 19
Principal payments on long-term
debt............................. (567) (561) (1,185) (1,407) (523)
Common stock issuance............. -- -- 13,959 14,440 --
Common stock repurchase........... (102) -- -- -- --
Proceeds from exercise of stock
options.......................... -- -- -- -- 253
Preferred stock repurchase........ -- -- (1,937) (1,937) --
Treasury stock issuance........... 102 -- -- -- --
Preferred stock dividends paid.... (80) (343) (600) (600) --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities............. 618 2,758 5,859 6,322 225
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents................. 11 1,200 131 890 66
Cash and cash equivalents at
beginning of period.............. 69 80 1,280 1,280 1,411
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period........................ $ 80 $ 1,280 $ 1,411 $ 2,170 $ 1,477
======= ======= ======= ======= =======
</TABLE>
Supplemental information relative to non-cash financing activity--See Note 9.
Supplemental information relative to cash paid for interest--See Note 8.
Supplemental information relative to cash paid for income taxes--See Note 11.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The JPM Company (the "Company") is an independent manufacturer of cable
assemblies and wire harnesses for original equipment manufacturers in the
computer, telecommunications and networking sectors of the electronics
industry in North America.
A substantial portion of the Company's products are sold to a limited number
of customers. Accordingly, a significant decrease in business from, or the
loss of, any of its major customers would have a material adverse effect on
the Company. The Company continuously seeks to expand the number of products
it supplies to existing customers, as well as to develop similar relationships
with new customers. Because of the complexity of these relationships, sales
cycles can be extremely long, sometimes taking up to 18 months to develop. As
the Company becomes a qualified supplier for new products and as its
customers' products progress through their life cycles, the Company's
operating results can fluctuate significantly.
Basis of Presentation
On June 4, 1997 the Company completed a merger with Denron, Inc. ("Denron")
by exchanging 791,170 shares of the Company's common stock for all of the
outstanding common stock of Denron. The merger has been accounted for as a
pooling of interests in accordance with Accounting Principles Board Opinion
No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of Denron as though it had always been a
part of the Company.
Prior to the merger, Denron's fiscal year ended on March 31. In recording
the merger, Denron's March 31, 1994 and 1995 financial statements have been
combined with the Company's September 30, 1994 and 1995 financial statements.
Denron's 1996 financial information has been restated to a year ended
September 30, 1996 to conform with the Company's fiscal year end. As a result,
Denron's results of operations for the six months from April 1 through
September 30, 1995 have been included as an adjustment to JPM's opening
retained earnings as of October 1, 1995 (the beginning of fiscal 1996).
There were no transactions between JPM and Denron prior to the merger, and
immaterial adjustments were recorded to conform Denron's accounting policies.
A summary of the Company's significant accounting policies follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents represent cash and highly liquid short-term
investments with original maturities of three months or less.
Inventories
Inventories are valued at the lower of cost or market as determined on a
first-in, first out basis. Cost includes raw materials, direct labor and
manufacturing overhead. The Company generally provides reserves for inventory
considered to be in excess of 12 months of forecasted future demand.
F-7
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Property and Equipment
Property, plant and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the respective assets.
Revenue Recognition Policy
Sales are recorded upon shipment of product. Provision is made for returns
and allowances, and for estimated warranty costs, in the period of sale.
Long-lived and Intangible Assets
Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. Deferred taxes have been recorded to the extent of differences between
the fair value and the tax basis of the assets acquired and liabilities
assumed. The excess of the purchase price over the fair value of the net
assets acquired is amortized on a straight-line basis over 20 years.
Intangible assets include certain acquired customer contracts and the ISO 9002
certification of an acquired plant; such assets are being amortized on a
straight-line basis over periods ranging from three to five years.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121"), effective October 1, 1994. Adoption of
this statement did not have a material effect. The carrying value of long-
lived assets and certain identifiable intangible assets will be evaluated
whenever changes in circumstances indicate the carrying amount of such assets
may not be recoverable. In performing such review for recoverability, the
Company will compare the expected future cash flows to the carrying value of
long-lived assets and identifiable intangibles. If the expected future cash
flows are less than the carrying amount of such assets, the Company will
recognize an impairment loss for the difference between the carrying amount of
the assets and their estimated fair value. If an asset being tested for
recoverability was acquired in a business combination accounted for using the
purchase method, the excess of cost over fair value of net assets acquired
that arose in that transaction is allocated to the assets being tested for
recoverability on a pro rata basis using the relative fair values of the long-
lived assets and identifiable intangibles acquired at the acquisition date.
For determining carrying values, assets are grouped by operating unit. In
addition, on a quarterly basis, the carrying value of the excess of cost over
fair value of net assets acquired is subject to a separate evaluation. To
perform that review, the Company estimates the sum of expected future net cash
flows from operating activities. If these estimated net cash flows are less
than the carrying amount of the excess of cost over fair value of net assets
acquired, the Company recognizes an impairment loss in an amount necessary to
write down the excess of cost over fair value of net assets acquired to a fair
value as determined from expected future cash flows.
Income Taxes
Effective as of the beginning of fiscal 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). The adoption of SFAS 109 changed the Company's
method of accounting for income taxes from the deferred method to the asset
and liability method. Under this method, deferred income taxes are provided
for the temporary differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities.
Foreign Currency Translation
The Company has determined that the U.S. dollar is the functional currency
of its Mexican operations. Foreign currency inventories and property, plant
and equipment are remeasured into U.S. dollars at historical rates; all other
foreign currency assets and liabilities are remeasured at year-end exchange
rates. Income and
F-8
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
expenses are remeasured at average rates prevailing during the year, except
for expenses related to inventories and property, plant and equipment which
are remeasured at historical rates. Exchange gains and losses resulting from
remeasurement are included in earnings and amounted to a loss of $143 and a
gain of $129 for fiscal 1996 and 1995, respectively.
Earnings Per Common Share
With respect to net income (loss) per common share computations for periods
prior to the Company's initial public offering, pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, stock options and
convertible debentures issued at prices below the initial public offering
price per share in the twelve months preceding the initial filing were
included in the calculation of weighted average shares outstanding as if
outstanding for all periods presented. In addition, net income was reduced to
the extent of all possible "Participating Dividends" on Preferred Stock.
Primary earnings (loss) per common share and share equivalents for periods
subsequent to the completion of the Company's IPO is computed based on the
weighted average number of shares outstanding plus the common stock
equivalents related to stock options, once the latter causes dilution in
earnings per share in excess of 3%. For each of the periods presented, fully
diluted earnings (loss) per share is not presented since the results do not
cause a dilution in earnings per share in excess of 3%.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for employee stock options or other similar equity instruments.
Companies must either adopt the new method or disclose the pro forma income
statement effects in their financial statements. This statement is effective
for the Company's fiscal year ending September 30, 1997. The Company intends
to elect to disclose the pro forma income statement effects of SFAS 123;
therefore, SFAS 123 will not affect the Company's financial position or
results of operations.
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which establishes new standards for computing and presenting earnings per
share ("EPS"). SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with a
complex capital structure. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997 and earlier adoption is not
permitted. EPS included in the accompanying financial information is computed
in accordance with APB Opinion No. 15, "Earnings Per Share." Had the
provisions of SFAS 128 been effective for all periods presented, basic EPS and
diluted EPS on a pro forma basis would have been:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Basic EPS...................... $ 0.02 $ 0.15 $ 0.51 $ 0.27 $ 0.80
Diluted EPS.................... $ 0.02 $ 0.15 $ 0.48 $ 0.25 $ 0.73
</TABLE>
Reclassifications
Certain prior year balances have been reclassified for comparative purposes.
Interim Financial Data
The consolidated balance sheet as of June 30, 1997, and the related
consolidated statements of operations and cash flows for the nine month
periods ended June 30, 1996 and June 30, 1997, have been prepared by the
Company without audit. In the opinion of management, the financial statements
include all of the adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the unaudited periods. Interim
results are not necessarily indicative of results for a full year.
F-9
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On May 1, 1995, the Company purchased a 60% ownership in Electronica
Pantera, S.A. de C.V. (Pantera), a Mexican manufacturer and assembler of cable
and wire assemblies, for cash consideration of $3.6 million. The Company
acquired the remaining 40% of Pantera for cash consideration of $3.4 million
on April 30, 1996.
Information with respect to this acquisition is presented below:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash paid (net of cash acquired)......................... $ 3,400 $ 2,016
Transaction and other costs.............................. -- 188
------- -------
3,400 2,204
Liabilities assumed...................................... -- 4,543
Fair value of tangible assets acquired................... (1,275) (4,004)
------- -------
Excess of cost over fair value of assets acquired and
other intangible assets................................. $ 2,125 $ 2,743
======= =======
</TABLE>
The unaudited results of operations on a pro forma basis as if 100% of
Pantera had been acquired as of October 1, 1994 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------
1996 1995
------- -------
<S> <C> <C>
Net sales................................................... $85,516 $61,546
Operating income............................................ 6,835 3,282
Net income applicable to Common Stock....................... 3,301 662
Net income per common share................................. $ 0.55 $ 0.15
</TABLE>
In fiscal 1994, the Company acquired certain assets and a customer contract
for cash consideration of $558. The tangible assets acquired comprised
inventories and equipment with a total fair value of $408, and the intangible
asset acquired related to a customer contract had a fair value of $150 and an
estimated life of 3 years. Had these purchases occurred as of the beginning of
fiscal 1994, results of operations would not have been materially different.
Excess of cost over fair value of net assets acquired and other intangible
assets comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1995
------ ------
<S> <C> <C>
Excess of cost over fair value of net assets acquired........ $4,768 $2,683
Customer contract............................................ 150 150
ISO 9002 certification....................................... 100 60
------ ------
5,018 2,893
Accumulated amortization..................................... (378) (136)
------ ------
$4,640 $2,757
====== ======
</TABLE>
F-10
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
3. MAJOR CUSTOMERS AND SUPPLIERS
Sales to Diebold and IBM amounted to 18% and 15% of total sales for fiscal
1996, respectively, and 22% and 14% of total sales for fiscal 1995,
respectively. Sales to Diebold, Bay Networks and Unisys amounted to 26%, 13%
and 11% of total sales, respectively, for fiscal 1994. Aggregate sales to
major customers, each of which exceeded 10% of total sales were 33%, 36% and
50% of total net sales in 1996, 1995 and 1994, respectively. At September 30,
1996 and 1995, aggregate accounts receivable from these customers represented
36% and 44% of total accounts receivable, respectively. To reduce its credit
risk, the Company reviews its customers' financial position before extending
credit.
The Company typically enters into annual contracts with its major customers.
These contracts periodically mature and are renewed throughout the year as a
normal course of business.
Historically, the Company has purchased a significant portion of its wire,
cable and connectors from a limited number of suppliers. Although the Company
believes that its raw materials are generally available from several domestic
and international sources, customers often specify that the Company purchase
certain components from particular manufacturers. Accordingly, the loss of any
of the Company's key suppliers could have a material adverse impact on the
Company.
4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
--------------- -----------
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods.................................. $ 719 $ 1,935 $ 2,468
Work-in-process................................. 970 1,640 1,248
Raw materials and supplies...................... 5,354 8,408 10,749
Valuation reserve............................... (348) (641) (673)
------ ------- -------
$6,695 $11,342 $13,972
====== ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- ESTIMATED
1996 1995 USEFUL LIVES
------- ------- ------------
<S> <C> <C> <C>
Land.......................................... $ 302 $ 293
Buildings and improvements.................... 4,426 4,308 10-25 years
Machinery and equipment....................... 7,468 5,371 5-10 years
Furniture and fixtures........................ 3,279 2,689 5-10 years
Vehicles...................................... 237 257 3-5 years
------- -------
15,712 12,918
Less: Accumulated depreciation................ (7,176) (6,015)
------- -------
$ 8,536 $ 6,903
======= =======
</TABLE>
Capitalized computer equipment and software with a gross book value of $547
are included in furniture and fixtures at September 30, 1996 and 1995. Related
accumulated amortization was $198 and $130 at September 30, 1996 and 1995. The
capital leases include purchase options at the conclusion of the lease term.
Future minimum lease payments under these agreements are $156 for fiscal 1997
and $31 for fiscal 1998. Included in the aggregate remaining payments of $187
is $9 in imputed interest.
F-11
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Rental expense for vehicle operating leases aggregated $90, $77 and $50 for
fiscal 1996, 1995 and 1994, respectively. Future minimum lease payments
through the term of these agreements total $84 for fiscal 1997, $47 for fiscal
1998, and $6 for fiscal 1999.
The Company leases its facilities in Mexico in accordance with the terms of
rental agreements, some of which are renewable annually. Rental expense under
these agreements was $178 for fiscal 1996 and $71 for the 1995 period since
the acquisition date. Future minimum lease payments under these agreements are
$171 for fiscal 1997, $171 for fiscal 1998, $171 for fiscal 1999 and $171 for
fiscal 2000. The Company leases its facilities in San Jose in accordance with
the terms of a lease agreement which expires on June 30, 2002 (unaudited).
Rental expense under this agreement was $345 for fiscal 1996, $330 for fiscal
1995 and $327 for fiscal 1994. Future minimum lease payments under this
agreement are $310 for fiscal 1997, $356 for fiscal 1998, $380 for fiscal
1999, $404 for fiscal 2000 and $404 for fiscal 2001.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1995
------ ------
<S> <C> <C>
Salaries and benefits......................................... $2,395 $1,793
Other......................................................... 2,091 700
------ ------
Total accrued expenses........................................ $4,486 $2,493
====== ======
</TABLE>
Included in accounts payable at September 30, 1996 and 1995 are book
overdrafts totaling $819 and $386, respectively.
7. SHORT-TERM BORROWINGS
At September 30, 1996, the Company had a $6,500 line of credit with a U.S.
bank, of which $257 was outstanding. Borrowings under the line of credit bear
interest at the bank's prime rate (8.25% at September 30, 1996 and average
rate of 9.00% for fiscal 1996) and are payable on demand. Such borrowings are
secured by the Company's inventories, accounts receivable and contract rights
as well as a second lien on machinery and equipment in Lewisburg, PA.
The Company's San Jose, California facility also has a bank revolving line
of credit to permit the Company to draw up to $2,000 collateralized by the San
Jose facility's inventories and accounts receivable. The line of credit bears
interest at the bank's prime lending rate plus .75%. The line of credit
provides for advances up to a percentage of (i) eligible accounts receivable
at 75% plus (ii) raw material inventory; provides for the maintenance of
various financial ratios; provides certain restrictions with regard to
acquisitions, mergers, dissolution, and the incurrence of additional
indebtedness; and prohibits payment of dividends and loans to or investments
in other entities or persons. At September 30, 1996, the Company was in
compliance with all loan covenants. The line of credit expires July 31, 1997.
As of September 30, 1996, borrowings under this line of credit facility
amounted to $1,275 against an availability of $1,600 at an interest rate of
9.75%.
At September 30, 1995, the Company had a $4,000 line of credit with a U. S.
bank, of which $2,957 was outstanding. Borrowings under the line of credit
bore interest at the bank's prime rate plus 1% (9.75% at September 30, 1995
and an average rate of 9.25% for fiscal 1995) and were payable on demand. Such
borrowings
F-12
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
were secured by the Company's inventories, accounts receivable and contract
rights as well as a second lien on machinery and equipment in Lewisburg, PA.
Under the terms of the lines of credit, the Company could not pay dividends in
excess of 25% of pre-tax profits.
At September 30, 1995, the Company had another line of credit with the same
U. S. bank for $1,000, of which $400 was outstanding. Borrowings under the
line of credit bore interest at the bank's prime rate plus 1.5% (10.25% at
September 30, 1995 and an average rate of 10.375% for fiscal 1995) and were
payable on demand. Such borrowings were secured by a second lien on the
Company's inventories, accounts receivable and contract rights.
At September 30, 1995, unsecured bank notes used to fund working capital
requirements for Pantera operations amounted to $1,900 and had interest rates
ranging from 13.9% to 15.0%. The average interest rate paid on such notes was
24.2% for fiscal 1995.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1995
------ ------
<S> <C> <C>
Term loan payable to bank; bank prime rate plus 1.5%
(9.75% at September 30, 1996 and average rate of 10.00%
for 1996); payable in monthly installments of $24 plus
accrued interest through May 2002; secured by machinery
and equipment and a second lien on land, building and
improvements in Lewisburg, PA with a net book value of
$2,327 at September 30, 1996............................. $1,619 $1,905
Mortgage payable to bank; bank prime rate plus 1% (9.25%
at September 30, 1996 and an average rate of 9.50% for
fiscal 1996); payable in monthly installments of $19
through September 2010; secured by land, buildings and
improvements in Lewisburg, PA with a net book value of
$1,814 at September 30, 1996............................. 996 1,115
Mortgage payable to bank; bank prime rate plus 1% (9.25%
at September 30, 1996 and an average rate of 9.50% for
fiscal 1996); payable in monthly installments of $7 plus
accrued interest through April 1998 plus a final
principal and interest payment due April 1998; secured by
land, buildings, improvements, furniture, fixtures and
equipment in Winnsboro, SC with a net book value of
$1,201 at September 30, 1996............................. 1,078 1,173
Capital lease obligations, payable through 1998........... 187 323
Other term loans payable.................................. 21 24
------ ------
3,901 4,540
Less: Current maturities.................................. (637) (638)
------ ------
$3,264 $3,902
====== ======
</TABLE>
F-13
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Maturities of long-term debt, subsequent to September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
1997............................................................... $ 637
1998............................................................... 1,492
1999............................................................... 460
2000............................................................... 475
2001............................................................... 495
Thereafter......................................................... 342
------
$3,901
======
</TABLE>
The foregoing indebtedness is subject to certain covenants including the
maintenance of various financial ratios and limits on annual capital
expenditures. The Company was in compliance with all covenants at September
30, 1996.
Interest paid in fiscal 1996, 1995 and 1994 on short-term borrowings, long-
term debt and subordinated debentures totaled $871, $877 and $451,
respectively.
9. SUBORDINATED DEBENTURES
In July 1992, forty-two 12%, $10 face value convertible subordinated
debentures due January 1, 1999 (the "Series A debentures") were issued to
officers and directors of the Company. Interest on the debentures was payable
quarterly and debenture holders had common stock voting rights equal to the
number of shares of common stock issuable upon conversion and had the right to
nominate one candidate to the Company's Board of Directors. On August 1, 1995,
the Company induced conversion of the Series A debentures, by adjusting the
conversion ratio from 4,883 shares to 7,500 shares of Common Stock per
debenture. The change in conversion privileges resulted in the issuance of an
additional 109,911 shares of common stock and the recognition of $165 in debt
conversion expense which is included in other expenses in the consolidated
statement of operations for the year ended September 30, 1995.
During 1995, $390 in 12% demand notes were issued to officers and directors
of the Company, and to one third party investor. Under the terms of the notes,
the Company committed to exchange the notes for convertible securities with
terms which allowed for conversion into the Company's Common Stock. Accrued
interest on these notes totaled $9 at September 30, 1995.
In November 1995, the Company issued seventy-three convertible subordinated
debentures (the "Series B debentures") in exchange for $365 notes payable
outstanding at September 30, 1995, and repaid the remaining $25 of notes. Each
Series B debenture had a 12% stated interest rate, a face value of $5 and
matured on September 1, 2002. The Series B debentures were convertible into
shares of Common Stock of the Company, at the option of the holder, any time
prior to maturity at the rate of 1,428 shares per $5 debenture. The Series B
debentures were subject to mandatory conversion at the same rate upon the
completion of a "Qualified Public Offering" by the Company. The initial public
offering described in Note 10 met the definition of a "Qualified Public
Offering" and the debentures were redeemed for 104,244 shares of the Company's
Common Stock.
F-14
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
10. SHAREHOLDERS' EQUITY
The Company completed an initial public offering of its common stock on
April 30, 1996. The initial public offering consisted of a total of 2,100,000
shares. Of those shares 1,876,800 were sold by the Company. The Underwriters
exercised their option to purchase an additional 315,000 over allotment shares
of common stock on May 30, 1996. Net proceeds to the Company from the offering
were approximately $14,000 after deducting the associated underwriting
discount and expenses of the offering. The net proceeds were used to acquire
the remaining 40% of the Company's Mexican subsidiary Electronica Pantera, S.
A. de C. V. ("Pantera") for $3,400, to reduce the Company's debt in an amount
of approximately $8,100 and to pay dividends on and redeem the Company's
preferred stock in an amount of approximately $2,500.
Also in connection with the closing of the offering, 104,244 shares of
common stock were issued upon conversion of the Company's Series B Debentures,
and 232,635 common shares were issued in exchange for the Class A preferred
shares not redeemed at the time of the offering.
During January 1996, the Board of Directors authorized the retirement of all
of the Company's Treasury Stock.
In August 1995, 315,000 shares of Common Stock were issued in conjunction
with an induced conversion of the Company's Series A debentures, as described
in Note 9.
In October 1993, the Company repurchased 150,000 shares of Common Stock from
a shareholder, who was also a director. The stock was repurchased for a total
of $102, or $0.68 per share, which management believed approximated the fair
value of the stock at October 4, 1993. During September 1994, the 150,000
shares were sold to certain officers and directors of the Company for $102.
The Class A Preferred Stock outstanding at September 30, 1995, had no par
value, a stated value of $31.43 per share, was non-voting and carried a
cumulative annual dividend of $2.15 per share. In addition, the Board of
Directors in any fiscal year could declare additional dividends of 8.5% of the
income before income taxes in excess of $1,000 but less than $2,000
("Participating Dividends").
Concurrent with the Company's initial public offering on April 30, 1996, all
dividends on the Class A preferred stock in the amount of $600 were paid,
53,000 shares of Class A preferred stock were exchanged for 232,635 shares of
the Company's common stock at $32.92 per share and the remaining Class A
preferred stock was redeemed for cash at $32.92 per share or $1,937.
During the years ended September 30, 1996, 1995 and 1994, Preferred Stock
dividends of $5.37, $3.0675 and $0.712 per share, respectively, totaling $600,
$343 and $80, respectively, were paid. Dividends paid in fiscal 1996 included
a Participating Dividend declared for fiscal 1995 of $36 or $0.3225 per share.
No Participating Dividends were declared for fiscal 1996 or 1994.
F-15
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
11. INCOME TAXES
Provision for income taxes in the consolidated statement of operations,
excluding the cumulative effect of accounting change in 1994, comprises:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Current expense (benefit)
Federal..................................... $ 1,087 $ 425 $ 277
State....................................... 355 175 107
Foreign..................................... 580 141 --
--------- -------- -------
2,022 741 384
Deferred expense (benefit)
Federal..................................... (283) (106) (17)
State....................................... (48) 2 (9)
Foreign..................................... 561 228 --
--------- -------- -------
230 124 (26)
--------- -------- -------
$ 2,252 $ 865 $ 358
========= ======== =======
</TABLE>
As discussed in Note 1, the Company changed its method of accounting for
income taxes effective October 1, 1993 which decreased fiscal 1994 net income
by $155.
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1995
------- -----
<S> <C> <C>
Deferred tax assets:
Accounts receivable.......................................... $ 66 $ 42
Inventory.................................................... 209 84
Property, plant and equipment................................ 14 25
Accrued employee liabilities................................. 704 289
Tax credit carry forwards.................................... -- 26
Deferred rent................................................ 10 31
Other........................................................ 126 --
------- -----
1,129 497
------- -----
Deferred tax liabilities:
Inventory.................................................... (1,150) (481)
Property, plant and equipment................................ (629) (461)
Intangible assets............................................ (42) (45)
------- -----
(1,821) (987)
------- -----
Net deferred tax liability..................................... $ (692) $(490)
======= =====
</TABLE>
F-16
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
An analysis of the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Income taxes at U.S.
federal income tax
rate................... $ 1,958 $ 669 $ 278
State taxes, net of
federal benefit........ 210 118 65
Induced conversion of
debentures............. -- 56 --
Amortization of
intangible assets...... 60 19 --
Inflation............... 33 49 --
Tax credits............. -- (24) --
Other, net.............. (9) (22) 15
--------- ------- -------
Provision for income
taxes.................. $ 2,252 $ 865 $ 358
========= ======= =======
Effective income tax
rate................... 40.0% 45.6% 42.6%
========= ======= =======
</TABLE>
Cash paid for income taxes totaled $1,552, $740 and $38 in 1996, 1995 and
1994, respectively.
Pre-tax earnings of Pantera since acquisition were $3,171 and $709 in 1996
and 1995, respectively. Unremitted earnings of Pantera of $1,929 were deemed
to be permanently invested at September 30, 1996. No deferred tax liability
has been recorded related to future remittance of these earnings. It is not
practicable to estimate the income tax liability which might be incurred upon
remittance of such earnings to the United States.
12. EMPLOYEE BENEFIT PLANS
The Company maintains a tax-qualified defined contribution employee profit
sharing plan (the "Profit Sharing Plan"). All full-time U.S. employees, except
for the employees of Denron, who are 21 years of age or older and who have
completed one year of service with the Company are eligible to participate.
The Company may, at its discretion, make a discretionary profit sharing
contribution to the Profit Sharing Plan for any plan year. A participant is
entitled to receive a distribution of the vested interest in his or her
account upon retirement, death, permanent disability or termination of
employment. The Company's contribution vests to the employee ratably over a
seven-year period. The Company contributed $100, $85 and $70 for fiscal 1996,
1995 and 1994, respectively.
The Profit Sharing Plan also contains provisions which are intended to
satisfy the tax qualification requirements of Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). All full-time U.S. employees, except for the
employees of Denron, who are 21 years of age or older and who have completed
one year of service with the Company are also eligible to participate in the
401(k) Plan. Under the 401(k) Plan, an employee may elect to defer up to 15%
of their current compensation. Employee contributions to the 401(k) plan are
invested according to the direction of the employee. The Company may make
matching contributions of fifteen cents for each one dollar deferred by the
employee up to 6% of an employee's total compensation. A participant is
entitled to receive a distribution of the vested interest in his or her
account upon retirement, death, permanent disability or termination of
employment. The Company's matching contribution vests to the employee ratably
over a seven-year period. Employee contributions are fully vested and
nonforfeitable at all times. The Company contributed $25 and $22 for fiscal
1996 and 1995, respectively.
During fiscal 1994, the Company maintained a deferred compensation plan for
certain management and highly compensated employees. Each participant could
elect to defer, in increments agreed upon by the Board of Directors, a portion
of their annual compensation. Deferred compensation under the plan was
invested by the Company at the direction of the Board. Participant accounts
were allocated a pro rata share of all income, gains and losses on such
investments. Participants were eligible to receive payment of amounts credited
to their
F-17
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
deferred compensation account in equal installments over a minimum period of
five years commencing with the participants' termination.
Effective October 1, 1994, the Company allocated the value attributable to
each participant under the original plan to individual participant accounts
and amended the deferred compensation plan. Under the provisions of the
amended plan, each of the previously eligible participants may defer up to 25%
of annual compensation and the Company will contribute 2% of each
participant's annual salary on a quarterly basis. Deferred compensation, under
the plan, continues to be invested by the Company, at the discretion of the
Board; however, each participant's account is allocated the actual income,
gains and losses that would have been earned if their deferred compensation
had been invested in accordance with their personal investment selections.
The Company has also entered into additional deferred compensation
agreements with two members of management. The terms of each of these
agreements provide that either employee may elect to defer any portion of
their annual gross salary. These agreements in no way obligate either
participant to make such an election in any fiscal year, and a failure to
elect for any fiscal year will not affect the right to do so in any subsequent
fiscal year. These agreements do not provide for Company contributions.
At September 30, 1996 and 1995, the Company had assets related to deferred
compensation of $442 and $323, respectively, which balances are included in
other assets in the accompanying consolidated balance sheet. Compensation
expense for deferred compensation arrangements aggregated $118, $94 and $91 in
fiscal 1996, 1995 and 1994, respectively.
In accordance with statutory requirements in Mexico, the Company is required
to make annual profit sharing distributions to the employees of Pantera. These
distributions are determined based on 10% of Pantera's taxable income. A
provision of $173 and $32 was recorded as of September 30, 1996 and 1995,
respectively, for profit sharing distributions.
13. STOCK OPTION PLANS
In April 1993, the Board of Directors approved adoption of the Stock Option
Plan of 1993 which authorized incentive stock options and nonqualified stock
options of 300,000 shares. Under the Plan, any salaried or supervisory
employees of the Company, as selected by the Board, are eligible to be granted
options. The options have ten year terms with exercise prices equal to the
fair market value of the Company's Common Stock at the date of grant, as
determined by the Board. The options are exercisable from the date of grant.
At September 30, 1996 and 1995, all such options had been granted and were
exercisable.
The Company's 1995 Stock Option Plan (the "1995 Plan") was approved by the
Board of Directors on August 1, 1995 and by the shareholders of the Company on
November 21, 1995. Under the 1995 Plan, options may be granted to employees
and consultants for the purchase of up to an aggregate of 475,000 shares of
Common Stock. The 1995 Plan provides for grants of both incentive stock
options and non-qualified stock options. The 1995 Plan is administered by the
Board which determines, at its discretion, the number of shares subject to
each option granted and the related purchase price and vesting period.
Under the 1995 Plan, no incentive stock option may be granted to an employee
who owns more than 10% of the total combined voting power of all classes of
outstanding stock. Each option expires on the date specified by the
Compensation Committee but not more than 10 years from its date of grant. All
incentive options granted under the 1995 Plan will have an exercise price of
no less than 100% of the closing price of the Common Stock on the grant date,
85% for non-qualified options. Options shall be exercisable as specified by
the Compensation Committee. In November 1995, the Company granted 92,650
options with exercise prices of $2.63 to certain
F-18
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
officers, key employees and consultants under the 1995 Plan, 25% of which
become exercisable on November 21, 1996, with an additional 25% becoming
exercisable on each of November 21, 1997, 1998 and 1999, respectively.
In January 1996, the Company granted 40,000 options with an exercise price
of $7.65, 25% of which become exercisable on January 24, 1997, with an
additional 25% becoming exercisable on each of January 24, 1998, 1999 and
2000, respectively.
In September 1996, the Company granted 324,150 options with an exercise
price of $8.50 to certain salaried and hourly employees in the U. S. and
Mexico under the 1995 plan. These options become exercisable in 25% increments
on each September 3, 1997, 1998, 1999 and 2000, respectively.
Pursuant to the 1995 Outside Directors Stock Option Plan ("Outside Directors
Plan") adopted by the Board of Directors on August 1, 1995 and the
shareholders of the Company on November 21, 1995, options shall be granted to
members of the Board of Directors who are not employees or 10% owners of the
Company (an "Outside Director"). An aggregate of 125,000 shares of Common
Stock are reserved for issuance under the Outside Directors Plan.
Under the Outside Directors Plan, each Outside Director serving on the Board
of Directors as of December 1, 1995 automatically received an option to
purchase 5,000 shares of Common Stock as well as an option to purchase an
additional 2,000 shares of Common Stock for each year of continuous service
the Outside Director had served as a member of the Board of Directors as of
that date. A new Outside Director will receive an option to purchase 5,000
shares upon his or her election to the Board. All options granted under the
Outside Directors Plan are exercisable in full beginning sixty days after date
of the grant of the option. The Outside Directors Plan requires that options
granted thereunder will expire not later than ten years after the date of
grant. All options granted under the 1995 Outside Directors Plan will have an
exercise price equal to the closing price of the Common Stock on the grant
date. On December 1, 1995, three directors were granted total options to
purchase 83,000 shares at a price of $4.00. These options expire on December
1, 2005.
Information with respect to options granted under the Company's stock option
plans is as follows:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Options outstanding at September 30, 1993.................. -- --
Granted--November 1993..................................... 150,000 $ .68
-------
Options outstanding at September 30, 1994.................. 150,000 .68
Granted--November 1994..................................... 20,000 .59
Granted--August 1995....................................... 140,000 1.50
Terminated--November 1994.................................. (10,000) .68
-------
Options outstanding at September 30, 1995.................. 300,000 1.06
Granted--November 1995..................................... 175,650 3.28
Granted--January 1996...................................... 40,000 7.65
Granted--September, 1996................................... 324,150 8.50
-------
Options outstanding at September 30, 1996.................. 839,800 $4.71
=======
</TABLE>
F-19
<PAGE>
THE JPM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
14. RELATED PARTY TRANSACTIONS
Notes receivable from officers and directors of the Company totaled $206 and
$584 at September 30, 1996 and 1995, respectively, earn interest at 8.25-9.75%
in 1996 and 6.0%-9.75% in 1995 and, except as noted below, are payable on
demand. The notes receivable balance includes accrued interest receivable of
$26 and $35 at September 30, 1996 and 1995, respectively. Principal repayments
on these notes totaled $370 in 1996 and $57 in 1995.
In December 1994, three officers and directors of the Company purchased
land, with a book value of $201, from the Company for $250, of which
consideration included $50 of cash and two variable rate notes with an
aggregate face value of $200 maturing December 31, 2000. The interest rate on
these notes is tied to the Company's short-term borrowing rate which was 8.25%
at September 30, 1996 and 9.75% at September 30, 1995. At September 30, 1996,
principal on these notes of $173 remained outstanding and is included in the
balance of related party notes receivable.
As described in Note 9, $390 in notes payable to officers and directors of
the Company were outstanding at September 30, 1995. Accrued interest on these
notes totaled $9 at September 30, 1995. No such amounts remain outstanding at
September 30, 1996.
15. GEOGRAPHIC INFORMATION
Certain geographic information follows:
<TABLE>
<CAPTION>
UNITED
STATES MEXICO CONSOLIDATED
------- ------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers for fiscal
1996........................................ $67,598 $17,918 $85,516
Operating profit for fiscal 1996............. 3,427 3,473 6,900
Identifiable assets at September 30, 1996.... 25,015 13,356 38,371
Sales to unaffiliated customers for fiscal
1995........................................ $48,799 $ 5,243 $54,042
Operating profit for fiscal 1995............. 2,239 740 2,979
Identifiable assets at September 30, 1995.... 16,080 8,151 24,231
</TABLE>
At September 30, 1996 and 1995 the difference between Identifiable Assets
above, and Total Assets reported on the consolidated balance sheet, is due to
general corporate assets, including deferred compensation assets and deferred
tax assets, of $1,491 and $1,196, respectively.
Sales which originate in Mexico are primarily exported to the United States
and other geographic areas.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended September 30, 1996
Net sales................................. $19,213 $20,800 $21,869 $23,634
Gross profit.............................. 3,027 2,640 4,174 4,865
Net income................................ 365 159 1,134 1,425
Earnings per share........................ $ 0.07 $ 0.01 $ 0.15 $ 0.20
Year ended September 30, 1995
Net sales................................. $12,500 $12,143 $13,967 $15,432
Gross profit.............................. 2,024 1,965 2,061 2,441
Net income................................ 320 369 217 229
Earnings per share........................ $ 0.06 $ 0.07 $ 0.01 $ 0.00
</TABLE>
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... 3
Incorporation of Documents by Reference.................................. 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 24
Management............................................................... 34
Principal and Selling Shareholders....................................... 36
Description of Capital Stock............................................. 38
Shares Eligible for Future Sale.......................................... 41
Underwriting............................................................. 42
Legal Matters............................................................ 44
Experts.................................................................. 44
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,200,000 SHARES
JPM[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
, 1997
-----------------
LEHMAN BROTHERS
ADVEST, INC.
JANNEY MONTGOMERY SCOTT INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the
Registrant in connection with the sale and distribution of the securities
being registered, other than underwriting discounts and commissions. All of
the amounts shown are estimates, except the Securities and Exchange Commission
("SEC") registration fee, the filing fee with the National Association of
Securities Dealers, Inc. ("NASD") and the Nasdaq Stock Market application fee.
<TABLE>
<S> <C>
SEC Registration fee............................................. $26,630
National Association of Securities Dealers, Inc. fee............. 9,288
Nasdaq National Market Fee for listing of Additional Shares...... 17,500
Printing and engraving expenses.................................. 25,000
Legal fees and expenses.......................................... 150,000
Accountants' fees and expenses................................... 125,000
Blue sky fees and expenses....................................... *
Directors and officers insurance premiums........................ *
Transfer agent and registrar fees and expenses................... *
Miscellaneous....................................................
-------
Total........................................................ $
=======
</TABLE>
- --------
* To be filed by Amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1741 of the Pennsylvania Business Corporation Law (the "BCL")
provides that a corporation may indemnify any person, including officers and
directors, who are, or are threatened to be made, a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that such person was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with the action or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner such person reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
proceedings, had no reasonable cause to believe his or her conduct was
unlawful. A Pennsylvania corporation may indemnify officers and directors in
an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him or her
against expenses which such officer or director actually or reasonably
incurred.
The Articles of Incorporation and Bylaws provide that no director of the
Company will be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liabilities related to a breach of fiduciary duty as a director if such breach
constitutes self-dealing, willful misconduct or recklessness. However, such
exoneration does not apply to any responsibility or liability pursuant to a
criminal statute or liability for the payment of taxes pursuant to local,
state or federal law.
The Registrant has obtained directors' and officers' liability insurance.
The Underwriting Agreement contains certain provisions for the
indemnification of, among others, controlling persons, directors and officers
of the Registrant for certain liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
4.1* Specimen Certificate of Common Stock of the Company.
4.2** Registration Rights Agreement.
5.1 Opinion of Duane, Morris & Heckscher LLP.
23.1 Consent of Duane, Morris & Heckscher LLP (included in their opinion to be filed as Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (included on page II-4).
</TABLE>
- --------
* Incorporated by reference from Registrant's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on February 9, 1996.
** Incorporated by reference from Registrant's Proxy Statement for a Special
Meeting of Shareholders dated and filed with the Securities and Exchange
Commission on May 5, 1997.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(a)(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(a)(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 14 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 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-2
<PAGE>
(d) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN LEWISBURG, PENNSYLVANIA ON OCTOBER 8, 1997.
The JPM Company
/s/ John H. Mathias
By: _________________________________
JOHN H. MATHIAS CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
Know all persons by these presents, that each person whose signature appears
below constitutes and appoints John H. Mathias and William D. Baker, and each
or either of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substitution, for him or her, and in his or her
name, place and stead, in any and all capacities, to sign any or all
amendments or post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them or their substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ John H. Mathias Chairman, Chief October 8, 1997
- ------------------------------------- Executive Officer
JOHN H. MATHIAS and Director
(Principal
Executive Officer)
/s/ James P. Mathias President and October 8, 1997
- ------------------------------------- Director
JAMES P. MATHIAS
/s/ William D. Baker Vice President, October 8, 1997
- ------------------------------------- Chief Financial
WILLIAM D. BAKER Officer and
Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Wayne A. Bromfield Executive Vice October 8, 1997
- ------------------------------------- President,
WAYNE A. BROMFIELD Secretary and
Director
/s/ Janet B. Mathias Director October 8, 1997
- -------------------------------------
JANET B. MATHIAS
/s/ Bruce M. Eckert Director October 8, 1997
- -------------------------------------
BRUCE M. ECKERT
/s/ Clifford M. Melberger Director October 8, 1997
- -------------------------------------
CLIFFORD M. MELBERGER
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement.
4.1* Specimen Certificate of Common Stock of the Company.
4.2** Registration Rights Agreement.
5.1 Opinion of Duane, Morris & Heckscher LLP.
23.1 Consent of Duane, Morris & Heckscher LLP (included in their opinion to be filed as Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP.
24.1 Power of Attorney (included on page II-4).
</TABLE>
- --------
* Incorporated by reference from Registrant's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on February 9, 1996.
** Incorporated by reference from Registrant's Proxy Statement for a Special
Meeting of Shareholders dated and filed with the Securities and Exchange
Commission on May 5, 1997.
<PAGE>
Exhibit 1.1
3,200,000 Shares
THE JPM COMPANY
Common Stock
UNDERWRITING AGREEMENT
----------------------
November __, 1997
LEHMAN BROTHERS INC.
Advest, Inc.
Janney Montgomery Scott Inc.
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
The JPM Company, a Pennsylvania corporation (the "Company"), and
certain shareholders of the Company named in Schedule 2 hereto (the "Selling
Shareholders"), propose to sell an aggregate of 3,200,000 shares (the "Firm
Stock") of the Company's Common Stock, par value $.000067 per share (the "Common
Stock"). Of the 3,200,000 shares of the Firm Stock, 2,000,000 are being sold by
the Company and 1,200,000 by the Selling Shareholders. John H. Mathias, James P.
Mathias and Janet B. Mathias are hereinafter referred to as the "Management
Selling Shareholders" and Ronald C. and Marita H. Mills, John M. and Linda E.
Denman, Viva R. Denman, Joseph H. and Pamela K. Ward, Harold H. Renz and Herbert
and Irma E. Renz are hereinafter referred to as the "Denron Selling
Shareholders." In addition, the Company proposes to grant to the Underwriters
named in Schedule 1 hereto (the "Underwriters") an option to purchase up to an
additional 480,000 shares of the Common Stock on the terms and for the purposes
set forth in Section 3 (the "Option Stock"). The Firm Stock and the Option
Stock, if purchased, are hereinafter collectively called the "Stock." This is to
confirm the agreement concerning the purchase of the Stock from the Company and
the Selling Shareholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-3 and Amendments ____,
____ and ____ thereto, with respect to the Stock has (i) been
prepared by the Company in conformity with the requirements of the
United States Securities Act of 1933, as
<PAGE>
amended (the "Securities Act") and the rules and regulations (the
"Rules and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under
the Securities Act. Copies of such registration statement and the
amendment[s] thereto have been delivered by the Company to you as the
Underwriters. As used in this Agreement, "Effective Time" means the
date and the time as of which such registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereof,
before it became effective under the Securities Act and any
prospectus filed with the Commission by the Company with the consent
of the Underwriters pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including any documents
incorporated by reference therein at such time and all information
contained in the final prospectus filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations in accordance with
Section 6(a) hereof and deemed to be a part of the Registration
Statement as of the Effective Time pursuant to paragraph (b) of Rule
430A of the Rules and Regulations; and "Prospectus" means such final
prospectus, as first filed with the Commission pursuant to paragraph
(1) or (4) of Rule 424(b) of the Rules and Regulations. Reference
made herein to any Preliminary Prospectus or to the Prospectus shall
be deemed to refer to and include any documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the
Securities Act, as of the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include any document filed under the United
States Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and incorporated by reference in such
Preliminary Prospectus or the Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be
deemed to include any annual report of the Company filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order
suspending the effectiveness of the Registration Statement or
preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all material respects
to the requirements of the Securities Act and the Rules and
Regulations and do not and will not, as of the
2
<PAGE>
applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing
date (as to the Prospectus and any amendment or supplement
thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided that no representation or warranty is made as to
information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon and in conformity
with written information furnished to the Company by or on
behalf of any Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material
respects to the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of
the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
any further documents so filed and incorporated by reference
in the Prospectus, when such documents become effective or are
filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(d) The Company and each of its subsidiaries (as
defined in Section 17) have been duly incorporated and are
validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and
have all power and authority, and all required licenses,
permits, clearances, certifications, registrations, approvals,
consents and franchises, necessary to own or lease and operate
their respective properties and to conduct the businesses in
which they are engaged; and none of the subsidiaries of the
Company (other than Denron, Inc. and Electronica Pantera, S.A.
de C.V. is a "significant subsidiary", as such term is defined
in Rule 405 of the Rules and Regulations.
(e) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus, and none of such shares have been issued in
violation of any preemptive rights; all of the issued shares
of capital stock of each subsidiary of the Company have been
duly and
3
<PAGE>
validly authorized and issued and are fully paid and
non-assessable and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims; and no
options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership
interests in any subsidiary of the Company are outstanding.
(f) The offers and sales of the outstanding shares of
the Company's capital stock, whether described in the
Registration Statement or otherwise, were made in conformity
with applicable federal and state securities laws.
(g) The shares of the Stock have been duly and
validly authorized and, when issued and delivered against
payment therefor as provided herein, will be duly and validly
issued, fully paid and non-assessable and the issuance thereof
will not be subject to any preemptive rights, right of first
refusal or similar rights; and the Stock will conform to the
description thereof contained in the Prospectus.
(h) This Agreement has been duly authorized, executed
and delivered by the Company.
(i) The execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or
by-laws or similar governing instruments of the Company or any
of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or any of their properties or assets;
and except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby.
(j) There are no contracts, agreements or
understandings between the Company and any person granting
such person the right (other than rights which
4
<PAGE>
have been waived or satisfied) to require the Company to file
a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in
the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under
the Securities Act, except as described in the Prospectus; and
there are no options or warrants for the purchase of, other
outstanding rights to purchase, agreements or obligations to
issue or agreements or other rights to convert or exchange any
obligation or security into, capital stock of the Company or
securities convertible into or exchangeable for capital stock
of the Company, except as described in the Prospectus or the
Company's Proxy Statement for its 1997 Annual Meeting.
(k) Except as described in the Prospectus, the
Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under,
or Regulation D or S of, the Securities Act, other than shares
issued pursuant to employee benefit plans, qualified stock
options plans or other employee compensation plans or pursuant
to outstanding options, rights or warrants.
(l) Neither the Company nor any of its subsidiaries
has sustained, since the date of the latest audited financial
statements included or incorporated by reference in the
Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any change in the capital
stock (except for any increase in the capital stock resulting
from the Company's issuance of shares of Common Stock upon
exercise of options granted under the Company's 1995 Stock
Option Plan and the 1995 Outside Directors Stock Option Plan
in the ordinary course of business) or long-term debt of the
Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material
adverse change, in or affecting the general affairs,
management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus.
(m) The financial statements (including the related
notes and supporting schedules) filed as part of the
Registration Statement or included or incorporated by
reference in the Prospectus present fairly the financial
condition and results of operations of the entities purported
to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved; the financial information
included in the Prospectus under the caption
5
<PAGE>
"Prospectus Summary" and "Selected Consolidated Financial
Data" (including as adjusted financial information) presents
fairly the information shown therein and has been compiled on
a basis consistent with that of the financial statements of
the Company.
(n) Price Waterhouse LLP, who have certified certain
financial statements of the Company, whose report appears in
the Prospectus and who have delivered the initial letter
referred to in Section 9(g) hereof, are independent public
accountants as required by the Securities Act and the Rules
and Regulations.
(o) The Company and each of its subsidiaries have
good and marketable title in fee simple to all real property
owned by the Company or any of its subsidiaries free and clear
of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially
affect the value of such property and do not materially
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; all real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material
and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its
subsidiaries; the executive offices and assembly facilities of
the Company and each of its subsidiaries (the "Premises"), and
all operations conducted thereon, are now and, since the
Company and any subsidiary began to use such Premises, always
have been and, to the best of the Company's knowledge, prior
to when the Company and each of its subsidiaries began to use
such Premises, always had been, in compliance with all U.S.
and Mexican laws concerning or related to industrial hygiene
and the protection of health and the environment, including
all federal, state and local statutes, ordinances, regulations
and rules, except to the extent that any failure to be in such
compliance would not materially adversely affect the
consolidated financial position, results of operations,
shareholders' equity, business or prospects of the Company and
its subsidiaries.
(p) Except as described in the Prospectus, the
Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and
the value of their respective properties and as is customary
for companies engaged in similar businesses in similar
industries.
(q) Except as described in the Prospectus, the
Company and each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and
licenses necessary for the conduct of their respective
businesses and have no reason to believe that the conduct of
their
6
<PAGE>
respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any such
rights of others.
(r) There are no legal or governmental claims,
actions or proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or assets
of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the
consolidated financial position, shareholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries; and to the best of the Company's knowledge, no
such claims, actions or proceedings are threatened or
contemplated by governmental authorities or threatened by
others.
(s) The conditions for use of Form S-3, as set forth
in the General Instructions thereto, have been satisfied.
(t) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of or references
to contracts, agreements or other documents, are accurate in
all material respects and present or summarize fairly, in all
material respects, the information required to be disclosed
under the Securities Act or the Rules and Regulations, and
there are no statutes, regulations, contracts or other
documents which are required to be described in the Prospectus
or filed as exhibits to the Registration Statement by the
Securities Act or the Rules and Regulations which have not
been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations.
(u) No relationship, direct or indirect, exists
between or among the Company on the one hand, and the
directors, officers, shareholders, customers or suppliers of
the Company on the other hand, which is required to be
described in the Prospectus which is not so described.
(v) No labor dispute or disturbance by the employees
of the Company or any subsidiary of the Company exists or, to
the knowledge of the Company, is imminent which might be
expected to have a material adverse effect on the consolidated
financial position, shareholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries; and the Company has no knowledge of any existing
or threatened labor disturbance by the employees of any of the
principal suppliers, contractors or customers of the Company
or any of its subsidiaries that would materially adversely
affect the consolidated financial position, shareholders'
equity, results of operations, business or prospects of the
Company and its subsidiaries.
7
<PAGE>
(w) The Company is in compliance in all material
respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any
liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension
plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(x) The Company and each of its subsidiaries has
filed all federal, state, local and foreign income and
franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company or any
of its subsidiaries which has had (nor does the Company have
any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might
have) a material adverse effect on the consolidated financial
position, shareholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(y) Since the date as of which information is given
in the Prospectus through the date hereof, and except as may
otherwise be disclosed in the Prospectus, the Company has not
(i) issued or granted any securities (except for options to
purchase shares of Common Stock under the Company's 1995 Stock
Option Plan and the 1995 Outside Directors Stock Option Plan
issued and granted in the ordinary course of business), (ii)
incurred any liability or obligation, direct or contingent,
other than liabilities and obligations which were incurred in
the ordinary course of business, (iii) entered into any
transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(z) The Company and each of its subsidiaries (i)
makes and keeps accurate books and records and (ii) maintains
internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded
as necessary to permit preparation of its financial statements
and to maintain accountability for its assets, (C) access to
its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable
intervals.
8
<PAGE>
(aa) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter or by-laws or similar
governing instruments, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is
a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in
any material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or
assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its
property or to the conduct of its business.
(ab) Neither the Company nor any of its subsidiaries,
nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of
its subsidiaries, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated
or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(ac) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to
the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries
in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a
material adverse effect on the general affairs, management,
financial position, shareholders' equity or results of
operations of the Company and its subsidiaries; there has been
no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or
into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or
hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any
of its subsidiaries have knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or
release which would not have or would not be reasonably likely
to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes,
9
<PAGE>
dumpings and releases, a material adverse effect on the
general affairs, management, financial position, shareholders'
equity or results of operations of the Company and its
subsidiaries; and the terms "hazardous wastes", "toxic
wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to
environmental protection.
(ad) Neither the Company nor any subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder.
(ae) There are no engagements or arrangements between
the Company and an investment bank or third party pursuant to
which such investment bank or third party has been granted any
rights to underwrite securities of the Company or would be
entitled to receive a fee in the event of a private placement
of securities, public offering of securities or merger or
acquisition involving the Company, except for any rights to
underwrite contemplated by this Agreement and any arrangements
for which fees are reflected in Item 14 of Part II of the
Registration Statement.
2. Representations, Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder severally (except with respect to
paragraphs (e) and (f) of this Section 2) represents, warrants and agrees
that:
(a) The Selling Shareholder has, and immediately
prior to the First Delivery Date (as defined in Section 5
hereof) the Selling Shareholder will have, good and valid
title to the shares of Stock to be sold by the Selling
Shareholder hereunder on such date, free and clear of all
liens, encumbrances, equities or claims; and upon delivery of
such shares and payment therefor pursuant hereto, good and
valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several
Underwriters.
(b) The Selling Shareholder has placed in custody
under a custody agreement (the "Custody Agreement" and,
together with all other similar agreements executed by the
other Selling Shareholders, the "Custody Agreements") with
John H. Mathias, as custodian (the "Custodian"), for delivery
under this Agreement, certificates in negotiable form (with
signature guaranteed by a commercial bank or trust company
having an office or correspondent in the United States or a
member firm of the New York or American Stock Exchanges)
representing the shares of Stock to be sold by the Selling
Shareholder hereunder.
(c) The Selling Shareholder has duly and irrevocably
executed and delivered a power of attorney (the "Power of
Attorney" and, together with all other similar agreements
executed by the other Selling Shareholders, the "Powers
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of Attorney") appointing the Custodian and one or more other
persons, as attorneys-in-fact, with full power of
substitution, and with full authority (exercisable by any one
or more of them) to execute and deliver this Agreement and to
take such other action as may be necessary or desirable to
carry out the provisions hereof on behalf of the Selling
Shareholder.
(d) The Selling Shareholder has the full right, power
and authority to enter into this Agreement, the Power of
Attorney and the Custody Agreement and to sell, transfer and
deliver the Stock to be sold by such Selling Shareholder
hereunder, and this Agreement and Power of Attorney, and the
Custody Agreement have been duly authorized, executed and
delivered by such Selling Shareholder and constitute the
legal, valid and binding obligations of such Selling
Shareholder enforceable in accordance with their respective
terms; the execution, delivery and performance of this
Agreement, the Power of Attorney and the Custody Agreement by
the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the
Selling Shareholder is a party or by which the Selling
Shareholder is bound or to which any of the property or assets
of the Selling Shareholder is subject, nor will such actions
result in any violation of any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Selling Shareholder or the property or
assets of the Selling Shareholder; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or
body is required for the execution, delivery and performance
of this Agreement, the Power of Attorney or the Custody
Agreement by the Selling Shareholder and the consummation by
the Selling Shareholder of the transactions contemplated
hereby and thereby.
(e) Each Denron Selling Shareholder severally
represents, warrants and agrees that, to the knowledge of
each Denron Selling Shareholder, the Registration Statement
and the Prospectus and any further amendments or supplements
to the Registration Statement or the Prospectus will, when
they become effective or are filed with the Commission, as the
case may be, do not and will not, as of the applicable
effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided that no representation or warranty
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<PAGE>
is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the
Company by or on behalf of any Underwriter specifically for
inclusion therein.
(f) Each Management Selling Shareholder severally
represents, warrants and agrees that the Registration
Statement and the Prospectus and any further amendments or
supplements to the Registration Statement or the Prospectus
will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing
date (as to the Prospectus and any amendment or supplement
thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided that no representation or warranty is made as to
information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon and in conformity
with written information furnished to the Company by or on
behalf of any Underwriter specifically for inclusion therein.
(g) The Selling Shareholder has no reason to believe
that the representations and warranties of the Company
contained in Section 1 hereof are not materially true and
correct; such Selling Shareholder has examined the
Registration Statement and the Prospectus (as amended or
supplemented) and has no knowledge of any material fact,
condition or information not disclosed in the Registration
Statement, as of the effective date, or the Prospectus (or any
amendment or supplement thereto), as of the applicable filing
date, which has adversely affected or may adversely affect the
business of the Company and is not prompted to sell shares of
Common Stock by any information concerning the Company which
is not set forth in the Registration Statement and the
Prospectus.
(h) The Selling Shareholder has not taken and will
not take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 2,000,000 shares of
the Firm Stock and each Selling Shareholder hereby agrees to sell the number of
shares of the Firm Stock set opposite his/her name in Schedule 2 hereto,
severally and not jointly, to the several Underwriters and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Stock set opposite that Underwriter's name in Schedule 1 hereto.
Each Underwriter shall be obligated to purchase from the Company, and from each
Selling Shareholder, that number of shares of the Firm Stock which represents
the same proportion of the number of shares of the Firm Stock to be sold by the
Company, and by each Selling Shareholder, as the number of shares of the Firm
Stock set forth opposite the name of such Underwriter in Schedule 1 represents
of the total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares.
In addition, the Company grants to the Underwriters an option
to purchase up to 480,000 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the
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<PAGE>
Option Stock shall be adjusted by the Underwriters so that no Underwriter shall
be obligated to purchase Option Stock other than in 100 share amounts. The price
of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company and the Selling Shareholders shall not be
obligated to deliver any of the Stock to be delivered on the First Delivery Date
or the Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters. The several
Underwriters propose to offer the Firm Stock for sale upon the terms and
conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the office of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, NY 10178, at 10:00 A.M., New York City
time, on the fourth full business day following the date of this Agreement or at
such other date or place as shall be determined by agreement between the
Underwriters and the Company. This date and time are sometimes referred to as
the "First Delivery Date." On the First Delivery Date, the Company and the
Selling Shareholders shall deliver or cause to be delivered certificates
representing the Firm Stock to the Underwriters for the account of each
Underwriter against payment to or upon the order of the Company and the Selling
Shareholders of the purchase price by certified or official bank check or checks
payable in immediately available funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Firm Stock shall be registered in such names and in such denominations as the
Underwriters shall request in writing not less than two full business days prior
to the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company and the Selling
Shareholders shall make the certificates representing the Firm Stock available
for inspection by the Underwriters in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 3 may be exercised by written
notice being given to the Company by the Underwriters. Such notice shall set
forth the aggregate number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Underwriters, when the shares
of Option Stock are to be delivered; provided, however, that this date and time
shall not be earlier than the First Delivery Date nor earlier than the second
business day after the date on which the option shall have been exercised nor
later than the fifth business day after the date on which the option shall have
been exercised. (The date and time the shares of Option Stock are delivered are
sometimes referred to as the
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<PAGE>
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date".)
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
5 (or at such other place as shall be determined by agreement between the
Underwriters and the Company) at 10:00 A.M., New York City time, on the Second
Delivery Date. On the Second Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Stock to the
Underwriters for the account of each Underwriter against payment to or upon the
order of the Company of the purchase price by certified or official bank check
or checks payable in immediately available funds. Time shall be of the essence,
and delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Underwriters shall request in the aforesaid written notice.
For the purpose of expediting the checking and packaging of the certificates for
the Option Stock, the Company shall make the certificates representing the
Option Stock available for inspection by the Underwriters in New York, New York,
not later than 2:00 P.M., New York City time, on the business day prior to the
Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by
the Underwriters and to file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than Commission's
close of business on the second business day following the
execution and delivery of this Agreement or, if applicable,
such earlier time as may be required by Rule 430A(a)(3) under
the Securities Act; to make no further amendment or any
supplement to the Registration Statement or to the Prospectus
prior to the last Delivery Date except as permitted herein; to
advise the Underwriters, promptly after it receives notice
thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has
been filed and to furnish the Underwriters with copies
thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Stock;
to advise the Underwriters, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order
or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of
the qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the
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<PAGE>
issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use
promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Underwriters
and to counsel for the Underwriters a signed copy of the
Registration Statement as originally filed with the
Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Underwriters such
number of the following documents as the Underwriters shall
reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than
this Agreement), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and
(iii) any document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other
securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the
Prospectus or to file under the Exchange Act any document
incorporated by reference in the Prospectus in order to comply
with the Securities Act or the Exchange Act, to notify the
Underwriters and, upon their request, to file such document
and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the
Underwriters may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance;
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Underwriters, be required by the Securities
Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment
to the Registration Statement or supplement to the Prospectus,
any document incorporated by reference in the Prospectus or
any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Underwriters and
counsel for the Underwriters and obtain the consent of the
Underwriters to the filing;
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<PAGE>
(f) As soon as practicable after the Effective Date,
to make generally available to the Company's security holders
and to deliver to the Underwriters an earning statement of the
Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Underwriters copies of all
materials furnished by the Company to its shareholders and all
public reports and all reports and financial statements
furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as
the Underwriters may reasonably request to qualify the Stock
for offering and sale under the securities laws of such
jurisdictions as the Underwriters may request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; provided
that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 90 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than (i) the Stock, (ii) shares issued pursuant to
employee benefit plans, qualified stock option plans or other
employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights
and (iii) shares of Common Stock issued in connection with any
acquisition of another company if the terms of such issuance
provide that such Common Stock shall not be resold prior to
the expiration of the period referenced in this paragraph), or
sell or grant options, rights or warrants with respect to any
shares of Common Stock or securities convertible into or
exchangeable for Common Stock (other than the grant of options
pursuant to option plans existing on the date hereof), or (2)
enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock,
whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, in each case without the
prior written consent of Lehman Brothers Inc.; and to cause
each officer and director of the Company to furnish to the
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<PAGE>
Underwriters, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree
not to, directly or indirectly, (A) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock (other than
the Stock) or (B) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described
in clause (A) or (B) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, in
each case for a period of 90 days from the date of the
Prospectus, without the prior written consent of Lehman
Brothers Inc.;
(j) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the
Prospectus;
(k) Prior to the Effective Date, to apply for the
inclusion of the Stock on the National Market System and to
use its best efforts to complete that listing, subject only to
official notice of issuance, prior to the First Delivery Date;
and
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Shareholders. Each
Selling Shareholder agrees:
(a) For a period of 90 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than the Stock and shares of Common Stock gifted
provided that the recipient of such shares of Common Stock
enters into a lock-up letter containing the provisions of this
paragraph) or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such
shares of Common Stock, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, in
each case without the prior written consent of Lehman Brothers
Inc.
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<PAGE>
(b) That the Stock to be sold by the Selling
Shareholder hereunder, which is represented by the
certificates held in custody for the Selling Shareholder, is
subject to the interest of the Underwriters and the other
Selling Shareholders thereunder, that the arrangements made by
the Selling Shareholder for such custody are to that extent
irrevocable, and that the obligations of the Selling
Shareholder hereunder shall not be terminated by any act of
the Selling Shareholder, by operation of law, by the death or
incapacity of any individual Selling Shareholder or, in the
case of a trust, by the death or incapacity of any executor or
trustee or the termination of such trust, or the occurrence of
any other event.
(c) To deliver to the Underwriters prior to the First
Delivery Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Shareholder is a
non-United States person) or Form W-9 (if the Selling
Shareholder is a United States person.)
8. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the costs of delivering and distributing the Custody
Agreements and the Powers of Attorney; (f) the filing fees incident to securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of sale of the Stock; (g) any applicable listing or other fees; (h)
the fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (i) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling Shareholders
under this Agreement; provided that, except as provided in this Section 8 and in
Section 13, the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Shareholders contained herein, to the performance by the Company
and the Selling Shareholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
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<PAGE>
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 6(a); no stop order
suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Morgan, Lewis & Bockius
LLP, counsel for the Underwriters, is material or omits to
state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this
Agreement, the Custody Agreements, the Powers of Attorney, the
Stock, the Registration Statement and the Prospectus, and all
other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the
Underwriters, and the Company and the Selling Shareholders
shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to
pass upon such matters.
(d) Duane, Morris & Heckscher LLP shall have
furnished to the Underwriters its written opinion, as counsel
to the Company, addressed to the Underwriters and dated such
Delivery Date, in form and substance reasonably satisfactory
to the Underwriters, to the effect that:
(i) The Company and each of its subsidiaries
have been duly incorporated and are validly existing
as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are
duly licensed or qualified to do business and are in
good standing as foreign corporations in each
jurisdiction in which their respective ownership or
lease of property or the conduct of their respective
businesses requires such license or qualification,
except where the failure so to license or qualify
would not have a material adverse effect on the
consolidated financial position, shareholders'
equity, results of operations, business or prospects
of the Company and its subsidiaries and have all
power and authority necessary to own or hold their
respective properties and conduct the businesses in
which they are engaged;
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<PAGE>
(ii) The Company has an authorized
capitalization as set forth in the Prospectus, and
all of the issued shares of capital stock of the
Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the Prospectus, and none of such shares
have been issued in violation of any preemptive
rights; all of the issued shares of capital stock of
each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid,
non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances,
equities or claims; all issuances and repurchases of
securities by the Company were exempt from, or
complied in all material respects with, the
provisions of all applicable federal and state
securities and state corporate laws;
(iii) There are no preemptive or other rights
to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or by-laws or
any agreement or other instrument known to such
counsel;
(iv) To the best of such counsel's knowledge
and other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a
party or of which any property or assets of the
Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any
of its subsidiaries, might have a material adverse
effect on the consolidated financial position,
shareholders' equity, results of operations, business
or prospects of the Company and its subsidiaries;
and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(v) The Registration Statement was declared
effective under the Securities Act as of the date and
time specified in such opinion, the Prospectus was
filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date
specified therein and no stop order suspending the
effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened
by the Commission;
(vi) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements and related
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<PAGE>
schedules therein, as to which such counsel need
express no opinion) comply as to form in all material
respects with the requirements of the Securities Act
and the Rules and Regulations; the documents
incorporated by reference in the Prospectus and any
further amendment or supplement to any such
incorporated document made by the Company prior to
such Delivery Date (other than the financial
statements and related schedules therein, as to which
such counsel need express no opinion), when they
became effective or were filed with the Commission,
as the case may be, complied as to form in all
material respects with the requirements of the
Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission
thereunder; and the Company has filed all forms,
reports and documents required to be filed with the
Commission under the Exchange Act;
(vii) To the best of such counsel's
knowledge, there are no contracts or other documents
which are required to be described in the Prospectus
or filed as exhibits to the Registration Statement by
the Securities Act or by the Rules and Regulations
which have not been described or filed as exhibits to
the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(viii) The Company has full power and
authority to enter into this Agreement; and this
Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the
Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation
of the transactions contemplated hereby will not
conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or
instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or
any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of
the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of
their properties or assets; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the
21
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Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration
with, any such court or governmental agency or body
is required for the execution, delivery and
performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby;
and
(x) To the best of such counsel's
knowledge, except as described in the Prospectus,
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of
the United States of America, the laws of the Commonwealth of
Pennsylvania, the laws of Delaware and jurisdictions in which
it is admitted; and (ii) rely (to the extent such counsel
deems proper and specifies in its opinion), as to matters
involving the application of the laws of the United Mexican
States and the laws of the State of California upon the
opinions of other counsel of good standing, provided that any
such other counsel is satisfactory to counsel for the
Underwriters and furnishes a copy of its opinion to the
Underwriters. Counsel for the Company shall also have
furnished to the Underwriters a written statement, addressed
to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Underwriters, to the effect that
(x) such counsel has acted as counsel to the Company on a
regular basis since October 1995 (although the Company is also
represented with respect to certain other matters, by other
outside counsel), has acted as counsel to the Company in
connection with previous financing transactions and has acted
as counsel to the Company in connection with the preparation
of the Registration Statement, and (y) based on the foregoing,
no facts have come to the attention of such counsel which lead
it to believe that (I) the Registration Statement, as of the
Effective Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading, or that the Prospectus contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading or (II) any document
incorporated by reference in the Prospectus or any further
amendment or supplement to any such incorporated document made
by the Company prior to such Delivery Date, when they became
effective or were
22
<PAGE>
filed with the Commission, as the case may be, contained, in
the case of a registration statement which became effective
under the Securities Act, any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading, or, in the case of other documents which were
filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does
not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration
Statement or the Prospectus except for the statements made in
the Prospectus under the captions "Description of Capital
Stock," "Risk Factors - Shares Eligible for Future Sale,"
"Risk Factors - AntiTakeover Protections," and "Shares
Eligible for Future Sale", insofar as such statements relate
to the Stock and concern legal matters. The opinion of counsel
for the Company shall include a statement to the effect that
it may be relied upon by counsel for the Underwriters in their
opinion delivered to the Underwriters.
(e) The respective counsel for the Management Selling
Shareholders and the Denron Selling Shareholders shall each
have furnished to the Underwriters its written opinion, as
counsel to each of the Selling Shareholders for whom it is
acting as counsel, addressed to the Underwriters and dated the
First Delivery Date, in form and substance reasonably
satisfactory to the Underwriters, to the effect that:
(i) Each Selling Shareholder has full right,
power and authority to enter into this Agreement, the
Power of Attorney and the Custody Agreement; the
execution, delivery and performance of this
Agreement, the Power of Attorney and the Custody
Agreement by each Selling Shareholder and the
consummation by each Selling Shareholder of the
transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a
default under, any statute, any indenture, mortgage,
deed of trust, loan agreement or other agreement or
instrument known to such counsel to which any Selling
Shareholder is a party or by which any Selling
Shareholder is bound or to which any of the property
or assets of any Selling Shareholder is subject, nor
will such actions result in any violation of any
statute or any order, rule or regulation known to
such counsel of any court or governmental agency or
body having jurisdiction over any Selling Shareholder
or the property or assets of any Selling Shareholder;
and, except for the registration of the Stock under
the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as
may be required under the Exchange Act and applicable
state securities
23
<PAGE>
laws in connection with the purchase and distribution
of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or
registration with, any such court or governmental
agency or body is required for the execution,
delivery and performance of this Agreement, the Power
of Attorney or the Custody Agreement by any Selling
Shareholder and the consummation by any Selling
Shareholder of the transactions contemplated hereby
and thereby;
(ii) This Agreement has been duly executed
and delivered by or on behalf of each Selling
Shareholder;
(iii) A Power-of-Attorney and a Custody
Agreement have been duly executed and delivered by
each Selling Shareholder and constitute valid and
binding agreements of each Selling Shareholder,
enforceable in accordance with their respective
terms;
(iv) Immediately prior to the First
Delivery Date, each Selling Shareholder had good and
valid title to the shares of Stock to be sold by such
Selling Shareholder under this Agreement, free and
clear of all liens, encumbrances, equities or claims,
and full right, power and authority to sell, assign,
transfer and deliver such shares to be sold by such
Selling Shareholder hereunder; and
(v) Good and valid title to the shares of
Stock to be sold by each Selling Shareholder under
this Agreement, free and clear of all liens,
encumbrances, equities or claims, has been
transferred to each of the several Underwriters; and
there are no transfer or similar taxes payable in
connection with the sale and delivery of the shares
of Stock by each Selling Stockholder to the
Underwriters, except as specified in such opinion.
Counsel for the Management Selling Shareholders, in rendering
such opinion may (i) state that its opinion is limited to
matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Pennsylvania, the
General Corporation Law of the State of Delaware and
jurisdictions in which it is admitted; and (ii) in rendering
the opinion in Section 9(e)(iv) above, rely upon a certificate
of each Selling Shareholder in respect of matters of fact as
to ownership of and liens, encumbrances, equities or claims on
the shares of Stock sold by such Selling Shareholder, provided
that such counsel shall furnish copies thereof to the
Underwriters and state that it believes that both the
Underwriters and it are justified in relying upon such
certificate. Such counsel shall also have furnished to the
Underwriters a written statement, addressed to the
Underwriters and dated the First Delivery Date, in form and
substance satisfactory to the Underwriters, to the effect that
(x) such counsel has acted as counsel to each Selling
24
<PAGE>
Shareholder and has acted as counsel to each Selling
Shareholder in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead it
to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material
fact relating to any Selling Shareholder or omitted to state
such a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue
statement of a material fact relating to any Selling
Shareholder or omits to state such a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that such counsel
does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus. The opinion of
counsel for the Denron Selling Shareholders shall include a
statement to the effect that it may be relied upon by counsel
for the Underwriters in their opinion delivered to the
Underwriters.
Counsel for the Denron Selling Shareholders, in rendering such
opinion, may (i) state that its opinion is limited to matters
governed by the Federal laws of the United States of America,
the laws of the State of California, the General Corporation
Law of the State of Delaware and jurisdictions in which it is
admitted; and (ii) in rendering the opinion in Section
9(e)(iv) above, rely upon a certificate of each Selling
Shareholder in respect of matters of fact as to ownership of
and liens, encumbrances, equities or claims on the shares of
Stock sold by such Selling Shareholder, provided that such
counsel shall furnish copies thereof to the Underwriters and
state that it believes that both the Underwriters and it are
justified in relying upon such certificate. In addition, such
counsel shall state in its opinion that such opinion assumes
that the laws of Pennsylvania are identical to the laws of
California and such counsel shall also state that it is not
opining as to the laws of the Commonwealth of Pennsylvania.
Such counsel shall also have furnished to the Underwriters a
written statement, addressed to the Underwriters and dated the
First Delivery Date, in form and substance satisfactory to the
Underwriters, to the effect that (x) such counsel has acted as
counsel to each Selling Shareholder and has acted as counsel
to each Selling Shareholder in connection with the preparation
of the Registration Statement, and (y) based on the foregoing,
no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement, as of the
Effective Date, contained any untrue statement of a material
fact relating to any Selling Shareholder or omitted to state
such a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue
statement of a material fact relating to any Selling
Shareholder or omits to state such a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may
be qualified by a statement to the effect that
25
<PAGE>
such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus. The opinion
of counsel for the Denron Selling Shareholders shall include a
statement to the effect that it may be relied upon by counsel
for the Underwriters in their opinion delivered to the
Underwriters.
(f) The Underwriters shall have received from Morgan,
Lewis & Bockius LLP, counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to
the issuance and sale of the Stock, the Registration
Statement, the Prospectus and other related matters as the
Underwriters may reasonably require, and the Company shall
have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass
upon such matters.
(g) At the time of execution of this Agreement, the
Underwriters shall have received from Price Waterhouse LLP, a
letter, in form and substance satisfactory to the Underwriters
and in accordance with the Statement on Auditing Standards No.
72, addressed to the Underwriters and dated the date hereof
(i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification
of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five
days prior to the date hereof), the findings of such firm with
respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(h) With respect to the letter of Price Waterhouse
LLP referred to in the preceding paragraph and delivered to
the Underwriters concurrently with the execution of this
Agreement (the "initial letter"), the Company shall have
furnished to the Underwriters a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the findings
of such firm with respect to the financial information and
other matters covered by the initial letter and (iii)
confirming in all material respects the findings set forth in
the initial letter.
26
<PAGE>
(i) The Company shall have furnished to the
Underwriters a certificate, dated such Delivery Date, of its
Chairman of the Board, its President or a Vice President and
its Chief Financial Officer stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 9(a) and
9(k) have been fulfilled; and
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(j) Each Selling Shareholder (or the Custodian or one
or more attorneys-in-fact on behalf of the Selling
Shareholders) shall have furnished to the Underwriters on the
First Delivery Date a certificate, dated the First Delivery
Date, signed by, or on behalf of, the Selling Shareholder (or
the Custodian or one or more attorneys-in-fact) stating that
the representations, warranties and agreements of the Selling
Shareholder contained herein are true and correct as of the
First Delivery Date and that the Selling Shareholder has
complied with all agreements contained herein to be performed
by the Selling Shareholder at or prior to the First Delivery
Date.
(k) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by
reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Underwriters, so material
and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock
being
27
<PAGE>
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the
Company on any exchange or in the over-the-counter market,
shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a banking
moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged
in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the
United States or (iv) there shall have occurred such a
material adverse change in general economic, political or
financial conditions (or the effect of international
conditions on the financial markets in the United States shall
be such) as to make it, in the judgment of a majority in
interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of
the Stock being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
(m) The National Market System shall have approved
the Stock for inclusion, subject only to official notice of
issuance.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
28
<PAGE>
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company by
or on behalf of any Underwriter specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) The Selling Shareholders, jointly and severally, shall
indemnify, and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter, officer, employee or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto (except that with respect to the Denron Selling
Shareholders, only such statements (i) relating to the Selling Shareholders and
(ii) in the case of Ronald C. Mills, Denron, Inc.) or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, Registration Statement
or the Prospectus, or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements therein not
misleading (except that with respect to the Denron Selling Shareholders, only
such omissions (i) relating to the Selling Shareholders and (ii) in the case of
Ronald C. Mills, Denron, Inc.), and shall reimburse each Underwriter, its
officers and employees and each such controlling person for any legal or other
expenses reasonably incurred by that Underwriter, its officers and employees or
controlling
29
<PAGE>
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Selling Shareholders shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any such amendment or
supplement in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company by or on behalf of any
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Selling Shareholders may
otherwise have to any Underwriter or any officer, employee or controlling person
of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company), and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the Company or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or (B) in
any Blue Sky Application or (ii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading, but in each case only to the extent that the untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information concerning such Underwriter
furnished to the Company by or on behalf of that Underwriter specifically for
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director, officer,
employee or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this
30
<PAGE>
Section 10. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 10 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that the Underwriters shall have the right to employ counsel to
represent jointly the Underwriters and their respective officers, employees and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against the Company
or any Selling Shareholder under this Section 10 if, in the reasonable judgment
of the Underwriters, it is advisable for the Underwriters, officers, employees
and controlling persons to be jointly represented by separate counsel, and in
that event the fees and expenses of such separate counsel shall be paid by the
Company or the Selling Shareholders. No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under this
31
<PAGE>
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Shareholders or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 10(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 10(e) are several in proportion to
their respective underwriting obligations and not joint.
(f) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
market stabilization activities on the inside front cover page of, and the
concession and reallowance figures and the information contained in paragraphs
seven through nine appearing under the caption "Underwriting" in, the Prospectus
are correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
11. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters in Schedule
1 hereto; provided, however, that the
32
<PAGE>
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 3.
If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Underwriters who
so agree, shall have the right, but shall not be obligated, to purchase, in such
proportion as may be agreed upon among them, all the Stock to be purchased on
such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Underwriters do not elect to purchase the shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company or the Selling Shareholders, except
that the Company will continue to be liable for the payment of expenses to the
extent set forth in Sections 8 and 13. As used in this Agreement, the term
"Underwriter" includes, for all purposes of this Agreement unless the context
requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to
this Section 11, purchases Firm Stock which a defaulting Underwriter agreed but
failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter
of any liability it may have to the Company and the Selling Shareholders for
damages caused by its default. If other underwriters are obligated or agree to
purchase the Stock of a defaulting or withdrawing Underwriter, either the
Underwriters or the Company may postpone the Delivery Date for up to seven full
business days in order to effect any changes that in the opinion of counsel for
the Company or counsel for the Underwriters may be necessary in the Registration
Statement, the Prospectus or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Underwriters by notice given to and received by the
Company and the Selling Shareholders prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Section 9(k)
or 9(l), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If the Company or
any Selling Shareholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Shareholders is
not fulfilled, the Company and the Selling Shareholders will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and
33
<PAGE>
upon demand the Company and the Selling Shareholders shall pay the full amount
thereof to the Underwriters. If this Agreement is terminated pursuant to Section
11 by reason of the default of one or more Underwriters, neither the Company nor
any Selling Shareholder shall be obligated to reimburse any defaulting
Underwriter on account of those expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc.,
Three World Financial Center, New York, New York 10285,
Attention: Syndicate Department (Fax: 212-526-6588), with a copy,
in the case of any notice pursuant to Section 10(d), to the
Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY
10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: John Mathias,
with a copy to William Baker and Wayne Bromfield (Fax:________);
(c) if to any Selling Shareholders, shall be delivered or
sent by mail, telex or facsimile transmission to such Selling
Shareholder at the address set forth on Schedule 2 hereto.
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof. The Company and the Selling Shareholders shall be
entitled to act and rely upon any request, consent, notice or agreement given or
made on behalf of the Underwriters by Lehman Brothers Inc. and the Company and
the Underwriters shall be entitled to act and rely upon any request, consent,
notice or agreement given or made on behalf of the Selling Shareholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
the Selling Shareholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Shareholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or
34
<PAGE>
equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Shareholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
35
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Selling Shareholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
THE JPM COMPANY
By
----------------------------------
Name:
Title:
The Selling Shareholders named in
Schedule 2 to this Agreement
By
----------------------------------
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
ADVEST, INC.
JANNEY MONTGOMERY SCOTT INC.
By LEHMAN BROTHERS INC.
By
----------------------------------
Name:
Title: Managing Director
36
<PAGE>
SCHEDULE 1
Number of Number of
Underwriters Shares
------------ ---------
Lehman Brothers Inc. . . . . . . . . . . . . . . .
Advest, Inc. . . . . . . . . . . . . . . . . . . .
Janney Montgomery Scott Inc. . . . . . . . . . . .
---------
---------
Total . . . . . . . . . . . . . . . . . . . . 3,200,000
---------
37
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Number of Shares
Name and address of Selling Shareholder of Firm Stock
- --------------------------------------- ----------------
<S> <C>
John H. Mathias
c/o The JPM Company
Route 15 North
Lewisburg, PA 17837
James P. Mathias
c/o The JPM Company
Route 15 North
Lewisburg, PA 17837
Janet B. Mathias
c/o The JPM Company
Route 15 North
Lewisburg, PA 17837
Ronald C. and Marita H. Mills
1240 Windamere Drive
Los Altos, CA 94020
John M. and Linda E. Denman
1241 Via Huarta
Los Altos, CA 94020
Viva R. Denman
10150 Torey Avenue - Apt.#218
Cupertino, CA 95014
Joseph H. and Pamela K. Ward
Harold H. Renz
340 Auburn Way
San Jose, CA 95129
Herbert and Irma E. Renz
10189 Byrne Avenue
Cupertino, CA 95014
Total.............................................. 1,200,000
=========
</TABLE>
38
<PAGE>
EXHIBIT 5.1
SHAUN R. EISENHAUER
DIRECT DIAL: (717) 237-5505
[email protected]
October __, 1997
The Board of Directors of
The JPM Company
Route 15 North
Lewisburg, PA 17837
Gentlemen:
We have served as counsel to The JPM Company (the "Company") in connection
with the preparation and filing with the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-3 (the "Registration Statement") relating to the offer and
sale by the Company of up to 2,450,000 shares (the "Shares") of Common Stock,
$.000067 par value, of the Company.
As counsel to the Company, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Articles of Incorporation and By-laws, as
amended to date, the corporate minutes and other proceedings and the records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in order
to render this opinion.
Based upon the foregoing, it is our opinion that each of the Shares, when
paid for, will be duly authorized, legally and validly issued and outstanding
and fully paid and nonassessable.
We hereby consent to the use of this opinion in the Registration Statement
and we further consent to the reference to our name in the Company's prospectus
under the caption "Legal Matters."
Sincerely,
DUANE, MORRIS & HECKSCHER LLP
By:____________________________________
A Partner
SRE/mem
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated November 14, 1996, except
as to the pooling of interests with Denron, Inc. which is as of June 4, 1997,
relating to the financial statements of The JPM Company, which appears in such
Prospectus.
PRICE WATERHOUSE LLP
Philadelphia, PA
October 6, 1997
