<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
September 30, 1997
or
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File No. 0-27738
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) Identification
Number)
Route 15 North
Lewisburg, Pennsylvania 17837
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 524-8200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.000067 par value
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [_]
The Registrant's revenues for the most recent fiscal year were $112,787,000.
As of September 30, 1997, 6,970,245 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
registrant as of that date (based on the average closing bid and asked prices of
the Common Stock at that date as reported by the National Association of
Securities Dealers Automated Quotation National Market System), excluding
outstanding shares beneficially owned by directors and executive officers, was
approximately $86,000,000.
Portions of the proxy dated December 20, 1997 for the Annual Meeting of
Shareholders to be held on January 27, 1998 (the "1998 Proxy Statement"), are
incorporated by reference into Part III of this Report, to the extent specific
pages are referred to herein.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of the Business.
-----------------------------------
The JPM Company (the "Company") was organized September 30, 1968 as a
recapitalization of a company originally founded in 1949 by Jay P. Mathias,
father of the current Chairman of the Board of Directors and Chief Executive
Officer, John H. Mathias and the current President and Chief Operating Officer,
James P. Mathias. The Company is an 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 is headquartered in Lewisburg, Pennsylvania and operates
manufacturing facilities in Lewisburg and Beaver Springs, Pennsylvania;
Winnsboro, South Carolina; San Jose, California; Bor, Czech Republic; and
Guadalajara, Mexico.
In June 1997, the Company merged with Denron, Inc. ("Denron"), a manufacturer of
cable assemblies and wire harnesses in San Jose, California, 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 stock of Denron. This Form 10-K
reflects all historical and current information of the combined companies.
In August 1997, the Company, through its subsidiaries JPM Deutschland and JPM
the Czech Republic, acquired substantially all of the assets of Corma
Elektrotechnische Productions GmbH, Leuchtenberg, Germany and Corma spol s. r.
o., Bor, the Czech Republic (collectively "Corma") for cash in the amount of
approximately $1,700,000.
(b) Financial Information About Industry Segments.
---------------------------------------------
All revenue of the Company is generated from a single business segment: the
manufacture of wire harnesses and cable assemblies.
(c) Narrative Description of Business.
---------------------------------
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 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, networking and telecommunications
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 long, sometimes taking up to 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.
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(d) Manufacturing.
-------------
The Company manufactures substantially all of its products on a build-to-order
basis based on 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. The Company maintains rapid prototype capabilities at each of its
plants for designing and developing customized products for its customers.
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.
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 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.
(e) Marketing.
---------
The Company's sales and marketing 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 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, consisting of sales
personnel, design engineers and production planners. The teams enable the
Company to assist customers in the design and redesign of cable assemblies and
wire harnesses and provide additional production planning and control services
at the customer's site, thereby reinforcing and enhancing the Company's
responsiveness to the customer's needs and providing a greater level of support.
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. For existing customers, the
Company seeks to expand its sales through multi-level relationships with design
engineers and other decision-makers within the OEM's organization.
The Company's sales and marketing programs are managed by its Vice President of
Marketing and Sales and supported by a total of 26 customer service specialists
in the Company's six manufacturing facilities. The Company also employs 11
sales executives based in Pennsylvania, New York, Florida, Texas, California and
Germany as well as a Marketing Manager in Pennsylvania. In addition to the
sales executives, the Company has four Custom Design Support Engineers based in
South Carolina, Ohio, Texas and California, providing product development and
design engineering support locally to its customers.
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During the fiscal year ended September 30, 1997, sales of the Company's products
to Diebold, Nortel, IBM, and Hewlett-Packard represented 17%, 16%, 14% and 10%,
respectively, of the Company's total sales. 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. During the
fiscal year ended September 30, 1995, sales of the Company's products to Diebold
and IBM represented 22% and 14%, respectively, of the Company's total sales.
The Company typically enters into annual contracts with its major customers.
These contracts periodically mature and are renewed throughout the year in the
normal course of business.
During each of the last three fiscal years, the Company's net sales to the
computer market sector (including self-service terminals and network bridges and
routers) and to the telecommunications market sector represented approximately
86% and 8%, respectively, of the Company's net sales.
(f) 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. In addition to other independent manufacturers of cable assemblies
and wire harnesses such as itself, the Company's competitors include
manufacturers who are primarily connector manufacturers and who compete
primarily on the basis of having certain proprietary connector technology,
contract manufacturers and independent manufacturers. Competition within the
industry is primarily based on the combination of quality, production capacity,
breadth of product line, engineering support capability, price, local support
capability, delivery, packaging, systems support and financial strength.
(g) Backlog.
-------
The Company estimates its backlog at September 30, 1997 and 1996 was
approximately $25,544,000 and $15,857,000, respectively. The Company does not
include within backlog non-binding, extended purchase orders and contractual
arrangements in which final authorization and shipment dates have not yet been
specified. Substantially all of the September 30, 1997 backlog is expected to
be shipped by December 31, 1997. Because of customers' and the industry's
movement to just-in-time and pull systems, the Company's backlog at any
particular date is not necessarily representative of the Company's level of
business to be expected in the ensuing period.
(h) Employees.
---------
As of September 30, 1997, the Company had approximately 2,800 full-time
employees, including approximately 2,200 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, approximately 200 full-time and 650 temporary 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.
(i) 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.
Page 3
<PAGE>
ITEM 2. PROPERTIES
The Company operates ISO 9002 certified facilities located in Lewisburg and
Beaver Springs, Pennsylvania; Winnsboro, South Carolina; San Jose, California;
and Guadalajara, Mexico. The Company's facilities in Leuchtenberg, Germany and
Bor, Czech Republic are ISO 9001 certified. The Company's headquarters are
located at the Lewisburg facilities, which are comprised of a manufacturing and
warehouse building of approximately 115,000 square feet and an adjoining office
building of approximately 7,000 square feet. The Lewisburg facility is subject
to first and second mortgage liens in the amount of approximately $1,333,000 and
$845,000, respectively, as of September 30, 1997. The Beaver Springs facility is
a 60,000 square foot manufacturing, warehouse and office facility which was
acquired through a lease purchase agreement and is located approximately 25
miles from the Lewisburg facilities. The Winnsboro facility includes
manufacturing, warehouse and office space in a single building of approximately
47,000 square feet. This facility is subject to a mortgage lien in the amount of
approximately $1,000,000 as of September 30, 1997. The San Jose facility is a
leased facility and contains manufacturing, warehouse and office space. The
lease of this 40,000 square foot facility will expire in October, 2002. The
Company also leases 7,200 square feet of office space in San Jose, California.
The lease on this space expires in September, 2000. The Company also leases
13,000 square feet of manufacturing space in Bor, Czech Republic. The lease on
this facility expires March, 2000. The Company leases 6,000 square feet of
warehouse and engineering space in Leuchtenberg, Germany. The lease on this
facility expires March, 2004. The Company leases a building of approximately
70,000 square feet in Guadalajara, Mexico which contains its manufacturing,
warehouse and office space. The building is covered by two separate leases. The
lease of approximately 12,500 square feet of this facility, consisting of
certain office, warehouse and parking space, will expire in May, 1998. The
leases for the remaining portions of the facility, consisting of approximately
48,800 square feet of manufacturing and office space and approximately 8,700
square feet of warehouse space, expire in April, 1998. Electronica Pantera
("Pantera") also owns approximately four acres of undeveloped land located
approximately eight miles from the current facility, as to which the Company has
no current plans. Although management of the Company believes that its
facilities are currently adequate to meet its requirements, the Company may
require additional manufacturing capacity depending upon its future rate of
growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings nor, to the
Company's knowledge, is any material legal proceeding threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
COMMON STOCK PRICE RANGE
The Company's Common Stock is listed on The NASDAQ Stock Market's National
Market ("NASDAQ") and trades under the symbol "JPMX". The Company completed an
initial public offering on April 30, 1996. The following table presents the
high and low closing prices for the Common Stock for the fiscal year ended
September 30, 1997 and since becoming a public company (April 30, 1996) for the
fiscal year ended September 30, 1996, as reported by NASDAQ.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 1996 HIGH LOW
---- ---
<S> <C> <C>
First Quarter $ -- $ --
Second Quarter -- --
Third Quarter 9.25 7.50
Fourth Quarter 9.38 7.38
FISCAL YEAR ENDED 1997
First Quarter 19.25 8.88
Second Quarter 23.00 16.00
Third Quarter 38.00 15.25
Fourth Quarter 42.25 23.00
</TABLE>
On November 5, 1997 there were approximately 155 holders of record of the
Company's Common Stock.
Page 4
<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. The bank which extended a mortgage on
the Company's Winnsboro Facility limits dividends to 25% of income before income
taxes.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data of the
Company for each fiscal year of the five year period ended September 30, 1997,
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE AMOUNTS)
Net sales........................................... $112,787 $85,516 $54,042 $41,418 $34,268
Gross profit........................................ 23,537 14,706 8,491 6,991 4,995
Income from operations.............................. 12,853 6,900 2,979 1,244 774
Net income.......................................... 7,329 3,083 936 307 197
Net income as a percentage of sales................. 6.5% 3.6% 1.7% 0.7% 0.6%
Net income (loss) applicable to
Common Stock....................................... 7,329 2,943 659 67 (43)
Net income (loss) per common share.................. $0.97 $0.48 $0.14 $0.02 ($0.01)
Weighted average common shares
outstanding........................................ 7,538 5,683 4,390 4,280 4,280
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE AMOUNTS)
Working capital..................................... $ 12,612 $10,206 $ 164 $ 948 $ 928
Total assets........................................ 54,130 39,862 25,427 16,645 13,699
Short-term debt..................................... 9,699 2,169 6,937 3,888 3,168
Long-term debt...................................... 2,805 3,264 4,292 2,407 2,598
Shareholders' equity................................ 28,231 19,927 4,866 3,688 3,460
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
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,
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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, networking and telecommunications
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 up to 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 in
Guadalajara, Mexico (the "Guadalajara Facility"), Bor, Czech Republic (the "Bor
Facility") and Leuchtenberg, Germany (the "Leuchtenberg Facility"). The
functional currency of the Guadalajara Facility is the United States dollar.
All sales and receivables, over 90% of raw material purchases, all cash
equivalents and all borrowings are denominated in United States 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 United States 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.
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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------
1997 1996 1995
----------------------
<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 79.1 82.8 84.3
---- ---- ----
Gross profit............................ 20.9 17.2 15.7
Selling, general and administrative
expenses............................... 8.7 9.1 10.2
Costs related to the merger............. .8 - -
--- --- ----
9.5 9.1 10.2
--- --- ----
Income from operations.................. 11.4 8.1 5.5
Interest expense, net................... 0.6 1.0 1.5
Other income (expense).................. - (0.3) (0.3)
--- --- ---
Income before taxes and minority
interest............................... 10.8% 6.8% 3.7%
==== === ===
</TABLE>
COMPARISON OF FISCAL YEAR 1997 WITH FISCAL YEAR 1996
Net sales for fiscal 1997 increased by $27,271,000, or 31.9%, as compared to
fiscal 1996. This increase was from sales to new OEM customers and increased
sales to certain existing customers.
Gross profit increased by $8,831,000, or 60.1%, in fiscal 1997 as compared to
fiscal 1996. As a percentage of net sales, gross profit increased from 17.2% to
20.9%. The increase in gross margin as a percentage of net sales was primarily
due to increased overhead absorption as a result of increased sales volume,
lower raw material acquisition costs due to larger volume purchase discounts and
a favorable product mix.
Selling, general and administrative expenses for fiscal 1997 increased
$2,878,000, or 36.9%, as compared to fiscal 1996, primarily as a result of
increased compensation expenses for additional personnel to support the
Company's growth, $873,000 in additional expenses related to the Company's
merger with Denron and additional administrative costs related to being a public
company.
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Interest expense for fiscal 1997 decreased by $201,000, or 23.1%, as compared to
fiscal 1996, primarily due to the utilization of funds generated by the
Company's April 30, 1996 initial public offering to pay down short-term debt.
The Company's effective income tax rate for fiscal 1997 was 39.8% as compared to
39.1% for fiscal 1996.
Net income for fiscal 1997 increased $4,246,000, or 137.7%, to $7,329,000 as
compared to fiscal 1996 net income of $3,083,000. Earnings per share during
fiscal 1997 were $.97 compared to $.48 for fiscal 1996. Net income and earnings
per share increased during the year mainly because of increased sales and gross
margins as discussed above.
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 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.
Selling, general and administrative expenses for fiscal 1996 increased by
$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 on
April 30, 1996. 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 to 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 were reduced by $423,000 and $199,000,
respectively, for the minority interest in Pantera, which was acquired by the
Company in connection with its April 30, 1996 initial public offering. In
addition to cumulative dividends declared in 1996 and 1995 of $140,000 and
$240,000, respectively, the Company declared a participating Preferred Stock
dividend in the amount of $36,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during 1997 was $1,201,000. Net cash
provided from operating activities during 1996 was $138,000. The cash used
during 1997 was primarily utilized to finance increases in inventory, as a
result of sales growth. The cash generated in 1996 was primarily 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 sales growth.
Working capital was $12,612,000 at September 30, 1997, an increase of $2,406,000
from September 30, 1996. The increase in working capital was primarily the
result of inventory growth in response to current and anticipated sales levels
offset by increases in borrowings under Credit Facilities.
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During 1997, the Company expended $4,255,000 for capital expenditures.
Financing activities provided cash in the amount of $6,388,000 primarily to
finance increased working capital needs and the merger with and acquisition of
Denron and Corma, respectively.
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 requires maintenance of certain
financial ratios and provides certain restrictions with regard to acquisitions,
mergers, dissolution and the incurrence of additional indebtedness; and
prohibits loans to other entities or persons. At September 30, 1997, the Company
was in compliance with all loan covenants. The line of credit may be terminated
on demand by the bank. At September 30, 1997, borrowings under this line of
credit facility amounted to $8,182,000 against an availability of $20,000,000 at
an interest rate of 8.25%.
The Company believes that 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 $5,000,000 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.
See "Subsequent Events" below.
SUBSEQUENT EVENTS
On October 16, 1997, the Company announced it had signed a letter of intent to
acquire 60% of AF DataLink Equipamentos de Telecomunicacao, Ltda. ("DataLink"),
a Sao Paulo, Brazil based manufacturer of wire harnesses and cable assemblies
for approximately $9,000,000. DataLink had sales of approximately $4,000,000
during its most recent fiscal year completed December 31, 1996 and has sales of
approximately $6,000,000 for the nine months ended September 30, 1997.
On October 9, 1997, the Company announced it had filed a registration statement
to sell 3,680,000 shares including 2,000,000 shares offered by the Company and
1,200,000 shares by selling shareholders. In addition, the underwriters have an
option to purchase up to 480,000 additional shares to cover over-allotments. On
November 18, 1997, the Company announced that due to present market turbulence,
it was delaying the proposed sale of the additional 2,000,000 shares.
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during the last three fiscal years.
Page 8
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
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>
Year Ended September 30,
--------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Basic EPS....... $1.07 $0.51 $0.15 $0.02 ($0.01)
Diluted EPS..... $0.97 $0.48 $0.15 $0.02 ($0.01)
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page 9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The JPM Company
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) on pages 27 and 28 present fairly, in
all material respects, the financial position of The JPM Company and its
subsidiaries (the "Company") at September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997, 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.
PRICE WATERHOUSE LLP
Philadelphia, PA
November 6, 1997
Page 10
<PAGE>
<TABLE>
<CAPTION>
THE JPM COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands except per share data)
SEPTEMBER 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 543 $ 1,411
Accounts receivable (net of allowance of $222
and $129)..................................... 12,692 12,254
Inventories, net............................... 19,328 11,342
Other current assets........................... 2,045 908
----- ----
Total current assets......................... 34,608 25,915
Property, plant and equipment, net............... 13,552 8,536
Notes receivable -- related parties.............. - 206
Excess of cost over fair value of net assets
acquired and other intangible assets, net....... 4,807 4,640
Other assets..................................... 1,163 565
----- ----
$ 54,130 $ 39,862
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.......................... $ 8,182 $ 1,532
Current maturities of long-term debt........... 1,517 637
Accounts payable............................... 6,841 7,614
Accrued expenses............................... 3,924 3,749
Income taxes payable........................... - 1,090
Deferred income taxes.......................... 1,532 1,087
----- -----
Total current liabilities.................... 21,996 15,709
Long-term debt................................... 2,805 3,264
Deferred compensation liability.................. 621 509
Deferred income taxes............................ 477 453
------ ------
25,899 19,935
------ ------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value, 10,000 shares
authorized, Class A, $31.43 stated value, no
shares issued and outstanding ................ - -
Common Stock, $.000067 par value, 40,000
shares authorized, issued 6,970 shares in
1997 and 6,809 shares in 1996................. - -
Additional paid-in capital..................... 17,187 16,212
Retained earnings.............................. 11,044 3,715
------ -----
Total shareholders' equity................... 28,231 19,927
------ ------
$ 54,130 $ 39,862
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 11
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales ................................................................. $ 112,787 $ 85,516 $ 54,042
Cost of sales ............................................................. 89,250 70,810 45,551
--------- --------- ---------
23,537 14,706 8,491
Selling, general and administrative expenses .............................. 9,811 7,806 5,512
Costs related to the merger ............................................... 873 -- --
--------- --------- ---------
12,853 6,900 2,979
Other income (expense):
Interest expense ........................................................ (670) (871) (827)
Other, net .............................................................. (1) (271) (152)
--------- --------- ---------
(671) (1,142) (979)
--------- --------- ---------
Income before income taxes and minority interest .......................... 12,182 5,758 2,000
Provision for income taxes ................................................ 4,853 2,252 865
--------- --------- ---------
Income before minority interest ........................................... 7,329 3,506 1,135
Minority interest ......................................................... -- 423 199
--------- --------- ---------
Net income ................................................................ 7,329 3,083 936
Cumulative dividends on Preferred Stock ................................... -- 140 277
--------- --------- ---------
Net income applicable to Common Stock ..................................... $ 7,329 $ 2,943 $ 659
========= ========= =========
Net income per common share ............................................... $ .97 $ .48 $ .14
========= ========= =========
Weighted average number of shares of Common Stock outstanding ............. 7,538 5,683 4,390
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 12
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- --------------------- Additional
Number Stated Number Par paid-in
of shares value of shares value capital
--------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 ... 111,840 $ 3,515 7,865,170 $ -- $ 50
Subordinated debenture conversion -- -- 315,000 -- 585
Preferred stock dividends paid .. -- -- -- -- --
Net income ...................... -- -- -- -- --
--------- ---------- ----------- ----------- ----------
Balance at September 30, 1995 ... 111,840 3,515 8,180,170 -- 635
Preferred stock dividends paid .. -- -- -- -- --
Issuance of common stock ........ -- -- 2,191,800 -- 13,959
Preferred stock redemption and
exchange for common stock ...... (111,840) (3,515) 232,635 -- 1,578
Debenture conversion to common
stock .......................... -- -- 104,244 -- 365
Treasury stock retirement ....... -- -- (3,900,000) -- (325)
Net income ...................... -- -- -- -- --
Denron net income April 1 to
September 30, 1995 (See Note 1) -- -- -- -- --
-------- ---------- ----------- ----------- ----------
Balance at September 30, 1996 ... -- -- 6,808,849 -- 16,212
Issuance of common stock ........ -- -- 161,396 -- 975
Net income ...................... -- -- -- -- --
-------- ---------- ----------- ----------- ----------
Balance at September 30, 1997 ... -- $ -- 6,970,245 $ -- $ 17,187
======== ========== =========== =========== ==========
<CAPTION>
Treasury Stock
-------------- Total
Retained Number shareholders'
earnings of shares Cost equity
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at September 30, 1994 ... $ 448 3,900,000 $(325) $ 3,688
Subordinated debenture conversion -- -- -- 585
Preferred stock dividends paid .. (343) -- -- (343)
Net income ...................... 936 -- -- 936
---------- ---------- ---------- ----------
Balance at September 30, 1995 ... 1,041 3,900,000 (325) 4,866
Preferred stock dividends paid .. (600) -- -- (600)
Issuance of common stock ........ -- -- -- 13,959
Preferred stock redemption and
exchange for common stock ...... -- -- -- (1,937)
Debenture conversion to common
Stock .......................... -- -- -- 365
Treasury stock retirement ....... -- (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 ... 3,715 -- -- 19,927
Issuance of common stock ........ -- -- -- 975
Net income ...................... 7,329 -- -- 7,329
---------- ---------- ---------- ----------
Balance at September 30, 1997 ... $11,044 -- $ -- $28,231
========== ========== ========== ==========
</TABLE>
Page 13
<PAGE>
THE JPM COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................................................... $ 7,329 $ 3,083 $ 936
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................................. 1,640 1,343 883
Debt conversion expense ........................................................ -- -- 165
Foreign currency translation (gain) loss ....................................... (12) 143 (129)
Loss (gain) on sale of property, plant and equipment ........................... 66 (5) --
(Gain) on sale of non-operating property -- related parties .................... -- -- (48)
Deferred taxes ................................................................. 61 230 124
Minority interest .............................................................. -- 423 199
Deferred compensation expense .................................................. 112 118 94
Change in assets and liabilities, net of effects from businesses acquired:
(Increase) decrease in accounts receivable ................................... (438) (5,639) (127)
(Increase) decrease in inventories ........................................... (7,762) (3,907) (716)
(Increase) decrease in other assets .......................................... (1,086) (80) 601
Increase (decrease) in accounts payable ...................................... (773) 2,139 56
Increase (decrease) in accrued expenses ...................................... 175 1,844 (64)
Increase (decrease) in income taxes payable .................................. (513) 446 (80)
-------- -------- --------
Net cash provided by (used in) operating activities ........................ (1,201) 138 1,894
Cash flows from investing activities:
Payments for assets and businesses acquired, net of cash acquired of
$88 in fiscal 1997 and $1,584 in fiscal 1995 ................................... (1,897) (3,400) (2,204)
Capital expenditures ............................................................. (4,255) (2,731) (1,271)
Proceeds from sale of property, plant and equipment .............................. 7 5 39
Proceeds from sale of non-operating property -- related parties .................. -- -- 50
Collections of notes receivable -- related parties ............................... 206 408 75
Deferred compensation plan contributions ......................................... (116) (118) (102)
Loans to related parties ......................................................... -- (30) (39)
-------- -------- --------
Net cash provided by (used in) investing activities ............................ (6,055) (5,866) (3,452)
Cash flows from financing activities:
Net borrowings (repayments) under credit facilities .............................. 6,650 (4,895) 652
Proceeds from issuance of long-term debt ......................................... 40 517 3,010
Principal payments on long-term debt ............................................. (699) (1,185) (561)
Common stock issuance ............................................................ 397 13,959 --
Preferred stock repurchase ....................................................... -- (1,937) --
Preferred stock dividends paid ................................................... -- (600) (343)
-------- -------- --------
Net cash provided by (used in) financing activities ............................ 6,388 5,859 2,758
-------- -------- --------
Increase (decrease) in cash and cash equivalents ................................... (868) 131 1,200
Cash and cash equivalents at beginning of period ................................... 1,411 1,280 80
-------- -------- --------
Cash and cash equivalents at end of period ......................................... $ 543 $ 1,411 $ 1,280
======== ======== ========
</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.
Page 14
<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, networking and telecommunications sectors of the global electronics
industry.
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 major customer 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 long, sometimes taking up to 18 months or more 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.
A summary of the Company's significant accounting policies follows:
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, 1995 financial statements have been combined with
the Company's September 30, 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).
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 the
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.
Property, plant 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.
Page 15
<PAGE>
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 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. 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.
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 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 gain
(loss) of $12, ($143) and $129 for fiscal 1997, 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 initial public offering 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%.
Stock based compensation
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 has elected to
disclose the pro forma income statement effects of SFAS 123; therefore, SFAS 123
does not affect the Company's financial position or results of operations.
Recent accounting pronouncements
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 consolidated financial
statements 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:
Year Ended September 30,
------------------------
1997 1996 1995
---- ---- ----
Basic EPS............................... $1.07 $0.51 $0.15
Diluted EPS............................. $0.97 $0.48 $0.15
Reclassifications
Certain prior year balances have been reclassified for comparative
purposes.
Page 16
<PAGE>
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
In May 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 $3,600. The Company acquired the remaining
40% of Pantera for cash consideration of $3,400 in April 1996.
In August 1997, the Company acquired the assets of Corma Elektrotechnische
Production GmbH, Leuchtenberg, Germany and Corma Spol s.r.o., or, the
Czech Republic (collectively "Corma"), manufacturers and assemblers of cable and
wire harnesses for cash consideration of $1,688.
Information with respect to these acquisitions is presented below:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid (net of cash acquired) .............. $ 1,688 $ 3,400 $ 2,016
Transaction and other costs ................... 209 - 188
------- ------- -------
1,897 3,400 2,204
Liabilities assumed ........................... - - 4,543
Fair value of tangible assets acquired ........ (1,435) (1,275) (4,004)
------- ------- -------
Excess of cost over fair value of net assets
acquired and other intangible assets ........ $ 462 $ 2,125 $ 2,743
======= ======= =======
</TABLE>
Excess of cost over fair value of net assets acquired and other intangible
assets comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1997 1996
------- -------
<S> <C> <C>
Excess of cost over fair value of net assets acquired .... $ 5,230 $ 4,768
Other .................................................... 250 250
------- -------
5,480 5,018
Accumulated amortization ................................. (673) (378)
------- -------
$ 4,807 $ 4,640
======= =======
</TABLE>
3. MAJOR CUSTOMERS AND SUPPLIERS
Net sales to Diebold, Nortel, IBM and Hewlett-Packard amounted to 17%, 16%,
14% and 10% of total net sales, respectively, for fiscal 1997. Net sales to
Diebold and IBM amounted to 18% and 15% of total net sales for fiscal 1996,
respectively, and 22% and 14% of total net sales for fiscal 1995, respectively.
Aggregate net sales to major customers, each of which exceeded 10% of total net
sales were 57%, 33% and 36% of total net sales in 1997, 1996 and 1995,
respectively. At September 30, 1997 and 1996, aggregate accounts receivable from
these customers represented 54% and 36% 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 in the
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.
Page 17
<PAGE>
4. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1997 1996
-------- ---------
<S> <C> <C>
Finished goods ............................. $ 4,103 $ 1,935
Work-in-process ............................ 2,810 1,640
Raw materials and supplies ................. 13,108 8,408
Valuation reserve .......................... (693) (641)
-------- --------
$ 19,328 $ 11,342
======== ========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- ESTIMATED
1997 1996 USEFUL LIVES
------ ------ ------------
<S> <C> <C> <C>
Land ............................... $ 302 $ 302
Buildings and improvements ......... 6,230 4,426 10-25 years
Machinery and equipment ............ 10,345 7,468 5-10 years
Furniture and fixtures ............. 3,762 3,279 5-10 years
Vehicles ........................... 291 237 3- 5 years
Construction in progress ........... 1,005 --
-------- --------
21,935 15,712
Less: Accumulated depreciation ..... 8,383 (7,176)
--------- --------
$ 13,552 $ 8,536
======== ========
</TABLE>
Capitalized computer equipment and software with a gross book value of $547
are included in furniture and fixtures at September 30, 1997 and 1996. Related
accumulated amortization was $274 and $198 at September 30, 1997 and 1996,
respectively. In addition, capitalized buildings and improvements with a gross
book value of $1,080 are included above at September 30, 1997. Related
accumulated amortization was $32 at September 30, 1997. The capital leases
include purchase options at the conclusion of the lease term. Future minimum
lease payments under these agreements are $62 for fiscal 1998, $25 for fiscal
1999, $27 for fiscal 2000, $30 for fiscal 2001 and $32 for fiscal 2002.
Rental expense for vehicle, machinery and equipment operating leases
aggregated $151, $137 and $123 for fiscal 1997, 1996 and 1995, respectively.
Future minimum lease payments through the term of these agreements total $171
for fiscal 1998, $95 for fiscal 1999, $66 for fiscal 2000 and $46 for fiscal
2001.
The Company leases its facilities in Mexico, California, Germany and the
Czech Republic in accordance with the terms of rental agreements, some of which
are renewable annually. The leases of the Mexico, California, Germany and Czech
Republic facilities are renewable in April 1998 and May 1998; October 2002 and
September 2000; March 2004; and March 2000, respectively. Rental expense under
these agreements totaled $511, $474 and $349 for fiscal 1997, 1996 and 1995,
respectively. Future minimum lease payments under these agreements are $854,
$854, $828, $773 and $603 for fiscal 1998, 1999, 2000, 2001 and 2002,
respectively.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Salaries and benefits ........................ $3,005 $2,395
Other ........................................ 919 1,354
------ ------
Total accrued expenses ....................... $3,924 $3,749
====== ======
</TABLE>
Included in accounts payable at September 30, 1997 and 1996 are book
overdrafts totaling $1,580 and $819, respectively.
Page 18
<PAGE>
7. SHORT-TERM BORROWINGS
At September 30, 1997, the Company had a bank revolving line of credit to
permit the Company to draw up to $20,000 collateralized by the Company's
inventories and accounts receivable. The interest rate on the 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 or 90% of the
Company's qualified accounts receivable plus 80% of raw materials and finished
goods inventory. The line of credit requires maintenance of certain financial
ratios and provides certain restrictions with regard to acquisitions, mergers,
dissolution and the incurrence of additional indebtedness; and prohibits loans
to other entities or persons. At September 30, 1997, the Company was in
compliance with all loan covenants. The line of credit may be terminated on
demand by the bank. Such borrowings are secured by the Company's inventories,
accounts receivables and contract rights as well as a second lien on machinery
and equipment in Lewisburg, Pennsylvania. As of September 30, 1997, borrowings
under this line of credit facility amounted to $8,182 against an availability of
$20,000 at an interest rate of 8.25% (average rate of 8.29% for fiscal 1997).
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 bore
interest at the bank's prime rate (8.25% at September 30, 1996 and average rate
of 9.00% for fiscal 1996) and were payable on demand. Such borrowings 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.
The Company's San Jose, California facility previously had a bank revolving
line of credit which expired July 31, 1997 and permitted the Company to draw up
to $2,000 collateralized by the San Jose facility's inventories and accounts
receivable. The line of credit bore interest at the bank's prime lending rate
plus .75%. 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%.
Page 19
<PAGE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1996
------- ------
<S> <C> <C>
Term loan payable to bank; bank prime rate plus 1.5% (10.00% at September 30,
1997 and average rate of 9.88% for 1997); 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 $3,116 at September 30, 1997 ...................................... $ 1,333 $ 1,619
Mortgage payable to bank; bank prime rate plus 1% (9.50% at September 30,
1997 and an average rate of 9.38% for fiscal 1997); payable in monthly
installments of $19 through September 2010; secured by land, buildings and
improvements in Lewisburg, PA with a net book value of $1,705 at
September 30, 1997 .................................................................. 845 996
Mortgage payable to bank; bank prime rate plus 1% (9.50% at September 30,
1997 and an average rate of 9.38% for fiscal 1997); 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 $1,120 at September 30, 1997 .......................................... 998 1,078
Capital lease obligations, payable through 2011 ...................................... 1,103 187
Other term loans payable ............................................................. 43 21
------- -------
4,322 3,901
Less: Current maturities ............................................................. (1,517) (637)
------- -------
$ 2,805 $ 3,264
======= =======
</TABLE>
Maturities of long-term debt, subsequent to September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
- ---------------------------------
<S> <C>
1998 ............................ $ 1,517
1999 ............................ 495
2000 ............................ 510
2001 ............................ 532
2002 ............................ 342
Thereafter ...................... 926
------
$ 4,322
======
</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,
1997.
Interest paid in fiscal 1997, 1996 and 1995 on short-term borrowings,
long-term debt and subordinated debentures totaled $615, $995 and $1,000,
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. 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.
Page 20
<PAGE>
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 that allowed for conversion into the Company's Common Stock.
In November 1995, the Company issued seventy-three convertible subordinated
debentures (the "Series B debentures") in exchange for $365 demand notes payable
outstanding at September 30, 1995, and repaid the remaining $25 of notes. The
Series B debentures were subject to mandatory conversion upon the completion of
an initial public offering. Consequently, the debentures were redeemed for
104,244 shares of the Company's Common Stock at the time of the initial public
offering.
10. SHAREHOLDERS' EQUITY
During 1997 the Company issued 161,396 shares of Common Stock pursuant to
exercises of options granted under its qualified stock option plans at an
average price of $2.51 per share and a total of $397. Such exercises also gave
rise to tax benefits of $578 included in equity.
The Company completed an initial public offering of its common stock on
April 30, 1996. The initial 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 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.
The Class A Preferred Stock previously outstanding, 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 and 1995, Preferred Stock
dividends of $5.37 and $3.07 per share were paid, respectively, totaling $600
and $343 in each of the respective years. Dividends paid in fiscal 1996 included
a Participating Dividend declared for fiscal 1995 of $36 or $.32 per share. No
such Participating Dividends were declared for fiscal 1996.
Page 21
<PAGE>
11. INCOME TAXES
Provision for income taxes in the consolidated statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Current expense (benefit)
Federal ............................. $ 3,561 $ 1,087 $ 425
State ............................... 510 355 175
Foreign ............................. 721 580 141
------- ------- -------
4,792 2,022 741
------- ------- -------
Deferred expense (benefit)
Federal ............................. (436) (283) (106)
State ............................... (49) (48) 2
Foreign ............................. 546 561 228
------- ------- -------
61 230 124
------- ------- -------
$ 4,853 $ 2,252 $ 865
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1997 and September 30, 1996 are presented below:
<TABLE>
<CAPTION>
September 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable .................................... $ 85 $ 66
Inventory .............................................. 697 209
Property, plant and equipment .......................... 22 14
Accrued employee liabilities ........................... 731 704
Deferred rent .......................................... -- 10
Other .................................................. 118 155
------- -------
1,653 1,158
------- -------
Deferred tax liabilities:
Inventory .............................................. (1,675) (1,150)
Property, plant and equipment .......................... (702) (629)
Intangible assets ...................................... -- (42)
------- -------
(2,377) (1,821)
------- -------
Net deferred tax liability ............................. $ (724) $ (663)
======= =======
</TABLE>
An analysis of the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income taxes at U.S. federal income tax rate ............ $ 4,142 $ 1,958 $ 669
State taxes, net of federal benefit ..................... 320 210 118
Induced conversion of debentures ........................ -- -- 56
Amortization of intangible assets ....................... 81 60 19
Inflation ............................................... 48 33 49
Other, net .............................................. 262 (9) (46)
------- ------- -------
Provision for income taxes .............................. $ 4,853 $ 2,252 $ 865
======= ======= =======
Effective income tax rate ............................... 39.8% 39.1% 43.3%
======= ======= =======
</TABLE>
Cash paid for income taxes totaled $5,610, $1,552 and $740 in fiscal 1997,
1996 and 1995, respectively.
Pre-tax earnings of Pantera since acquisition were $4,051, $3,171 and $709
in fiscal 1997, 1996 and 1995, respectively. Unremitted earnings of Pantera of
$4,715 were deemed to be permanently invested at September 30, 1997. No deferred
tax liability has been recorded related to future remittance of these earnings.
It is not practicable to estimate the income tax liability that might be
incurred upon remittance of such earnings to the United States.
Page 22
<PAGE>
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 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 make discretionary profit sharing contributions 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 $150, $100
and $85 for fiscal 1997, 1996 and 1995, respectively.
The Profit Sharing Plan also contains provisions that 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 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 non-forfeitable at all times. The Company
contributed $30, $25 and $22 for fiscal 1997, 1996 and 1995, respectively.
The Company maintains a deferred compensation plan for certain management
and highly compensated employees. Under the provisions of the plan, each
participant may defer up to 25% of annual compensation and the Company will
contribute 2.5% of each participant's annual salary on a quarterly basis.
Deferred compensation, under the plan, is 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, 1997 and 1996, the Company had assets related to deferred
compensation of $558 and $442, respectively, which balances are included in
other assets in the accompanying consolidated balance sheet. Compensation
expense for deferred compensation arrangements aggregated $112, $118 and $94 in
fiscal 1997, 1996 and 1995, 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 $215 and $218 was recorded as of September 30, 1997 and
1996, respectively, for anticipated profit sharing distributions.
13. STOCK OPTION PLANS
In April 1993, the Board of Directors approved adoption of the Stock Option
Plan of 1993 that 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,
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 was amended at the January 28, 1997 Shareholders' Meeting
to provide for the authorization to issue an additional 525,000 shares under the
plan. 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.
Page 23
<PAGE>
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 not 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. Generally, options are exercisable in cumulative annual
installments of 25% per year beginning one year after the date of grant.
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. All options granted
under the Outside Directors Plan are exercisable in full beginning sixty days
after date of 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.
The Company applies APB 25 and related Interpretations in accounting for
its Option Plans. Accordingly, no compensation cost has been recognized for
options granted under its Option Plans. Had compensation cost for the Company's
Option Plans been determined based on the fair value at the grant dates for
awards under the Option Plans consistent with the method of SFAS 123, the
Company's net income and earnings per share would have been reduced by the pro
forma amounts of: 1997 net income, $1,163 and earnings per share, $.15; 1996 net
income, $357 and earnings per share, $.06. This determination of fair value was
based on using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in both 1997 and 1996: dividend
yield of 0%, expected volatility of 106%, risk free interest rate of 5.25%, and
expected lives of 4 years.
Page 24
<PAGE>
A summary of the status of the Company's stock option plans as of September
30, 1997, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
Year ended September 30,
1997 1996 1995
---------------------- --------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Options
- -------
Outstanding at beginning of year 839,800 $4.71 300,000 $1.06 150,000 $0.68
Granted 267,500 $22.12 539,800 $6.85 160,000 $1.50
Exercised (161,396) $2.51 - - - -
Cancelled (14,850) $10.11 - - (10,000) $0.68
-------- -------- --------
Outstanding at end 931,054 $10.03 839,800 $4.71 300,000 $1.06
of year
Options exercisable 348,635 $3.84 383,000 $1.69 300,000 $1.06
at end of year
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
Outstanding and Exercisable by Price Range Options Exercisable
------------------------------------------ -------------------
Weighted-Average
Remaining Weighted- Weighted-
Range of Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
------------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.59-$0.68 95,500 6.25 $0.66 95,500 $0.66
$1.50-$1.50 98,000 7.24 $1.50 98,000 $1.50
$2.63-$4.00 130,050 8.15 $3.23 68,329 $3.77
$7.65-$7.65 31,300 8.32 $7.65 1,300 $7.65
$8.50-$8.50 317,204 8.93 $8.50 76,405 $8.50
$8.88-$12.13 5,000 9.16 $11.48 4,000 $12.13
$17.00-$17.00 152,650 9.54 $17.00 100 $17.00
$18.75-$31.50 76,350 9.67 $30.09 - -
$32.75-$32.75 5,000 9.83 $32.75 5,000 $32.75
$33.00-$33.00 20,000 9.92 $33.00 - -
----------------------------------------------------- ------------------------------------------------
$0.59-$33.00 931,054 8.60 $10.03 348,634 $3.85
</TABLE>
Page 25
<PAGE>
14. RELATED PARTY TRANSACTIONS
Notes receivable from officers and directors of the Company totaled $206 at
September 30, 1996, earned interest at 8.25%-9.75% in 1996 and, except as noted
below, were payable on demand. Principal repayments on these notes totaled $206
and $408 in 1997 and 1996, respectively.
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. At September 30, 1996, principal
on these notes of $173, remained outstanding and was included in the balance of
related party notes receivable.
15. GEOGRAPHIC INFORMATION
Certain geographic information follows:
<TABLE>
<CAPTION>
UNITED
STATES MEXICO EUROPE CONSOLIDATED
------ ------ ------ ------------
<S> <C> <C> <C> <C>
1997
- ----
Sales to unaffiliated customers ................... $ 86,143 $ 26,369 $ 275 $112,787
Operating profit (loss) ........................... 9,349 3,536 (32) 12,853
Identifiable assets ............................... 32,912 16,350 3,025 52,287
1996
- ----
Sales to unaffiliated customers ................... $ 67,598 $ 17,918 $ -- $ 85,516
Operating profit .................................. 3,427 3,473 -- 6,900
Identifiable assets ............................... 25,015 13,356 -- 38,371
1995
- ----
Sales to unaffiliated customers ................... $ 48,799 $ 5,243 $ -- $ 54,042
Operating profit .................................. 2,239 740 -- 2,979
Identifiable assets ............................... 16,080 8,151 -- 24,231
</TABLE>
At September 30, 1997 and 1996 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 $1,843 and $1,491, respectively.
Page 26
<PAGE>
16. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S>
Year ended September 30, 1997 <C> <C> <C> <C>
Net sales ......................... $26,721 $30,160 $28,761 $27,145
Gross profit ...................... 5,037 6,016 6,543 5,941
Net income ........................ 1,768 1,952 1,744 1,865
Earnings per share ................ $ 0.24 $ 0.26 $ 0.23 $ 0.25
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 $12,144 $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>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Election of Directors" and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Compensation of Directors and Executive Officers" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Beneficial Ownership of Capital Stock" and "Election of
Directors" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The response to this item is contained in the Company's 1998 Proxy Statement
under the caption "Certain Transactions" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included in item
8:
-Consolidated Balance Sheet as of September 30, 1997 and 1996.
-Consolidated Statement of Operations for the years ended
September 30, 1997, 1996 and 1995.
Page 27
<PAGE>
-Consolidated Statement of Shareholders' Equity for the years
ended September 30, 1997, 1996 and 1995.
-Consolidated Statement of Cash Flows for the years ended
September 30, 1997, 1996 and 1995.
(a) 2. Financial Statement Schedules
The following consolidated financial statements are included in item
14(d):
-Schedule II-Valuation and Qualifying accounts and reserves.
-Schedules other than those listed above have been omitted
since the required information is not present or not present
in amounts sufficient to require submission of the schedule,
or because the information required is included in the
consolidated financial statements or the notes thereto.
(a) 3. Listing of Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1* Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and Restated Bylaws of the Company.
4.1* Specimen Certificate of Common Stock of the Company.
4.2** Registration Rights Agreement.
10.1* Employment Agreement, dated as of May 1, 1995, by and between Maria
Luisa Lozano and Electronica Pantera S.A. de C.V.
10.2* Employment Agreement, dated as of May 1, 1995, by and between Robert
Verbosh and Electronica Pantera S.A. de C.V.
10.3* Employment Agreement, dated as of December 9, 1994, by and between
John M. Spangler and The JPM Company.
10.4* Employment Agreement, dated as of December 9, 1994, by and between
Robert R. Langton and The JPM Company.
10.5* Employment Agreement, dated as of September 21, 1990, by and between
John H. Mathias and The JPM Company.
10.6* Employment Agreement, dated as of September 21, 1990, by and between
James P. Mathias and The JPM Company.
10.7 Employment Agreement, dated as of March 12, 1996, by and between
William D. Baker and The JPM Company.
10.8* The JPM Company 1995 Stock Option Plan.
10.9* The JPM Company 1995 Outside Directors Stock Option Plan.
10.10* The JPM Company 1993 Stock Option Plan.
10.11* The JPM Company Deferred Compensation/Profit Sharing Plan.
10.12* Form of Non-Qualified Deferred Compensation Agreement with Key
Employees.
10.13* The JPM Company Deferred Compensation Plan for Messrs. John H. and
James P. Mathias.
10.14 Revolving Credit Business Loan Agreement, dated May 30, 1997, by and
between The JPM Company and CoreStates.
Page 28
<PAGE>
10.15 Commitment Letter, dated May 28, 1997, by and between The JPM Company
and CoreStates.
10.16 Amended and Restated Security Agreement, dated May 30, 1997, by and
between The JPM Company and CoreStates.
10.17 Guaranty, dated May 30, 1997, by and between The JPM Company and
CoreStates.
10.18 Cross-collateralization and Cross-default Agreement, dated May 30,
1997, by and between The JPM Company and CoreStates.
10.19* Open-Ended Mortgage and Security Agreement dated May 12, 1995, from
The JPM Company to the Commonwealth Bank, a division of
Meridian.
10.20* Business Loan Agreement dated May 12, 1995, by and between The JPM
Company and Commonwealth Bank, a division of Meridian.
10.21* Promissory Note dated May 12, 1995, by and between The JPM Company and
Commonwealth Bank, a division of Meridian.
10.22* Amended and Restated Loan Agreement dated May 10, 1995, by and between
The JPM Company, Inc. and NationsBank.
10.23* Amended and Restated Promissory Note, dated May 10, 1995, made payable
to the order of NationsBank.
10.24* Amended and Restated Security Agreement dated May 10, 1995, from The
JPM Company to NationsBank.
10.25* Loan and Mortgage Modification Agreement, dated May 10, 1995, by and
between The JPM Company, Inc., The JPM Company of South
Carolina, Inc. and NationsBank.
10.26* Lease Agreement, dated as of April 23, 1994, by and between
Electronica Pantera S.A. de C.V. and Natalia Sofia Presno
Rubin, Mario Raul Presno Rubin and Manuel Fernandez Fernandez.
10.27* Lease Agreement, dated as of February 1, 1994, by and between
Electronica Pantera S.A. de C.V. and Natalia Sofia Presno
Rubin, Mario Raul Presno Rubin and Manuel Fernandez Fernandez.
10.28* Lease Agreement, dated as of June 1, 1994, by and between Electronica
Pantera S.A. de C.V. and Natalia Sofia Presno Rubin, Mario Raul
Presno Rubin and Manuel Fernandez Fernandez.
10.29* Lease Agreement, dated as of June 1, 1995, by and between Electronica
Pantera S.A. de C.V. and Eduardo E. Damy Gomez and Sergio R.
Damy Gomez in representation of their sons Eduardo and
Alejandro Damy Monraz and Neil Sergio and Rene Damy Novoa.
10.30* Agreement with Diebold, Inc. dated July 1, 1993, for sale of
manufacture and service of electronic components.
21.1 Subsidiaries of Registrant:
The JPM Company of Delaware, Inc.
Route 15 North
Lewisburg, PA 17837
Denron, Inc.
2135 Ringwood Avenue
San Jose, CA 95131.
23.1 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
* Incorporated by reference from Registrant's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission on February 9,
1996, as amended.
Page 29
<PAGE>
** Incorporated by reference from the Registrant's Proxy Statement for
a Special Meeting of Shareholders dated and filed with the Securities and
Exchange Commission on May 5, 1997.
(b) Reports on Form 8-K:
The Registrant filed current reports on Form 8-K on March
12, 1997, June 4, 1997, August 20, 1997 and September 2,
1997.
Page 30
<PAGE>
EXHIBIT INDEX
Exhibit numbers are in accordance with the
Exhibit Table in Item 601 of Regulation S-K
Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------
23 Consent of Price Waterhouse LLP -
27 Financial Data Schedule -
99.1 Master Demand Note
99.2 Line of Credit
99.3 Cross-Collateralization and Cross
Default Agreement
99.4 Amended Security Agreement
99.5 Guaranty
99.6 Employment Agreement
Page 31
<PAGE>
SIGNATURES
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE JPM COMPANY
(Registrant)
BY: /s/ William D. Baker BY: /s/ John H. Mathias
----------------------------- --------------------------
William D. Baker John H. Mathias
Vice President, Chief Financial Officer Chairman of the Board and
and Treasurer Chief Executive Officer
(Principal Financial and Accounting (Principal Executive Officer)
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John H. Mathias Chairman, Chief Executive Officer November 24, 1997
- ------------------------------- and Director (Principal Executive
John H. Mathias Officer)
/s/ James P. Mathias President and Director November 24, 1997
- -------------------------------
James P. Mathias
/s/ William D. Baker Vice President, Chief Financial Officer November 24, 1997
- ------------------------------- and Treasurer (Principal Financial and
William D. Baker Accounting Officer)
/s/ Wayne A. Bromfield Executive Vice President, General
- ------------------------------- Counsel, Secretary and Director November 24, 1997
Wayne A. Bromfield
/s/ Janet B. Mathias Director November 24, 1997
- -------------------------------
Janet B. Mathias
/s/ Clifford M. Melberger Director November 24, 1997
- -------------------------------
Clifford M. Melberger
/s/ Bruce M. Eckert Director November 24, 1997
- -------------------------------
Bruce M. Eckert
</TABLE>
Page 32
<PAGE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Additions
---------
Charged Charged
Balance at to costs to other Balance at
beginning and accounts Deductions end of
Description of period expenses describe describe period
- ----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995:
Allowance for doubtful accounts .. 88 6 11(2) -- 105
Inventory reserve ................ 190 350 -- 192(1) 348
Year ended September 30, 1996:
Allowance for doubtful accounts .. 105 60 -- 1 164
Inventory reserve ................ 348 372 -- 93(1) 627
Year ended September 30, 1997:
Allowance for doubtful accounts .. 164 232 8(4) 182(3) 222
Inventory Reserve ................ 627 55 11(4) -- 693
</TABLE>
(1) Due to disposal of excess and obsolete inventory
(2) Due to recovery of accounts previously written off
(3) Due to write off of bad debt
(4) Due to acquisition of Corma
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement of Form S-3 (No. 333-34945) and
in the Registration Statements on Form S-8 (Nos. 333-19769, 333-19885, 333-19953
and 333-24315) of The JPM Company of our report dated November 6, 1997 appearing
on page 10 of this Form 10-K.
PRICE WATERHOUSE LLP
Philadelphia, PA
November 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE JPM COMPANY AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 543
<SECURITIES> 0
<RECEIVABLES> 12,914
<ALLOWANCES> 222
<INVENTORY> 19,328
<CURRENT-ASSETS> 34,608
<PP&E> 22,125
<DEPRECIATION> 8,573
<TOTAL-ASSETS> 54,130
<CURRENT-LIABILITIES> 21,996
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28,231
<TOTAL-LIABILITY-AND-EQUITY> 54,130
<SALES> 112,787
<TOTAL-REVENUES> 112,787
<CGS> 89,250
<TOTAL-COSTS> 99,934
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 670
<INCOME-PRETAX> 12,182
<INCOME-TAX> 4,853
<INCOME-CONTINUING> 7,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,329
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
<PAGE>
MASTER DEMAND NOTE
$20,000,000 May 30, 1997
------------------------- ----------
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more than
one (hereinafter collectively referred to as "Borrower"), promises to pay to the
order of CoreStates Bank, N.A.", a national banking association (the "Bank"), at
any of its banking offices in Pennsylvania, the principal amount of
Twenty Million and 00/100------------------------------------------------DOLLARS
- --------------------------------------------------------------------------------
in lawful money of the United States, or, if less, the outstanding principal
balance on all loans and advances made by Bank evidenced by this Note ("Loans"),
plus interest. Said principal and interest shall be payable ON DEMAND
Interest shall accrue at a variable rate per annum as set forth in the attached
Master Demand Note Addendum, incorporated by reference.
INTEREST - Interest shall be calculated on the basis of a 360 day year and shall
be charged for the actual number of days elapsed.
Accrued interest shall be payable monthly** Accrued interest shall also be
payable on demand and when the entire principal balance of this Note is paid to
Bank. The term "Prime Rate" is defined as the rate of interest for loans
established by Bank from time to time as its prime rate. Interest shall accrue
on each disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance hereof
at the rate provided for in this Note until the entire unpaid balance has been
paid in full, notwithstanding the entry of any judgment against Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to time under
this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the books
of Bank in which will be recorded Loans evidenced hereby, payments on such Loans
and other appropriate debits and credits as provided herein, including any Loans
which represent reborrowings of amounts previously repaid. Bank shall also
record, in accordance with customary accounting practice, all other interest,
charges, expenses and other items properly chargeable to Borrower hereunder, and
other appropriate debits and credits. Such books and records of Bank shall be
presumed to be complete and accurate and shall be deemed correct, except to the
extent shown by Borrower to be manifestly erroneous.
NOTE NOT A COMMITMENT TO LEND - Borrower acknowledges and agrees that no
provision hereof, and no course of dealing by Bank in connection herewith, shall
be deemed to create or shall imply the existence of any commitment or obligation
on the part of Bank to make Loans. Except as otherwise provided in a currently
effective written agreement by Bank to make Loans, each Loan shall be made
solely at Bank's discretion.
REPAYMENT - See Master Note Addendum
COLLATERAL - As security for all indebtedness to Bank now or hereafter incurred
by Borrower, under this Note or otherwise, Borrower grants Bank a lien upon and
security interest in any securities, instruments or other personal property of
Borrower now or hereafter in Bank's possession and in any deposit balances now
or hereafter held by Bank for Borrower's account and in all proceeds of any such
personal property or deposit balances. Such liens and security interests shall
be independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security interest
evidenced by a writing (whether now existing or hereafter executed) which
contains a provision to the effect that such lien or security interest is
intended to secure (a) this Note or indebtedness evidenced hereby or (b) any
category of liabilities, obligations or the indebtedness of Borrower to Bank
which includes this Note or the indebtedness evidenced hereby, and all property
subject to any such lien or security interest shall be collateral for this Note.
** as provided in the Master Demand Note Addendum
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess judgment
against Borrower for such sums as are due and owing on this Note, with
declaration, with costs of suit, without stay of execution and with an amount
not to exceed the greater of fifteen percent (15%) of the principal amount of
such judgment or $5,000 added for collection fees. If a copy of this Note,
verified by affidavit by or on behalf of Bank, shall have been filed in such
action, it shall not be necessary to file the original of this note. The
authority granted hereby shall not be exhausted by the initial exercise thereof
and may be exercised by Bank from time to time. There shall be excluded from the
lien of any judgment obtained solely pursuant to this paragraph all improved
real estate in any area identified under regulations promulgated under the Flood
Disaster Protection Act of 1973, as having special flood hazards if the
community in which such area is located is participating in the National Flood
Insurance Program. Any such exclusion shall not affect any lien upon property
not so excluded.
DEMAND NOTE - This Note is and shall be construed as a "demand instrument" under
the Uniform Commercial Code. Bank may demand payment of the indebtedness
outstanding under this Note or any portion thereof at any time.
BANK'S REMEDIES - In the event that any payment hereunder is not made when due,
Bank may, immediately or any time thereafter, exercise any or all of its rights
hereunder or under any agreement or otherwise under applicable law against
Borrower, against any person liable, either absolutely or contingently, for
payment of any indebtedness evidenced hereby, and in any collateral, and such
rights may be exercised in any order and shall not be prejudiced by any delay in
Bank's exercise thereof. At any time after such non-payment, Bank may, at its
option and upon five days written notice to Borrower, begin accruing interest on
this Note at a rate not to exceed five percent (5%) per annum in excess of the
rate of interest provided for above on the unpaid principal balance hereof;
provided, however, that no such interest shall accrue hereunder in excess of the
maximum rate permitted by law. All such additional interest shall be payable
upon demand.
<PAGE>
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective e as to each Borrower when addressed
to Borrower and deposited in the mail, postage prepaid, for delivery by first
class mail at Borrower's mailing address as it appears on Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of any Loan may be credited by Bank to
the deposit account of Borrower or disbursed in any other manner requested by
Borrower and approved by Bank. All payments due under this Note are to be made
in immediately available funds. If Bank accepts payment any other form, such
payment shall not be deemed to have been made until the funds comprising such
payment have actually been received by or made available to Bank. If Borrower is
not an individual, Borrower authorizes Bank (but Bank shall have no obligation)
to charge any deposit account in Borrower's name at Bank for any and all
payments of principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition reasonably to the principal and interest and
other sums payable hereunder, Borrower agrees to pay Bank on demand, all costs
and expenses (including reasonable attorneys' fees and disbursements) which may
be incurred by Bank in the collection of this Note or the enforcement of Bank's
rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - In order to induce Bank to make Loans, Borrower
represents and warrants as follows: if Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance of this Note have been duly
authorized and are not in conflict with any provision of Borrower's partnership
agreement or certificate of limited partnership. Borrower further represents and
warrants that this Note has been validly executed and is enforceable in
accordance with its terms, that the execution, delivery and performance by
Borrower of this Note are not in contravention of law and do not conflict with
any indenture, agreement or undertaking to which Borrower is a party or is
otherwise bound, and that no consent or approval of any governmental authority
or any third party is required in connection with the execution, delivery and
performance of this Note. If this Note is secured by "margin stock" as defined
in Regulation U of the Board of Governors of the Federal Reserve System,
Borrower warrants that no Loan or portion thereof shall be used to purchase or
carry margin stock , and that each Loan shall be used for the purpose or
purposes indicated on the most recent Form FR U-1 executed by Borrower in
connection with Loans made by Bank
WAIVERS, ETC. - Borrower and each additional obligor on this Note waive
presentment, dishonor, notice of dishonor, protest and notice of protest.
Neither the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this Note shall be
effective unless set forth in a writing signed by Bank. All rights and remedies
of Bank are cumulative and concurrent and no single or partial exercise of any
power or privilege shall preclude any other or other exercise of any rights,
power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest,
or against which it has right of setoff, or against any particular obligor. All
representations, warranties and agreements herein are made jointly and severally
by each Borrower. If any provision of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or any evidence of
indebtedness, the indebtedness represented by such pre-existing note or other
instrument shall not be deemed to have been extinguished hereby. This Note has
been delivered in and shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania without regard to the law of conflicts.
In the event any due date specified or otherwise provided for in this Note shall
fall on a day which Bank is not open for business, such due date shall be
postponed until the next banking day, and interest and any fees or similar
charges shall continue to accrue during such period of postponement. This Note
shall be binding upon each Borrower and each additional Obligor and upon their
personal representatives heirs, successors and assigns, and shall benefit Bank
and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT
OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first written above.
<PAGE>
- --------------------------------------------------------------------------------
Name of Corporation or Partnership
THE JPM COMPANY
- --------------------------------------------------------------------------------
By: By:
/s/ Dara Leeser /s/ William D. Baker
- ---------------------------------- ---------------------------------------
Dara Leeser William D. Baker
Assistant Secretary Vice President, Chief Financial Officer
<PAGE>
May 28, 1997
William Baker
Vice President
The JPM Company
Route 15
Lewisburg, PA 17837
Dear Bill:
I am pleased to advise you that CoreStates Bank, N.A. (the "Bank") has
approved, subject to execution of loan documentation required by the Bank in
mutually acceptable form (together with this Letter, the "Loan Documents"), a
line of credit in the amount of up to Twenty Million Dollars ($20,000,000.00)
(the "Line of Credit") to The JPM Company (the "Borrower").
The Line of Credit will be used to finance working capital needs as
hereinafter set forth. Subject to the terms and conditions of this Letter and
the other Loan Documents, the Bank will make advances from time to time to the
Borrower under the Line of Credit in amounts not exceeding $20,000,000.00 at any
one time outstanding subject to the limitations hereinafter set forth.
Borrowings under the Line of Credit will be payable when and in amounts demanded
by the Bank from time to time.
The extension of the Line of Credit will be subject to the following terms and
conditions, in addition to those terms and conditions to be set forth in the
Loan Documents:
1. Demand Note. The Line of Credit shall be evidenced by the Master Demand
-----------
Note of the Borrower in the principal amount of $20,000,000.00 (the "Note"). The
Line of Credit shall be secured as hereinafter provided.
2. Purposes. The proceeds of the Line of Credit will be used exclusively for
--------
the Borrower's working capital purposes. However, up to $2,000,000 of the Line
of Credit may also be used to acquire the assets of CORMA, GmbH, located in
Leuchtenberg, Germany and CORMA s.r.o., located in Bor, Czech Republic (jointly,
"CORMA").
3. Line of Credit Advances. Advances under the Line of Credit will be made
-----------------------
from time to time pursuant to draw requests and other procedures established by
Bank; provided, however, that in no event will advances be permitted to be
outstanding in an amount exceeding the lesser of (i)
<PAGE>
The JPM Company
May 28, 1997
Page 2
90% of Borrower's "qualified accounts receivable" plus 80% of Borrower's raw and
finished goods inventory or (ii) $20,000,000.00. For purposes of this
Paragraph, "qualified accounts receivable" shall mean those accounts receivable
of the Borrower that meet all the following specifications: (i) it is lawfully
owned by the Borrower and subject to no lien, security interest or prior
assignment, and the Borrower has the right of assignment thereof and the power
to grant a security interest therein; (ii) it is a valid and enforceable account
receivable, representing the undisputed indebtedness of an account debtor to the
Borrower; (iii) it is not subject to any defense, set-off, counter-claim,
credit, allowance or adjustment; (iv) no substantial part of any goods, the sale
of which has given rise to the account receivable, has been returned, rejected,
lost or damaged; (v) if it arises from the sale of goods by the Borrower, such
sale was an absolute sale and not on consignment or on approval or on a sale or
return basis nor subject to any other repurchase or return agreement, and such
goods have been shipped to the account debtor; (vi) if it arises from the
performance of services, such services have actually been performed; (vii) it
arose in the ordinary course of the Borrower's business; (viii) no notice of the
bankruptcy, receivership, reorganization, insolvency, or financial embarrassment
of the account debtor has been received; (ix) the account debtor is not a
subsidiary or affiliate of the Borrower, does not control the Borrower, and is
not under the control of or under common control with the Borrower; and (x) the
account receivable meets such other specifications and requirements which may
from time to time be established by the Bank, including, that such accounts
receivable must be outstanding for 90 days or less from date of invoice.
Borrower shall provide to Bank, not less than monthly, borrowing base
certifications or other documentation required by Bank to verify the Borrower's
qualified accounts receivable and inventory, all in form and content acceptable
to the Bank.
4. Interest Rate. Borrower shall at the time of each advance select one of
-------------
the following interest rate options, subject to availability (meaning, such
interest rate option is then being offered by the Bank to its customers
generally):
(a) a rate per annum that is at all times equal to the Bank's then
effective "prime" rate of interest (the "Prime Rate") minus .25%, such rate to
change each time the Prime Rate changes, effective on and as of the date of the
change(s) (the Prime Rate is a reference rate set by the Bank from time to time
and is not necessarily the Bank's lowest rate of interest offered on commercial
loans); or
(b) a rate per annum derived from the following pricing grid based
upon the LIBOR rate then offered by Bank, for a period of 30, 60 or 90 days,
which will be quoted to the Borrower at the time of the advance.
<TABLE>
<CAPTION>
Debt to Net Worth Ratio Interest Rate
----------------------- -------------
<S> <C>
less than 1.0 to 1.0 LIBOR plus 125 basis points (1.25%)
</TABLE>
<PAGE>
The JPM Company
May 28, 1997
Page 3
<TABLE>
<CAPTION>
Debt to Net Worth Ratio Interest Rate
----------------------- -------------
<S> <C>
1.0 - 1.9 to 1.0 LIBOR plus 150 basis points (1.5%)
2.0 or more to 1.0 LIBOR plus 200 basis points (2.0%)
</TABLE>
The Debt to Net Worth Ratio shall be calculated as of the end of each fiscal
quarter of Borrower, provided that no change in interest rate based upon any
quarterly calculation of the Debt to Net Worth Ratio shall be effective until
the expiration of the then current LIBOR period for which a different interest
rate is in effect. At the expiration of the chosen current LIBOR period, the
Borrower shall select another interest rate from available options, and any
selection of a LIBOR rate option shall be based upon the most recent quarterly
calculation of Borrower's Debt to Net Worth Ratio.
For purposes of this Paragraph 4: (A) the term "Debt" shall mean at
any time, any and all short term and long term obligations or liabilities set
forth on the Borrower's balance sheet as of the end of the most recent calendar
quarter prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and as determined by Bank in its reasonable
discretion; (B) the term "Net Worth" shall mean as of any date of determination
total consolidated stockholders' equity of the Borrower and its subsidiaries as
of such date determined and consolidated in accordance with GAAP; and (C) the
term "Debt to Net Worth Ratio" shall mean shall mean as of any date of
determination the ratio of Borrower's (i) Debt as of such date to (ii) Net
Worth.
Absent an effective election, the interest rate shall be option (a), above.
Calculations and payments of interest will be based on the applicable interest
rate option.
Interest shall accrue at the contract rate specified herein notwithstanding
failure of Borrower to pay principal or interest due on demand or otherwise, the
occurrence of an Automatic Termination Event (as hereinafter defined), the
bankruptcy or insolvency of the Borrower or the initiation of litigation, or the
failure to initiate litigation, by Bank respecting collection of amounts due
hereunder or the entry of judgment by Bank against Borrower respecting amounts
due on the Line of Credit.
5. Intentionally Omitted
6. Term. Availability of the Line of Credit is subject to the discretion of
----
the Bank and may be terminated at any time upon not less than thirty (30) days
notice, unless an Automatic Termination Event has occurred, to the Borrower.
<PAGE>
The JPM Company
May 28, 1997
Page 4
7. Repayment Terms. Principal and accrued interest on advances under the
---------------
Line of Credit are payable on demand of the Bank, and shall be paid in full
within thirty (30) days of such demand Unless payment is sooner demanded,
accrued interest shall be paid in arrears monthly, on the 1st day of each month.
8. Prepayment. Any prepayment(s) of principal prior to the expiration of the
----------
relevant LIBOR Interest Period shall require immediate payment to the Bank of a
prepayment fee equal to the amount, if any, by which the aggregate present value
of scheduled principal and interest payments eliminated by the prepayment
exceeds the principal amount being prepaid, with said present value to be
calculated by application of a discount rate determined by Bank in its
reasonable judgment to be the yield-to-maturity at the time of prepayment on
U.S. Treasury securities having a maturity which most closely approximates the
maturity date of the principal amount being prepaid.
9. Bank Fees and Costs.
-------------------
(a) Attorney Fees. As a condition to the availability of the Line of
-------------
Credit, Borrower shall reimburse Bank for legal fees and expenses of Bank's
attorneys reasonably incurred in preparing Loan Documents, closing the Line of
Credit and providing legal representation to the Bank at all times in connection
with the administration of the Line of Credit. Upon Borrower's acceptance of
this Commitment, its obligation to make reimbursements under this Paragraph 9
(a) shall be absolute, notwithstanding failure of Closing on the Line of Credit
to occur for any reason.
(b) Other Costs. Borrower shall pay all other fees, expenses, taxes,
-----------
costs and charges reasonably incurred in connection with the Line of Credit and
the collateral security and documentation therefor, including, but not limited
to, lien and other search charges or fees, appraisal fees and recording and
filing fees. Upon Borrower's acceptance of this Commitment, its obligation under
this Paragraph 9 (b) shall be absolute, notwithstanding failure of closing on
the Line of Credit to occur for any reason.
10. Collateral Security and Other Documentation. The following collateral
-------------------------------------------
security and Loan Documentation will be required in connection with the Line of
Credit, all in form and substance satisfactory to Bank and its counsel, and the
execution and delivery of such items and satisfactory documentation of the Line
of Credit shall represent express conditions precedent to Bank's obligations to
make available the Line of Credit and any or all advances thereof:
(a) Cross Collateralization. The collateral for the Line of Credit
-----------------------
and for each other loan, credit or other obligation of any kind or character of
the Borrower to the Bank, whether now existing or hereafter arising
(collectively, the "Cross Collateralized Obligations") shall serve as security
for all such Cross Collateralized Obligations and shall be subject to the
remedies set forth in each of the Bank's collateral documents respecting such
collateral, or available at law or in
<PAGE>
The JPM Company
May 28, 1997
Page 5
equity, and may be foreclosed, enforced and realized upon by the Bank to repay
all or any portion of the Cross Collateralized Obligations in such order and in
such amounts as the Bank may determine.
(b) Security Agreement. A general security agreement executed by
------------------
Borrower and such of the Existing Guarantors (as defined below) required by Bank
in favor of Bank granting to Bank a security interest in all machinery,
equipment, goods, fixtures, inventory, accounts, accounts receivable, contract
rights, documents, instruments, chattel paper, monies, securities, licenses,
permits and general intangibles, and all other tangible or intangible personal
property assets of the Borrower and such Existing Guarantors, and proceeds and
products thereof, and accessions and additions thereto (the "Personal Property
Collateral"), together with such financing statements and other security
instruments and filings and recordations as the Bank shall require in order to
create, attach, perfect and maintain valid liens and security interests in all
collateral security under the aforesaid security agreement or otherwise which
shall be, in all cases, senior to any other security interests, liens, charges
or encumbrances on or in such Personal Property Collateral except as noted in
Exhibit A to this Loan Commitment Letter, attached hereto and incorporated
herein, and except as the Bank may otherwise approve in writing. If requested by
Bank, prior to any advance under the Line of Credit, Borrower shall provide to
the Bank such UCC and other lien searches reasonably acceptable to the Bank
demonstrating that its liens on the Personal Property Collateral are or will be
of a priority acceptable to the Bank. Borrower shall have no obligation to
provide Bank more than two such searches during any twelve month period.
(c) Affiliate Guarantees. An unconditional and irrevocable guaranty
--------------------
and suretyship agreement of all existing subsidiaries or other affiliates of the
Borrower, including, without limitation, Electronica Pantera S.A. de C.V., The
JPM Company de Mexico, S.A. de C.V. and The JPM Company of Delaware, Inc. (the
"Existing Guarantors"), respecting full, complete and timely payment and
performance of all of Borrower's obligations, debts, duties, liabilities,
covenants, agreements and warranties hereunder and under the other Loan
Documents (the "Affiliate Guarantees"). In addition, all subsidiaries or other
affiliates of the Borrower created or acquired during the time when any
indebtedness is outstanding under the Line of Credit shall execute Affiliate
Guarantees in favor of the Bank respecting the Line of Credit and the Cross
Collateralized Obligations.
(d) Property, Liability and Other Insurance.
---------------------------------------
(i) Insurance certificates to the effect that Borrower has
procured insurance policies covering contingent liability and public
liability, protecting Borrower and Bank against any liability for loss or
damage to persons or property occurring in any way in connection with the
operation of Borrower's business, and in amounts (not less than $1,000,000
for each person and $5,000,000 for property damage) satisfactory to Bank.
In
<PAGE>
The JPM Company
May 28, 1997
Page 6
addition, insurance certificates to the effect that Borrower has procured
workmen's compensation insurance covering the Borrower's full statutory
liability as employer without limit. The aforesaid certificates shall
contain the agreement of the insurer to give not less than ten (10) days'
notice to Bank prior to cancellation of such policies or material reduction
in the coverage thereof.
(ii) Original policies of hazard insurance on an "all risk"
basis covering loss or damage to the Personal Property Collateral and all
other real or personal property collateral securing any of the Cross
Collateralized Obligations, in such amounts (up to one hundred percent
(100%) of the full insurable value thereof), with such coverage and issued
by such insurance companies as are satisfactory to Bank and containing
noncontributing and nonreporting "mortgagee" (with respect to improvements
to real property) and "lender loss payee" endorsements (with respect to
personal property) providing for the payment of proceeds to Bank, as its
interest may appear, and that cancellation or termination of such policies
shall be subject to ten (10) days' prior written notice to Bank.
(iv) An original policy of flood insurance to the extent
provided by any applicable federal, state or local law, including without
limitation the Flood Disaster Protection Act of 1973 (P.L. 93-234).
(v) Such other insurance coverages and policies as Bank may
require.
(e) Opinions of Counsel. Opinions of counsel for Borrower and the
-------------------
Existing Guarantors, opining as to such matters as the Bank may require,
including, without limitation, the due and valid incorporation, good standing
and subsistence of Borrower and the Existing Guarantors, the validity and
enforceability of all Loan Documents and the Affiliate Guarantees of the
Existing Guarantors in accordance with their terms, absence of any pending or,
to the best of counsel's knowledge, threatened litigation, governmental
investigation or other proceeding affecting the Line of Credit, any of the Loan
Documents or which may otherwise have a material adverse effect upon the
Borrower or any of its assets or operations.
(f) Other Documents. Such other documents, instruments and
---------------
agreements, including, without limitation, a loan or business financing
agreement in addition to this Letter, that the Bank may determine to be
necessary or desirable to evidence, secure or define the terms and conditions of
the Line of Credit, which may contain terms, conditions and requirements in
addition to those set forth herein.
11. Other Conditions. In addition to the other terms and conditions set
----------------
forth herein, or to be contained in the Loan Documents, Bank's obligation to
make available the Line of Credit, or any or
<PAGE>
The JPM Company
May 28, 1997
Page 7
all advances under the Line of Credit, shall be subject to satisfaction, in the
sole determination of Bank, of the following:
(a) Environmental Conditions. As a condition to each advance under
------------------------
the Line of Credit, and Borrower hereby represents and warrants that, none of
Borrower's assets or properties shall have been used for the storage, deposit,
disposal, treatment or recycling of petroleum (including crude oil or any
fraction thereof), hazardous substances, pollutants or contaminants (other than
storage of petroleum products used as heating oil in Borrower's operations,
which storage is and shall be in compliance with all applicable environmental
laws and regulations); no petroleum (including crude oil or any fraction
thereof), hazardous substances, pollutants or contaminants are located on or in
any of Borrower's assets or properties (other than storage of petroleum products
used as heating oil in Borrower's operations, which storage is and shall be in
compliance with all applicable environmental laws and regulations) there are no
asbestos materials on, in or buried under any of Borrower's assets or
properties. Borrower has no knowledge of any activity on, in or affecting any
of the Borrower's assets or properties, or any building or facility thereon,
which could subject Borrower, any director, officer, employee or agent of
Borrower or Bank to damages, penalties, injunctive relief or clean up costs
under any federal, state or local statute or regulation, or under any civil
action respecting petroleum, hazardous substances, pollutants or contaminants
on, in or affecting any of Borrower's assets or properties; Disposal of wastes
generated at all of Borrower's assets or properties is now, and at all times
during Borrower's occupancy thereof, has always been carried out in compliance
with all applicable laws, regulations, permits, service agreements and pre-
treatment requirements. For purposes of this subsection, "hazardous substance",
"pollutant" and "contaminant" shall have the same meanings as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. (S) 9601 et. seq. and the Pennsylvania Hazardous Sites
Cleanup Act, Act 108 of 1988 and the regulations promulgated pursuant thereto.
(b) Representations and Warranties; No Default. All of Borrower's
------------------------------------------
representations and warranties set forth in Paragraph 12 of this Commitment or
set forth in any of the other Loan Documents shall be true and correct, and no
Automatic Termination Event (hereinafter defined) shall have occurred and be
continuing.
(c) No Adverse Change. No material adverse change, as determined by
-----------------
the Bank in its sole discretion, shall have occurred in the financial condition,
assets, operating status or prospects of Borrower or any of the Existing
Guarantors since the date of this Letter.
12. Borrower's Representations. To induce Bank to extend the Line of
--------------------------
Credit to Borrower, Borrower hereby represents and warrants to Bank as follows:
<PAGE>
The JPM Company
May 28, 1997
Page 8
(a) Approvals and Authority. Borrower and each of the Existing
-----------------------
Guarantors has the power and legal authority to execute and deliver this
Commitment, the Affiliate Guarantees and the other Loan Documents, and to
undertake and perform the borrowings and other transactions described herein and
therein. All corporate and other governmental or third party approvals, actions,
consents or authorizations necessary for the execution and delivery of this
Commitment and the other Loan Documents and the consummation of the transactions
therein described have been taken or obtained.
(b) Due Organization. Borrower and each of the Existing Guarantors
----------------
is duly organized, validly existing and in good standing under the jurisdiction
of its incorporation or formation, and is duly qualified and authorized to do
business in all other jurisdictions wherein the nature of its business
operations or the ownership of its property makes such qualification necessary.
(c) No Contravention or Further Approvals. The execution and
-------------------------------------
delivery of this Commitment, the Affiliate Guarantees of the Existing
Guarantors, and the other Loan Documents, and the consummation of the
transactions set forth herein and therein, will not violate or contravene any
provision of any existing law, regulation, decree or court order, or any
provision of the articles or bylaws of Borrower or the Existing Guarantors, or
any document, instrument or agreement binding upon Borrower or any of the
Existing Guarantors, or by which Borrower or any of the Existing Guarantors, or
any of their respective properties, are bound. No authorization, permit,
consent or approval of, or action by, and no filing, registration or declaration
with, any governmental authority or regulatory body is required to be obtained
or made by the Borrower or, to the knowledge of Borrower, any of the Existing
Guarantors for the due execution, delivery and performance of this Commitment,
the Affiliate Guarantees of the Existing Guarantors or any of the other Loan
Documents.
(d) Binding Obligations. This Commitment, the Affiliate Guarantees
-------------------
of the Existing Guarantors and the other Loan Documents constitute valid and
legally binding obligations of the Borrower and the Existing Guarantors, and are
fully enforceable against the Borrower and each of the Existing Guarantors in
accordance with their respective terms.
(e) No Defaults. Borrower is not in default under any obligations to
-----------
others nor have any events occurred which, with the passage of time or the
giving of notice, or both, would result in a default by Borrower or any
Automatic Termination Event under any of the Loan Documents. There are no
actions, suits or proceedings pending, or to the knowledge of Borrower,
threatened which would have a material adverse effect on Borrower's or any of
the Existing Guarantors' ability to perform its obligations under this
Commitment, the Affiliate Guarantees or any of the other Loan Documents.
<PAGE>
The JPM Company
May 28, 1997
Page 9
(f) Taxes. Borrower and each of the Existing Guarantors has filed
-----
all necessary federal, state and local tax returns and has paid all taxes,
assessments and levies due thereon.
(g) Full Disclosure. Borrower has disclosed to Bank in writing all
---------------
facts which could have a material adverse effect on the property, business or
financial condition of Borrower, any of the Existing Guarantors or any
collateral security for any of the Cross Collateralized Obligations. This
Commitment does not, nor will any of the other Loan Documents, contain any
untrue statement of a material fact, or omit to state a material fact necessary
in order to make the statement made, in light of the circumstances under which
it was made, not misleading.
(h) Financial Statements. Borrower's and the Existing Guarantors'
--------------------
consolidated financial statements (including all consolidating information with
respect to the Existing Guarantors) delivered to the Bank in connection with the
Line of Credit are true and correct and present fairly, accurately and
completely, in all material respects, the financial position of Borrower and the
Existing Guarantors, all in accordance with generally accepted accounting
principles applied on a consistent basis. Since the date of the most recent
financial statements delivered to Bank, there has been no material adverse
change in Borrower's or any of the Existing Guarantors' financial condition or
results of operations, except as disclosed in writing to Bank. Borrower and the
Existing Guarantors have no indebtedness other than as shown in the financial
statements.
(i) Ownership of Properties. All properties and assets of Borrower
-----------------------
are owned by Borrower free and clear of all encumbrances except encumbrances
disclosed in the financial statements of Borrower as of September 30, 1996,
those permitted or created under the Loan Documents and those mortgages, liens,
security interests or other encumbrances in favor of the Bank existing on the
date hereof (the "Permitted Liens").
(j) No Litigation. There are no actions, suits or proceedings
-------------
pending or, to the knowledge of Borrower, threatened against or affecting
Borrower or any of the Existing Guarantors or any of their respective properties
before or by any court, administrative agency or other governmental authority,
or which brings into question the validity of the transactions contemplated
hereby or which seeks to impose liability, damages, costs, expenses, fines,
penalties or other obligations with respect to any environmental condition
relating to any of the assets or properties of Borrower or any of the Existing
Guarantors.
(k) ERISA. The provisions of each employee benefit plan maintained
-----
by the Borrower and each of the Existing Guarantors are in full compliance with
all applicable requirements of the Employee Retirement Income Security Act of
1974 ("ERISA").
(l) Bankruptcy or Insolvency. Neither Borrower nor any of the
------------------------
Existing Guarantors has applied for, or consented to the appointment of, a
receiver, trustee or liquidator of itself or any
<PAGE>
The JPM Company
May 28, 1997
Page 10
of its property, admitted in writing its inability to pay debts as they mature,
made a general assignment for the benefit of creditors, been adjudicated a
bankrupt or insolvent or filed a voluntary petition in bankruptcy, or a petition
or an answer seeking an arrangement with creditors or seeking to take advantage
of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution, receivership, liquidation or similar law or statute; no petition
has been filed against Borrower or any of the Existing Guarantors in any
proceeding under any such law, and no action has been taken by Borrower or any
of the Existing Guarantors for the purpose of effecting any of the foregoing.
(m) Margin Securities. Neither the Borrower nor any of the Existing
-----------------
Guarantors is engaged in the business of extending credit for the purpose of
purchasing or carrying "margin stock" or "margin securities" (within the meaning
of Federal Reserve Board Regulation U), none of the Borrower's or Existing
Guarantors' obligations or liabilities are secured, directly or indirectly, by
"margin stock" or "margin securities", and no proceeds of any advance under the
Line of Credit will be used for the purpose, whether immediate, incidental or
ultimate, or purchasing or carrying any "margin stock" or "margin securities,"
or in a manner which would breach or contravene any of Federal Reserve Board
Regulations G, T, U or X.
13. Borrower's Covenants. Borrower covenants and agrees that until all
--------------------
indebtedness outstanding under the Line of Credit has been paid in full:
(a) Debt Service Coverage Ratio. Borrower shall not permit its
---------------------------
"long term debt service coverage ratio" to be less than 1.4 to 1. "Long term
debt service coverage ratio" shall be determined by dividing (i) the Borrower's
net profits minus dividends, distributions and minority stockholder
distributions plus depreciation/amortization plus interest expense by (ii) the
Borrower's total debt service requirements on all Borrower's obligations having
a term or due date in excess of 12 months.
(b) Additional Financing. Borrower shall not incur any additional
--------------------
indebtedness (other than trade debt incurred in the ordinary course of business)
whether secured or unsecured, for any reason whatsoever, other than (i) the
assumption of indebtedness not exceeding $2,000,000 associated with the
anticipated acquisition by the Borrower of the stock or assets of Denron,
Incorporated, (ii) an existing term loan from NationsBank of South Carolina,
N.A. in a principal amount not exceeding $1,200,000 and (iii) the anticipated
borrowings from the Pennsylvania Industrial Development Authority and related
financial institution lender for a total project cost not to exceed
$1,080,000.00 (the "PIDA Loan"), without the prior written consent of Bank.
(c) Guarantees. Borrower shall not guaranty or assume or agree to or
----------
become liable in any way, either directly or indirectly, for any indebtedness or
liability of others or pledge any of its real or personal property assets as
collateral security therefor.
<PAGE>
The JPM Company
May 28, 1997
Page 11
(d) Loans. Borrower shall not make any loans or advances to others
-----
other than loans to employees of the Borrower not exceeding (i) $100,000 per
employee or (ii) $500,000 in the aggregate during any 12 month period.
(e) Status of Title to Property. Except in the ordinary course of
---------------------------
business, Borrower shall not sell, lease, sublease, transfer, assign or
otherwise dispose of all or any portion of its interest in any of it properties
or assets, directly or indirectly, voluntarily or involuntarily, without the
prior written approval of Bank. Borrower shall not create or permit to exist any
lien, encumbrance or security interest in favor of any party other than the
Permitted Liens, the first mortgage existing in favor of Northern Central Bank
on the former Kinney Shoe plant located in Beaver Springs, PA in the amount of
$600,000.00 and the interim lien thereon existing in favor of Northern Central
Bank in the amount of $480,000.00 as bridge financing for the PIDA Loan and such
other liens as the Bank may allow in its reasonable discretion.
(f) Financial Statements. Within forty-five (45) days after the end
--------------------
of each calendar month and within ninety (90) days after the end of each fiscal
year, Borrower shall furnish to Bank the consolidated financial statements of
Borrower and the Existing Guarantors in form required by the Bank (together with
such consolidating information concerning the Existing Guarantors as may be
requested by the Bank) for such month or fiscal year, consisting at a minimum of
a balance sheet, income statement and statement of source and application of
funds. Such financial statements (i) shall be prepared in accordance with
generally accepted accounting principles consistently applied, (ii) shall be in
a form reasonably satisfactory to Bank; provided, however, that unless otherwise
agreed by Bank, each monthly statement may be prepared by Borrower's in-house
financial officer or independent public accountants on a compilation basis and
each annual financial statement required hereunder shall be audited by
independent public accountants, (iii) shall be certified as true and correct by
the president or treasurer of Borrower who shall also certify that there is not
in existence any Automatic Termination Event or any event or circumstance which,
with the passage of time relating to cure periods provided herein, or the giving
of notice, or both, would constitute an Automatic Termination Event, and (iv) in
the case of the audited annual financial statements, shall be accompanied by a
copy of the Borrower's consolidated operating budget for the fiscal year.
(g) Maintenance of Existence; No Change of Ownership, Management or
---------------------------------------------------------------
Control. Each of Borrower and the Existing Guarantors shall maintain its
- -------
existence as a business corporation in good standing under the laws of the
state, country or territory of their respective organization. Borrower shall
not, without the prior written consent of Bank in each instance, (i) permit the
issuance of any additional or transfer of any existing capital stock of Borrower
(other than normal public trading in the stock of Borrower over national stock
exchanges) or any Existing Guarantor, directly or indirectly under option or
otherwise, or change the ownership structure of Borrower or
<PAGE>
The JPM Company
May 28, 1997
Page 12
any Existing Guarantor in any way from that existing as of the date hereof, (ii)
merge or consolidate, or permit the merger or consolidation, of Borrower (other
than in connection with the anticipated acquisition by Borrower of Denron, Inc.
or CORMA) or any Existing Guarantor, with or into any other entity, or be
dissolved or liquidated, or permit any Existing Guarantor to be dissolved or
liquidated, (iii) cease or suspend, or permit any Existing Guarantor to cease or
suspend, its operations, or (iv) change, or permit any Existing Guarantor, to
change, its fiscal year or accounting methods or practices.
(h) Principal Office. Borrower shall maintain its principal office
----------------
and/or the office where it keeps its books and records related to its business
operations and the Bank's collateral security at (i) Route 15, Kelly Township
or (ii) Industrial Park, North 15th Street, East Buffalo Township, Union County,
Lewisburg, PA. unless it gives Bank prior written notice of any proposed change
in the location thereof.
(i) Books and Records; Audit. Borrower shall keep, and cause the
------------------------
Existing Guarantors to keep, complete and accurate books and records. Bank shall
have the right at any time during normal business hours to inspect the
properties and assets, and to audit the books and records, of Borrower, and
Borrower shall be obligated to make available for any such audit all books,
records and other information that Bank may request for such purpose and to
cooperate fully with Bank in connection therewith.
(j) Compliance with Laws. Borrower shall comply, and shall cause the
--------------------
Existing Guarantors to comply, with all laws, ordinances, rules and regulations
applicable to their respective business operations, properties and assets.
(k) Notice of Litigation and Automatic Termination Events; Other
------------------------------------------------------------
Information. Borrower shall notify Bank in writing immediately of (i) the
- -----------
institution of any litigation or the commencement of any administrative
proceedings, the happening of any event or the assertion or threat of any claim
which could have a materially adverse effect on the business or financial
condition or Borrower or any of the Existing Guarantors, and (ii) the occurrence
of any Automatic Termination Event hereunder or an event which, with the passage
of time relating to cure periods provided herein, or the giving of notice, or
both, would constitute an Automatic Termination Event of Default and (iii) any
and all communications, reports or information received by Borrower or any of
the Existing Guarantors, from any regulatory agencies having jurisdiction over
the business operations or assets of Borrower or the Existing Guarantors
respecting any deficiency, inadequacy, violation or other matter relating to any
permit, license or approval issued or given by such regulatory agency. Borrower
shall provide Bank with any other information or documents, financial or
otherwise, reasonably requested by Bank from time to time.
<PAGE>
The JPM Company
May 28, 1997
Page 13
(l) Compliance with Loan Documents. Borrower shall comply with all
------------------------------
terms and conditions of the Loan Documents.
(m) Business Accounts. During the time any indebtedness is
-----------------
outstanding under the Line of Credit, Borrower shall maintain its primary
operating accounts with the Bank.
(n) Compliance with Securities Exchange Act. Borrower shall comply
---------------------------------------
with all reporting and other requirements of the Securities Exchange Act of 1934
(the "1934 Act") and shall promptly furnish to Bank copies of all quarterly,
annual or other reports filed Borrower with the Securities and Exchange
Commission or other regulatory authority (the "SEC"), and shall provide to Bank
copies of, or notify Bank of (in the case or oral communications), any
communications received by the Borrower from the SEC.
14. Automatic Termination Events. In addition to the right of the Bank to
----------------------------
demand payment of the advances outstanding under the Line of Credit and to
terminate the availability of the Line of Credit at its discretion (subject to
the thirty day notice period set forth in Paragraph 6 hereof), (i) all
outstanding principal and interest under the Line of Credit shall be immediately
due without demand by Bank, and (ii) the availability of the Line of Credit
shall automatically, without action by Bank or notice to Borrower, terminate
upon the occurrence of any one or more of the following events (each, an
"Automatic Termination Event"), unless the Bank expressly waives such automatic
demand or termination in writing:
(a) Borrower shall fail to pay any payment of principal, interest or
other amount payable under the Note or hereunder when due (in the case of
monthly installments of interest prior to demand by Bank) or on the demand of
the Bank (subject to the thirty day notice period set forth in Paragraph 7
hereof);
(b) Borrower or any of the Existing Guarantors shall apply for, or
consent to the appointment of a receiver, trustee or liquidator of itself or any
of its property, admit in writing its inability to pay its debts as they mature,
make a general assignment for the benefit of creditors, be adjudicated a
bankrupt, or insolvent or file a voluntary petition in bankruptcy, or a petition
or an answer seeking reorganization, an arrangement with creditors or seeking to
take advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, liquidation or dissolution law or statute, or an answer admitting the
material allegations of a petition filed against Borrower or any of the Existing
Guarantors in any proceeding under any such law, or if action shall be taken by
Borrower or any of the Existing Guarantors for the purpose of effecting any of
the foregoing;
(c) Any order, judgment or decree shall be entered by any court of
competent jurisdiction, approving a petition seeking reorganization of Borrower
or any of the Existing Guarantors of all or a substantial part of any of their
respective assets, or appointing a receiver,
<PAGE>
The JPM Company
May 28, 1997
Page 14
sequestrator, trustee or liquidator of Borrower or any of the Existing
Guarantors or any of their respective property; or
(d) A default in payment or performance in accordance with the terms
of, or a defined event of default under, any of the Loan Documents or any
document, instrument or agreement evidencing or securing any of the Cross
Collateralized Obligations, which shall, at the election of the Bank, also
constitute a default under all other Cross Collateralized Obligations and all
documents, agreements and instruments relating thereto.
15. Assignment. This Commitment may not be assigned by Borrower, in whole
----------
or in part, without the express written consent of Bank and any assignment by
Borrower without such consent of Bank shall automatically, without requirement
of any notice to Borrower, terminate this Commitment. Bank, however, retains
the right to sell any or all of the Line of Credit, or any participation
interest therein, without the consent of Borrower.
16. Closing. This Commitment shall automatically, without notice to the
-------
Borrower, terminate upon failure of Closing on the Loan to occur on or before
June 15, 1997, or such later date as the Bank and Borrower may mutually agree in
writing.
17. Acceptance. Borrower shall evidence its acceptance of this Commitment
----------
by executing and returning the enclosed copy hereof to Bank by May 31, 1997.
Unless so accepted, the Commitment shall be null and void.
18. Prior Commitments Superseded; Survival of Commitment. This Commitment
----------------------------------------------------
supersedes, and replaces and revokes in their entirety, all prior commitments or
loan agreements regarding the Line of Credit, including, without limitation,
that Commitment Letter dated March 26, 1997 previously executed between the
Borrower and the Bank, and all prior oral or written discussions of terms of the
Line of Credit. This Commitment shall survive execution and delivery of the
Loan Documents and shall serve to govern and define the Line of Credit terms and
conditions, and the making of advances under the Line of Credit.
Very truly yours,
/s/ David M. Diffenderffer
---------------------------
David Diffenderffer,
Vice President
<PAGE>
The JPM Company
May 28, 1997
Page 15
ACCEPTANCE: The foregoing commitment is accepted and agreed in accordance
with its terms and conditions this ___ day of May, 1997.
ATTEST: THE JPM COMPANY
/s/ Dara C. Leeser By: /s/ William D. Baker
- ------------------- ---------------------
Title: Vice President, CFO and Treasurer
<PAGE>
EXHIBIT A
TO
LOAN COMMITMENT LETTER
DATED
MAY 28, 1997
------------
With respect to Paragraph 10 (b) of the Loan Commitment Letter dated May
28, 1997, CoreStates Bank, N.A. (the "Bank") hereby consents to The JPM Company
(the "Borrower") retaining the following credit facility which is secured by
liens on certain machinery and equipment that will, upon acquisition by
Borrower, comprise part of the Personal Property Collateral (as defined in the
Commitment Letter):
1. Wells Fargo Bank
----------------
$2,000,000.00 working capital line of credit, secured by first lien on
the assets of Denron, Inc., scheduled to expire on July 31, 1997.
Unless an Automatic Termination Event shall sooner occur, the Bank agrees to
defer until August 1, 1997 (or anytime thereafter) the recording of financing
statements against the assets of Denron that become part of the Borrower's
holdings through acquisition. At that time, Denron (or Borrower, as the case
may be) will execute such guarantees, security agreements and financing
statements in favor of the Bank as may be reasonably required by Bank to acquire
a first priority security interest in such assets as is required in the
Commitment Letter.
2. NationsBank of South Carolina, N.A.
-----------------------------------
$1,200,000 term loan to Borrower d/b/a as The JPM Company of South
Carolina, secured by a first lien on certain machinery, equipment furniture
and fixtures that comprise part of the Personal Property Collateral (as
defined in the Commitment Letter).
<PAGE>
- --------------------------------------------------------------------------------
********************************************************************************
ASSEMBLY PRODUCTION INSTRUCTIONS
********************************************************************************
JPM Part Number: 028312 Last EC Date: 11/21/96
Customer number: 43355593-000 Last Revised date: 12/23/96
EC: B Printout date:
Customer: Unisys Engineer: CAN
Dept: 134 Total Asm Time (1 cable): 9.86 min
Workcell: UNISYS BULK
********************************************************************************
The Last Revised Date refers to the date that the Customer last made changes to
their Assembly. Last Revised Date is the date in which JPM made the changes
received from the Customer.
Example: Last Revised Date: 12/23/96
Last Revised Date
This refers to the calendar date when a set of Assembly Production Instructions
has been altered by Engineering.
********************************************************************************
ASSEMBLY PRODUCTION INSTRUCTIONS
********************************************************************************
JPM Part Number: 028312 Last EC Date: 11/21/96
Customer number: 43355593-000 Last Revised date: 12/23/96
EC: B Printout date:
Customer: Unisys Engineer: CAN
Dept: 134 Total Asm Time (1 cable): 9.86 min
Workcell: UNISYS BULK
********************************************************************************
This is the date that the actual Assembly Production Instruction is printed out
on the computer.
- --------------------------------------------------------------------------------
(C) The JPM Company, Inc. 1-40
<PAGE>
MASTER DEMAND NOTE ADDENDUM
THIS MASTER DEMAND NOTE ADDENDUM is attached to the Master Demand Note in
the stated principal amount of $20,000,000 given by The JPM Company ("Borrower")
to CoreStates Bank, N.A. ("Bank") dated May 30, 1997 , and is incorporated into,
and made part of, the Master Demand Note. In the event of a conflict between
the terms and conditions of the Master Demand Note and this Addendum, this
Addendum shall control. The Master Demand Note and this Addendum shall be
collectively referred to as the "Note" and are subject to the terms and
conditions of that Commitment Letter respecting a $20,000,000 line of credit
facility (each advance by Bank under such credit facility being a "Loan" and all
advances and draws being collectively the "Loans") from the Bank to Borrower
dated May 28, 1997 (as the same may be supplemented, modified, amended or
restated, the "Credit Agreement"). All capitalized terms used herein shall,
unless otherwise specifically defined, have the meanings ascribed to such terms
in the Credit Agreement. In the event of a conflict between the terms of the
Credit Agreement and the Note (as amended by this Addendum), the terms of the
Note shall control.
1. Requests for Loans. Borrower may request Loans from Bank by a
-------------------
telephone or letter request given by a duly authorized officer or other duly
authorized person. Bank will make such Loans to Borrower as Bank may elect to
make by crediting to Borrower's designated account with Bank such sum or sums of
money as may be mutually agreed upon at such time. Bank will forward to Borrower
at Borrower's address written advices or statements of Loans made to Borrower in
accordance with Bank's usual procedures, which advices or statements will also
advise Borrower of the rate or rates of interest payable on the Loans, and such
other terms as may have been agreed to.
2. Definitions. For purposes of this Note, the following terms shall have
-----------
the following meanings (terms defined in the singular to have the same meaning
when used in the plural and vice versa) unless the context otherwise requires:
"Business Day" means any day other than a Saturday, Sunday or any day
which is a legal holiday under the laws of the Commonwealth of Pennsylvania or
on which commercial banks in Philadelphia, Pennsylvania are authorized or
required by law or other governmental action to close and, if the applicable day
relates to a LIBOR Loan, LIBOR Period or notice with respect to a LIBOR Loan, a
day on which dealings in dollar deposits are also carried on in the London
Interbank Market and banks are open for the transaction of banking business in
London.
"LIBOR Loan" means any Loan when and to the extent that the interest rate
therefor is determined by reference to the LIBOR Rate.
"LIBOR Period" shall mean, with respect to any LIBOR Loan, the period
commencing on the date such Loan begins to bear interest at a rate tied to the
LIBOR Rate in accordance with this Note and ending thirty (30) days, sixty (60)
days or ninety (90) days thereafter, as selected by Borrower.
<PAGE>
"LlBOR Rate" shall mean, for any LIBOR Period for a LIBOR Loan, the rate
per annum (rounded upward, if necessary, to the next higher 1/16%) determined by
Bank to be equal to the quotient of (a) the average of the quotations (rounded
upward to the next higher 1/16%), offered to Bank (or an average of the
quotations offered to one or more other reference banks selected by Bank) two
(2) Business Days prior to the first day of such LIBOR Period in the interbank
eurodollar market in London at 11:00 A M. local time, for a period equal to the
number of days in such LIBOR Period for delivery on the first day of such LIBOR
Period and in an amount comparable to the principal amount of the LIBOR Loan,
divided by (b) a number equal to 1.00 minus the average of the daily rates
(expressed as a decimal fraction) of reserve requirements applicable during such
LIBOR Period (including without limitation, basic, supplemental, marginal and
emergency reserves) under any regulations of the Board of Governors of the
Federal Reserve System or other domestic governmental authority having
jurisdiction with respect thereto, as now and from time to time hereafter in
effect, dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of such
Board).
"Prime Loan" means any Loan when and to the extent that the interest rate
therefor is determined by reference to the Prime Rate.
"Prime Rate" means the rate of interest announced or designated from time
to time by CoreStates Bank, N.A., Philadelphia, Pennsylvania, as its prime rate.
Any change in the Prime Rate shall be effective as of the opening of business on
the day on which such change in the Prime Rate becomes effective. The Prime Rate
is a reference rate set by the Bank from time to time and is not necessarily the
Bank's lowest rate of interest offered on commercial loans.
3. Interest; Payments. Interest shall accrue on the outstanding and
------------------
unpaid principal amount of the Loans at a variable rate per annum, at the
Borrower's election, as set forth below, subject to availability (meaning, such
interest rate option is then being offered by the Bank to its customers
generally) as follows:
(a) a rate per annum which is at all times equal to the Prime
Rate minus .25%, such rate to change each time the Prime Rate changes; or
(b) a rate per annum derived from the following pricing grid based upon
the LIBOR Rate then offered by Bank, for the selected LIBOR Period of 30, 60 or
90 days, which will be quoted to the Borrower at the time of the advance.
<TABLE>
<CAPTION>
Debt to Net Worth Ratio Interest Rate
----------------------- -------------
<S> <C>
less than 1.0 to 1.0 LIBOR Rate plus 125 basis points
(1.25%)
1.0 - 1.9 to 1.0 LIBOR Rate plus 150 basis points
(1.5%)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Debt to Net Worth Ratio Interest Rate
----------------------- -------------
<S> <C>
2.0 or more to 1.0 LIBOR Rate plus 200 basis points
(2.0%)
</TABLE>
The Debt to Net Worth Ratio shall be calculated as of the end of each fiscal
quarter of Borrower, provided that no change in interest rate based upon any
quarterly calculation of the Debt to Net Worth Ratio shall be effective until
the expiration of the then current LIBOR Period for which a different interest
rate is in effect. At the expiration of the chosen current LIBOR Period, the
Borrower shall select another interest rate from available options, and any
selection of a LIBOR Rate option shall be based upon the most recent quarterly
calculation of Borrower's Debt to Net Worth Ratio.
For purposes of this Paragraph 3: (A) the term "Debt" shall mean, at
any time, any and all short term and long term obligations or liabilities set
forth on the Borrower's balance sheet as of the end of the most recent calendar
quarter prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and as determined by Bank in its reasonable
discretion; (B) the term "Net Worth" shall mean as of any date of determination
total consolidated stockholders' equity of the Borrower and its subsidiaries as
of such date determined and consolidated in accordance with GAAP; and (C) the
term "Debt to Net Worth Ratio" shall mean shall mean as of any date of
determination the ratio of Borrower's (i) Debt as of such date to (ii) Net
Worth.
Absent an effective election, the interest rate shall be option (a), above.
Calculations and payments of interest will be based on the applicable interest
rate option.
Interest shall accrue at the contract rate specified herein notwithstanding
failure of Borrower to pay principal or interest due on demand or otherwise, the
occurrence of an Automatic Termination Event (as defined in the Credit
Agreement), the bankruptcy or insolvency of the Borrower or the initiation of
litigation, or the failure to initiate litigation, by Bank respecting collection
of amounts due hereunder or the entry of judgment by Bank against Borrower
respecting amounts due on the Loans.
Interest on each Loan shall be calculated on the basis of a year of 360 days and
shall be charged for the actual number of days elapsed. Interest on the Loans
shall be invoiced to Borrower by Bank in arrears monthly and paid in immediately
available funds at any office of Bank on the first day of each month. Subject
to the requirements of Sections 9 and 10, below, and the demand rights of the
Bank, principal payments may be made at the discretion of Borrower, provided
that Borrower shall, without necessity of demand or notice by Bank, pay to Bank
immediately such principal payments as may be necessary from time to time to
cause the Loans to comply with the borrowing base restrictions of Section 3 of
the Credit Agreement (the "Compliance Payments"). Other than the Compliance
Payments, Borrower's obligations to pay principal and interest on the Loans on
the demand of the Bank are subject to the thirty (30) day notice provisions of
Section 7 of the Credit Agreement.
3
<PAGE>
4. Interest Rate Elections. (a) Borrower, subject to any prior continuing
------------------------
interest rate election(s) made pursuant hereto, may notify Bank (which
notification may be effected pursuant to any notice of borrowing) that it is
electing to have interest accrue based on the Prime Rate on a specific portion
(up to an including 100%) of the aggregate unpaid amount of all Loans.
(b) Subject to the notice provisions set forth below, at any time and from
time to time, Borrower may notify Bank (which notification may be effected
pursuant to any notice of borrowing) that it is electing to have interest accrue
for a thirty (30) day, sixty (60) day or ninety (90) day LIBOR Period, subject
to Bank's rights to terminate its obligations to make Loans pursuant to the
terms of the Credit Agreement, at a rate tied to the LIBOR Rate determined in
accordance with Paragraph 3 (b) hereof on a specific portion of the unpaid
amount of the Loans (including Loans to be made by the Bank to the Borrower on
the date of election) equal to the lesser of the aggregate unpaid amount of the
Loans or the amount specified by Borrower.
(c) Borrower shall notify Bank not later than 11:00 a.m., Philadelphia,
Pennsylvania time, two (2) Business Days before the date on which the Borrower
desires any Loan, or portion thereof, to bear interest at a rate tied to the
LIBOR Rate. Notwithstanding anything contained herein to the contrary, any Loan,
or portion thereof, which bears interest at a rate tied to the LIBOR Rate shall
be in a minimum amount of One Hundred Thousand Dollars ($100,000).
(d) Following any advances under the Loans and an interest rate election made
by Borrower with respect thereto under Subsections (a) or (b) of this Section 4,
but subject to all other conditions of this Note and the Credit Agreement,
Borrower may, in accordance with the provisions of Subsections (a), (b) and (c)
of this Section 4, from time to time elect to convert or continue the type of
interest rate borne by such advances. In the event that Borrower fails to
provide Bank with any notice of conversion or continuance, as described above,
such Loans shall commence or continue, as appropriate, bearing interest at the
Prime Rate less .25%.
(e) If the last day of the thirty (30) day, sixty (60) day or ninety (90) day
LIBOR Period, as the case may be, elected by Borrower pursuant to Subsection (b)
does not fall on a Business Day,
(l) the period shall be automatically extended until the next succeeding
Business Day unless such Business Day falls in another calendar month, in
which case such LIBOR Period shall end on the preceding Business Day,
(2) interest shall, to the extent applicable, continue to accrue at a rate
tied to the then applicable LIBOR Rate, and
(3) the next thirty (30) day, sixty (60) day or ninety (90) day LIBOR
Period, as the case may be, elected by Borrower, if any, shall commence on the
day following the Business Day described in clause (1) above.
4
<PAGE>
(f) Any LIBOR Period that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month in which such LIBOR Period ends) shall end on the last Business Day of a
calendar month and the next LIBOR Period shall commence on the next Business
Day.
(g) If Borrower at any time fails to make a necessary interest rate election
pursuant to Subsection (a) or (b) of this Section 4 at the time of borrowing, at
the end of any LIBOR Period, or otherwise, with regard to any or all of the
aggregate unpaid amount of the Loans, Borrower shall be deemed to have elected
to have interest accrue at the Prime Rate minus .25%.
5. Illegality. Notwithstanding any other provision herein, if the Bank
----------
determines in its reasonable judgment that any applicable law, rule, or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any such authority, central bank, or comparable agency shall
make it unlawful or impossible for the Bank to maintain or fund its LIBOR Loans,
then upon written notice to the Borrower by the Bank the outstanding principal
amount of the LIBOR Loans (or so much of the principal balance thereof necessary
to bring Bank into compliance, as determined solely by Bank), together with
interest accrued thereon, and any other amounts payable to the Bank under this
Note and the Credit Agreement shall be repaid (a) immediately upon demand of the
Bank if such change or compliance with such request, in the reasonable judgment
of the Bank, requires immediate repayment; or (b) at the expiration of the last
LIBOR Period to expire before the effective date of any such change or request.
Borrower shall not be required to pay any prepayment fee in the event Bank
demands immediate payment pursuant to Subsection (a), above.
6. LIBOR Rate Unascertainable. Notwithstanding anything to the contrary
--------------------------
herein, if the Bank determines (which determination shall be conclusive) that
(1) quotations of interest rates for the relevant deposits referred to in the
definition of LIBOR Rate are not being provided in the relevant amounts or for
the relative maturities for purposes of determining the rate of interest on a
LIBOR Loan as provided herein and (2) the relevant rates of interest referred to
in the definition of LIBOR Rate upon the basis of which the rate of interest for
any such type of loan is to be determined do not accurately cover the cost to
the Bank of making or maintaining such type of Loans, then the Bank shall
forthwith give notice thereof to the Borrower, whereupon (a) the obligation of
the Bank to make LIBOR Loans shall be suspended until the Bank notifies the
Borrower that the circumstances giving rise to such suspension no longer exist;
and (b) the Borrower shall repay in full the then outstanding principal amount
of each LIBOR Loan together with accrued interest thereon, on the last day of
the then current LIBOR Period applicable to such Loan.
7. Increased Cost. The Borrower shall pay to the Bank from time to time such
---------------
amounts as the Bank may reasonably determine to be necessary to compensate the
Bank for any costs incurred by the Bank which the Bank determines are
attributable to its making or maintaining any LIBOR Loans hereunder or its
obligation to make any such Loans hereunder, or any reduction in any amount
receivable by the Bank in respect of any such Loans or such
5
<PAGE>
obligation (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any change after the date of
this Note in U.S. federal, state, municipal or foreign laws or regulations
(including Regulation D), or the adoption or making after such date of any
interpretations, directives, or requirements applying to a class of banks
including the Bank of or under any U.S. federal, state, municipal or foreign
laws or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof ("Regulatory Change"), which: (1) changes the basis of
taxation of any amounts payable to the Bank under this Note in respect of any of
such Loans (other than taxes imposed on the overall net income of the Bank for
any of such Loans by the jurisdiction where the Bank is located); or (2) imposes
or modifies any reserve, special deposit, compulsory loan, or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, the Bank (including any of such Loans or
any deposits referred to in the definition of LIBOR Rate); or (3) imposes any
other condition affecting this Note (or any of such extension of credit or
liabilities). The Bank will notify the Borrower of any event occurring after the
date hereof which will entitle the Bank to compensation pursuant hereto as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Determinations by the Bank for purposes hereof of the
effect of any Regulatory Change on its costs of making or maintaining Loans or
on amounts receivable by it in respect of Loans, and of the additional amounts
required to compensate the Bank in respect of any Additional Costs, shall be
conclusive, provided that such determinations are made on a reasonable basis.
8. Capital Adequacy. In the event the Bank reasonably determines that (1)
-----------------
compliance with any judicial, administrative, or other governmental
interpretation of any law or regulation or (2) compliance by the Bank or any
corporation controlling the Bank with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
has the effect of requiring an increase in the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank,
and the Bank determines that such increase is based upon its obligations
hereunder, and other similar obligations of Borrower to Bank, the Borrower shall
pay to the Bank, within 30 days of demand for payment, such additional amount as
shall be certified by the Bank to be the amount allocable to the Bank's
obligations to the Borrower hereunder. The Bank will notify the Borrower of any
event occurring after the date hereof that will entitle the Bank to compensation
pursuant hereto as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. Determinations by the Bank for
purposes hereof of the effect of any increase in the amount of capital required
to be maintained by the Bank and of the amount allocable to the Borrower's
obligations to the Bank hereunder shall be conclusive, provided that such
determinations are made on a reasonable basis.
9. Funding Loss Indemnification. The Borrower shall pay to the Bank, upon
-----------------------------
the request of the Bank, such amount or amounts as shall be sufficient (in the
reasonable opinion of the Bank) to compensate it for any actual loss, cost or
expense incurred as a result of any payment(s) of principal of a LIBOR Loan on a
date other than the last day of the LIBOR Period for such Loan by reason of
voluntary prepayment by Borrower, making of mandatory Compliance Payments or
acceleration of the Loans by virtue of an Automatic Termination Event.
6
<PAGE>
If the Bank sustains or incurs any such loss or expense it shall from time to
time notify the Borrower of the amount determined in good faith by the Bank
(which determination shall be conclusive, provided that such determinations are
made on a reasonable basis, absent manifest error and may include such
assumptions, allocations of costs and expenses and averaging or attribution
methods as is reasonable) to be necessary to indemnify the Bank for such loss or
expense.
10. Prepayment. In addition to, and not in limitation of the funding
----------
indemnification provisions of Section 9, any prepayment(s) of principal on LIBOR
Loans prior to the expiration of the related LIBOR Period (other than payments
occasioned by demand for payment by Bank not based upon an Automatic Termination
Event or mandatory Compliance Payments) shall require immediate payment to the
Bank of a prepayment fee equal to the amount, if any, by which the aggregate
present value of such principal prepayment and the scheduled interest payments
eliminated by the prepayment exceeds the principal amount being prepaid, with
said present value to be calculated by application of a discount rate determined
by Bank in its reasonable judgment to be the yield-to-maturity at the time of
prepayment on U.S. Treasury securities having a maturity which most closely
approximates the maturity date (i.e. end of the related current LIBOR Period) of
the Loan with respect to which principal is being prepaid.
11. Notices. All notices, demands, requests, consents, approvals and other
-------
communications required or permitted hereunder will be deemed sufficient for all
purposes if given in writing, which notice will be effective upon receipt if
delivered personally to such party, or if sent by facsimile transmission with
confirmation of delivery, or by nationally recognized overnight courier service,
to the address set forth below or to such other address as any party may give to
the other in writing for such purpose:
To the Bank: CoreStates Bank, N.A.
30 North Third Street
P.O. Box 1071
Harrisburg, PA 17108
Attention: David Diffenderffer, Vice President
Facsimile No.: (717) 234-2884
Telephone No.: (717) 234-2716
With copy to: Daniel J. Malpezzi, Esquire
Buchanan Ingersoll Professional Corporation
30 North Third Street
7
<PAGE>
Eighth Floor
Harrisburg, PA 17101
Facsimile No.: (717) 233-0852
Telephone No.: (717) 237-4863
To the Borrower: The JPM Company
Route 15
Lewisburg, PA 17837
Attention: William D. Baker, Vice President
Facsimile No.: (717) 524-8181
Telephone No.: (717) 524-8200
With copy to: Brian W. Bisignani, Esquire
Duane, Morris & Heckscher
305 North Front Street
P.O. Box 1003
Harrisburg, PA 17108-1033
Facsimile No.: (717) 232-4015
Telephone No.: (717) 237-5548
ATTEST: THE JPM COMPANY
By: /s/ Dara C. Leeser By: /s/ William D. Baker
------------------- ----------------------
Title: Vice President, CFO and Treasurer
ACKNOWLEDGMENT AND CONSENT
CoreStates Bank, N.A. hereby acknowledges and consents to the foregoing Master
Demand Note Addendum and the changes to the Master Demand Note effected thereby.
By: /s/ David M. Diffendeffer
--------------------------
Title: Vice President
8
<PAGE>
CROSS-COLLATERALIZATION
AND
CROSS-DEFAULT AGREEMENT
-----------------------
THIS AGREEMENT, made this 30th day of May, 1997, by The JPM Company, a
Pennsylvania corporation having its principal offices at Route 15, Lewisburg,
Pennsylvania 17837 ("Borrower") in favor of CoreStates Bank, N.A., a national
banking association with offices at 30 North Third Street, P.O. Box 1071,
Harrisburg, Pennsylvania 17108 ("Bank").
W I T N E S S E T H:
WHEREAS, Bank is extending a line of credit facility to Borrower in the
principal amount of Twenty Million Dollars ($20,000,000.00) (the "Loan")
pursuant to the terms and conditions of a certain Master Demand Note, as amended
by an Addendum to Master Demand Note, in the amount of $20,000,000.00 in favor
of Bank of even date herewith ("Line of Credit Note"); and
WHEREAS, Commonwealth Bank, a division of Meridian Bank ("Meridian") has
previously extended other credit accommodations to Borrower, including, but not
limited to, the following (the "Existing Indebtedness"): (i) a real estate term
loan having a current principal balance of approximately $896,347.71 (the "Real
Estate Loan"), which loan is secured, inter alia, by first lien mortgages
----------
against Borrower's real property and improvements located along Route 15, Kelly
Township, Lewisburg, Pennsylvania and Borrower's real property and improvements
located at the Industrial Park, East Buffalo Township, Pennsylvania; (ii) a
second term loan having a current principal balance of approximately
$1,428,571.52 (the "Term Loan"), which loan is secured by second lien mortgages
against the Route 15, Kelly Township, Lewisburg, Pennsylvania real property and
improvements, the Industrial Park, East Buffalo Township, Pennsylvania real
property and improvements, a first lien security interests in all business
assets of the Borrower, a pledge and assignment of 60% of the stock of
Borrower's subsidiary, Electronica Pantera, S.A. de C.V.; and (iii) certain
automated clearing house facilities in the aggregate amount of $250,000.00 (the
"ACH Facilities") (all of the mortgages, security interests, financing
statements, liens, encumbrances, documents, instruments and agreements and all
other collateral of any kind or nature whatsoever securing the Real Estate Loan,
the Term Loan and ACH Facilities, or the Loan or Line of Credit Note or any
other debt, liability or obligation whatsoever of the Borrower to Bank, whether
currently existing or hereafter arising, are collectively referred to herein as
the "Common Collateral"); and
WHEREAS, Bank is the successor-in-interest to all of Meridian's right,
title and interest in and to the Real Estate Loan, the Term Loan, the ACH
Facilities and the Common Collateral by virtue of the merger of Commonwealth
into Bank; and
WHEREAS, as an inducement to Bank to accept the Line of Credit Note and to
extend the Loan evidenced thereby to Borrower, Borrower is willing to cross-
collateralize and
<PAGE>
cross-default its various obligations to Bank, including, without limitations,
its various obligations to Bank under the Loan, the Real Estate Loan, the Term
Loan and the ACH Facilities.
NOW, THEREFORE, in order to induce Bank to accept the Line of Credit Note
and to extend the Loan thereunder to Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, Borrower, for itself and for its
successors and assigns, hereby agrees as follows:
It is agreed that a default under the Loan, the Line of Credit Note or any
other note, security agreement, credit agreement, mortgage, document, instrument
or agreement securing or executed in connection with the Loan, the Line of
Credit Note or the Common Collateral, or under any other loan, debt, obligation
or liability pursuant to which Borrower is directly or indirectly obligated to
Bank, presently existing or hereafter made, including, without limitation, the
Existing Indebtedness, shall constitute a default on all such loans, debts,
liabilities and obligations (collectively, the "Cross-Collateralized
Obligations"). It is further agreed that all of the collateral and all other
security given by or on behalf of the Borrower, now or hereafter granted to
Bank, including, without limitation, the Common Collateral, shall collateralize
and secure all of the Cross-Collateralized Obligations. Upon any default under
the Cross-Collateralized Obligations, all Cross-Collateralized Obligations
shall, automatically and without further notice to Borrower, become immediately
due and payable, at the option of the Bank, and the Common Collateral, or any
part thereof at the discretion of the Bank, may be foreclosed, enforced and
realized upon by the Bank to repay all or any portion of the Cross-
Collateralized Obligations in such order and in such amounts as the Bank may
determine.
IN WITNESS WHEREOF, the undersigned, intending to legally bind itself, its
successors and assigns, has hereunto set its hand and seal on the day and year
first above written.
ATTEST: THE JPM COMPANY
/s/ Dara C. Leeser By: /s/ William D. Baker
------------------- ---------------------
Title: Vice President, CFO and
Treasurer
2
<PAGE>
COMMONWEALTH OF PENNSYLVANIA )
: SS:
COUNTY OF UNION )
-----
On this the 30th day of May, 1997, before me, the undersigned officer,
----
personally appeared William D. Baker, who acknowledged himself to be the Vice
---------------- ----
President, CFO and Treasurer of The JPM Company, and as such ________________
- ---------------------------- ---------------
and being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing his name as such William D. Baker on
----------------
behalf of The JPM Company.
---------------
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Dara C. Leeser
--------------
Notary Public
My Commission Expires: Notary Seal
Dara C. Leeser, Notary Public
Kelly Twp., Union County
My Commission Expires Sept. 6, 1999
<PAGE>
Amended and Restated
Security Agreement
(Accounts, Inventory and Equipment)
CoreStates
THIS AGREEMENT is made this 30th day of May, 1997, between CoreStates Bank,
N.A.*, a national banking association (the "Bank"), and The JPM Company, a
Pennsylvania corporation (the "Debtor").
1. DEFINITIONS. As used herein and in any separate agreement between the Bank
and the Debtor in connection with this Agreement:
(a) "Account" means any right to payment for goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance including all rights to payment
under a charter or other contract involving the use or hire of a vessel and all
rights incident to such charter or contract.
(b) "Qualified Account" means any Account meeting all the following
specifications: (i) it is lawfully owned by the Debtor and subject to no lien,
security interest or prior assignment, and the Debtor has the right of
assignment thereof and the power to grant a security interest therein; (ii) it
is a valid and enforceable Account, representing the undisputed indebtedness of
an Account Debtor to the Debtor; (iii) it is not subject to any defense, set-
off, counter-claim, credit, allowance or adjustment; (iv) no substantial part of
any goods, the sale of which has given rise to the Account, has been returned,
rejected, lost or damaged; (v) if it arises from the sale of goods by the
Debtor, such sale was an absolute sale and not on consignment or on approval or
on a sale or return basis nor subject to any other repurchase or return
agreement, and such goods have been shipped to the Account Debtor; (vi) if it
arises from the performance of services, such services have actually been
performed; (vii) it arose in the ordinary course of the Debtor's business;
(viii) no notice of the bankruptcy, receivership, reorganization, insolvency, or
financial embarrassment of the Account Debtor has been received; (ix) the
Account Debtor is not a subsidiary or affiliate of the Debtor, does not control
the Debtor, and is not under the control of or under common control with the
Debtor; and (x) the Account meets such other specifications and requirements
which may from time to time be established by the Bank., including the
definition of a "qualified accounts receivable" in Section 3 of the Credit
Agreement.
(c) "Account Debtor" means the Person who is obligated on an Account or
General Intangible.
- --------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank.
<PAGE>
(d) "Chattel Paper" means a writing or writings which evidence both a
monetary obligation and a security interest in or a lease of specific goods.
(e) "Collateral" means (i) all of the Debtor's Inventory now owned or
hereafter acquired; (ii) all of the Debtor's Documents of Title now owned or
hereafter acquired; (iii) all of the Debtor's Accounts now existing or hereafter
arising; (iv) all of the Debtor's Farm Products now existing or hereafter
arising; (v) all of the Debtor's General Intangibles, Chattel Paper and
Instruments now existing or hereafter acquired or arising; (vi) all guarantees
of the Debtor's existing and future Accounts and General Intangibles and all
other security held by the Debtor for the payment or satisfaction thereof; (vii)
the goods or the services, the sale or lease or performance of which gave rise
to any Account or General Intangible of the Debtor, including any returned
goods; (viii) all of the Debtor's Equipment now owned or hereafter acquired;
(ix) any balance or share belonging to the Debtor of any deposit, agency or
other account with any bank and any other amounts which may be owing from time
to time by any bank to the Debtor; (x) all property of any nature whatsoever of
the Debtor now or hereafter in the possession of or assigned or hypothecated to
the Bank for any purpose; and (xi) all Proceeds of all of the foregoing,
including all Proceeds of other Proceeds.
(f) "Credit Agreement" means that Commitment Letter between Debtor and
the Bank dated May 28, 1997, as may be supplemented, amended, modified,
substituted or restated from time to time.
(g) "Debtor" means the Person who executes this Agreement as such. The
Debtor may be either a borrower from the Bank or a guarantor of the indebtedness
of another to the Bank, and in either case is the Person obligated to pay the
Liabilities secured hereby.
(h) "Document of Title" means a bill of lading, dock warrant, dock
receipt, warehouse receipt or order for the delivery of goods, and also any
other document which in the regular course of business or financing is treated
as adequately evidencing that the Person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
(i) "Farm Products" means crops or livestock or supplies used or produced
in farming operations or products of crops or livestock in their unmanufactured
states (such as ginned cotton, woolclip, maple syrup, milk and eggs), if they
are in the possession of a Debtor engaged in raising, fattening, grazing or
other farming operations.
(j) "Equipment" means tangible personal property held by the Debtor for
use primarily in business and includes equipment, machinery, furniture,
fixtures, dies, tools, and all accessories and parts now or hereafter affixed
thereto.
(k) "General Intangibles" means all personal property of every kind and
description of Debtor other than goods, Accounts, Chattel Paper, Documents of
Title, Instruments and money, and includes without limitation choses in action,
books, records, customer lists, tax, insurance and other kinds of refunds,
patents, trademarks, copyrights, trade names, plans, licenses and other rights
in personal property.
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(l) "Instrument" means a negotiable instrument or a security or any other
writing which evidences a right to the payment of money and is not itself a
security agreement or lease and is of a type which is, in ordinary course of
business, transferred by delivery with any necessary indorsement or assignment.
(m) "Inventory" means tangible personal property held by the Debtor for
sale or lease or to be furnished under contracts of service, tangible personal
property which the Debtor has so leased or furnished, and raw materials, work in
process and materials used, produced or consumed in Debtor's business, and shall
include tangible personal property returned to the Debtor by the purchaser
following a sale thereof by the Debtor and tangible personal property
represented by Documents of Title. All equipment, accessories and parts at any
time attached or added to items of Inventory or used in connection therewith
shall be deemed to be part of the Inventory.
(n) "Liabilities" means all existing and hereafter incurred or arising
indebtedness, obligations and liabilities of the Debtor to the Bank, whether
absolute or contingent, direct or indirect and out of whatever transactions
arising, and includes without limitation, the indebtedness under the Line of
Credit and the Note (as these terms are defined in the Credit Agreement) and
all other matured and unmatured indebtedness, obligations and liabilities of the
Debtor under or in connection with existing and future loans and advances
evidenced by promissory notes or otherwise, letters of credit, acceptances, all
other extensions of credit, repurchase agreements, security agreements,
mortgages, overdrafts, foreign exchange contracts and all other contracts for
payment or performance, indemnities, and all indebtedness, obligations and
liabilities under any guaranty or surety agreement, or as co-maker or co-obligor
with any person for any of the foregoing, including without limitation all
interest, expenses, costs (including collection costs) and fees (including
reasonable attorney's fees and prepayment fees) incurred, arising or accruing
(whether prior or subsequent to the filing of any bankruptcy petition by or
against any Debtor) under or in connection with any of the foregoing, and
further including all such indebtedness, obligations and liabilities of the
Debtor (i) to others which the Bank may have obtained by assignment,
participation, subrogation, merger or otherwise, and (ii) to subsidiaries of the
Bank.
(o) "Person" means an individual, a corporation, a government or
governmental subdivision or agency or instrumentality, a business trust, an
estate, a trust, a partnership, a cooperative, an association, two or more
Persons having a joint or common interest, or any other legal or commercial
entity.
(p) "Proceeds" means whatever is received when Collateral is sold,
exchanged, collected or otherwise disposed of, including, without limitation,
insurance proceeds.
2. SECURITY INTEREST IN COLLATERAL. As Security for the payment of the
Liabilities the Debtor hereby assigns to the Bank and grants to the Bank a lien
upon and security interest in the Collateral. Without the written consent of the
Bank, the Debtor will not create, incur, assume or suffer to exist any other
liens or security interests in the Collateral. Bank
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expressly consents to those loans and security interests in the Collateral held
by other banks as set forth in the Credit Agreement.
3. COLLECTION OF ACCOUNTS UPON DEFAULT. Upon the occurrence and during the
continuation of a default hereunder and to the extent the Bank has not exercised
it rights to collect the Accounts directly from the Account Debtors, the Debtor
shall deliver to the Bank within one day of the receipt thereof by the Debtor
all Proceeds in the form of cash, checks, drafts, notes and other remittances
received in payment of or on account of any of the Debtor's Accounts. Such
Proceeds shall be deposited in a special non-interest bearing bank account (the
"Cash Collateral Account") maintained with the Bank over which the Bank alone
shall have power of withdrawal. All Proceeds other than cash shall be deposited
in precisely the form in which received, except for the addition thereto of the
endorsement of the Debtor when necessary to permit collection of the items,
which endorsement the Debtor agrees to make. The Debtor will not commingle any
such Proceeds with any of the Debtor's other funds or property but will hold
them separate and apart from any other funds or property and upon an express
trust for the Bank until deposit thereof is made in the Cash Collateral Account.
At the Bank's discretion, the Bank will apply all or any part of the collected
Proceeds of Accounts on deposit in the Cash Collateral Account to the payment in
full or in part of such of the Liabilities and in such order as the Bank may
elect. In addition, the Bank shall have the right at any time, acting if it so
chooses in the Debtor's name, to collect the Debtor's Accounts itself, to sell,
assign, compromise discharge or extend the time for payment of any Account, to
institute legal action for the collection of any Account, and to do all acts and
things necessary or incidental thereto. The Debtor hereby ratifies all that the
Bank shall do by virtue hereof. The Bank may at any time, without notice to the
Debtor, notify any Account Debtor that the Account payable by such Account
Debtor has been assigned to the Bank and is to be paid directly to the Bank. At
the Bank's request the Debtor shall so notify Account Debtors and shall indicate
on all billings to Account Debtors that payments thereon are to be made to the
Bank. Without the written consent of the Bank, the Debtor shall not compromise,
discharge, extend the time for payment of or otherwise grant any indulgence or
allowance with respect to any Account.
4. PROCESSING AND SALES OF INVENTORY. So long as the Debtor is not in default
hereunder, the Debtor shall have the right, in the regular course of its
business, to process and sell its Inventory.
5. OTHER AGREEMENTS OF DEBTOR.
(a) The Debtor shall keep complete and accurate books and records and make
all necessary entries therein to reflect the quantities, costs, values and
location of its Inventory and Equipment, and the transactions and facts giving
rise to its Accounts and General Intangibles and all payments, credits and
adjustments applicable thereto. The Debtor shall keep the Bank fully and
accurately informed as to the location of all such books and records pertaining
to the Collateral and shall permit the Bank's agents to have access to all such
books and records and any other records pertaining to the Debtor's business
which the Bank may request for the purpose of examining, auditing and copying
the same. The Bank shall have the right to communicate with Account Debtors and
Debtor's accountant to the extent reasonably necessary to verify
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account balances and any information provided by the Debtor. The Bank's right to
audit, inspect, copy and access the Debtor's books and records pertaining to the
Collateral shall be enforceable at law by appropriate remedies at law or in
equity, and the Debtor consents to the entry of judicial orders or injunctions
enforcing such right without any notice to the Debtor or any opportunity to be
heard.
(b) In the event that any lien, assessment or tax liability against the
Debtor shall arise, whether or not entitled to priority over the security
interest of the Bank created hereby, the Debtor shall give prompt notice thereof
in writing to the Bank. The Bank shall have the right (but shall be under no
obligation) to pay any tax or other liability of the Debtor reasonably deemed by
the Bank to affect its interest. The Debtor shall repay to the Bank any sums
which the Bank shall have so paid, together with interest thereon at the rate
payable by the Debtor, at the time of payment by the Bank, with respect to the
Liabilities (or the highest such rate, if there be more than one), but in no
event less than six percent (6%) per annum and the Debtor's liability to the
Bank for such repayment with interest shall be included in the Liabilities. In
addition, the Bank shall be subrogated to the extent of the payment made by it
to all rights of the recipient of such payment against the assets of the Debtor.
The Debtor shall furnish to the Bank at such times as the Bank may require proof
reasonably satisfactory to the Bank of the making of payments or deposits
required by applicable law with respect to amounts withheld by the Debtor from
wages and salaries of employees and amounts contributed by the Debtor on account
of federal and other income or wage taxes and amounts due under the Federal
Insurance Contributions Act. With respect to its operations in the United States
of America, the Debtor represents, warrants and agrees that, in respect to all
employee pension or other benefit plans maintained by the Debtor or any of its
subsidiaries, the Debtor is in full compliance, and will continue to comply
fully, with the Employee Retirement Income Security Act of 1974, as amended and
all rules and regulations adopted thereunder or pursuant thereto. With respect
to its operations in the United States of America, the Debtor continuously
represents and warrants to the Bank that all Collateral consisting of goods has
been and will continue to be produced in compliance with the requirements of the
Fair Labor Standards Act, including Sections 206 and 207 thereof, and will
immediately notify Bank if Debtor has any reason to believe otherwise.
(c) If any of the Debtor's Accounts or General Intangibles arises out of a
contract with the United States or any department, agency or instrumentality
thereof and is in excess of $100,000, the Debtor will immediately notify the
Bank thereof in writing and execute any instruments and take any steps required
by the Bank in order that the security interest of the Bank hereunder in the
Debtor's General Intangibles under such contract and in all Accounts arising
thereunder and in the Proceeds thereof shall be perfected under the provisions
of the Federal Assignment of Claims Act.
(d) If, upon the occurrence of a default hereunder, any of the Debtor's
Accounts is or becomes evidenced by a promissory note, a trade acceptance or any
other instrument for the payment of money, the Debtor will promptly deliver such
instrument to the Bank appropriately endorsed to the Bank's order. Regardless of
the form of such endorsement, the Debtor hereby waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices with
respect thereto.
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(e) The Debtor will keep its Inventory and Equipment insured against such
casualties and in such amounts as the Bank shall reasonably require. All
insurance policies shall be written for the benefit of the Debtor as the
insured, and shall name the Bank as loss payee, and certificates evidencing such
insurance, in form and substance acceptable to the Bank, shall be delivered to
and held by the Bank. All such policies of insurance shall provide for at least
ten days' advance notice in writing to the Bank of any cancellation thereof, and
shall insure Bank notwithstanding the act or neglect to act of Debtor. If the
Debtor fails to pay the premiums on any such insurance, the Bank shall have the
right (but shall be under no obligation) to pay such premiums for the Debtor's
account. The Debtor shall repay to the Bank any sums which the Bank shall have
so paid, together with interest thereon at the rate payable by the Debtor, at
the time of payment by the Bank, with respect to the Liabilities (or the highest
such rate, if there be more than one), but in no event less than six percent
(6%) per annum, and the Debtor's liability to the Bank for such repayment with
interest shall be included in the Liabilities. The Debtor's rights to receive
payment of any return or unearned premiums and the proceeds of any such
insurance are included in the Accounts and General Intangibles which are hereby
subjected to a security interest.
(f) The Debtor will maintain the Equipment in good condition and repair,
and will pay the cost of repairs to or maintenance of the same and will not
permit anything to be done that may impair the value of the Equipment.
(g) Upon the occurrence, and during the continuance of a default
hereunder, the Bank shall have the right to take possession of any Inventory and
the Debtor hereby assigns to the Bank its right of stoppage in transit with
respect to any Inventory. All costs of transportation, packing, storage and
insurance of any Inventory which the Bank may take into its possession shall be
promptly repaid to the Bank by the Debtor, together with interest thereon at the
rate payable by the Debtor, at the time of payment by the Bank, with respect to
the Liabilities (or the highest such rate, if there be more than one), but in no
event less than six percent (6% ) per annum, and the Debtor's liability to the
Bank for such repayment with interest shall be included in the Liabilities. If
any of the Debtor's Inventory is or becomes represented by a Document of Title,
the Bank may require that such Document of Title be in such form as to permit
the Bank or anyone to whom the Bank may negotiate the same to obtain delivery of
the Inventory represented thereby, and that it be delivered into the possession
of the Bank.
(h) At such intervals as the Bank may reasonably require, the Debtor shall
submit to the Bank a schedule reflecting in form and detail satisfactory to the
Bank the quantities, cost and value of its Inventory and Equipment, and the
amounts of all its outstanding Accounts and the amount of the Accounts which are
Qualified Accounts and the value of all its General Intangibles. The Bank may
also require the Debtor to submit to the Bank copies of the invoices pertaining
to all or any of its Accounts and evidence of shipment of the Inventory the sale
or leasing of which have given rise to such Accounts.
(i) The Debtor shall promptly notify the Bank of any event causing
deterioration, loss or depreciation in value of any substantial portion of the
Debtor's Inventory or Equipment and the
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amount of such loss or depreciation. The Debtor shall permit the Bank's agents
to have access to its Inventory and Equipment from time to time, as requested by
the Bank, for purposes of examination, inspection, and appraisal thereof and
verification of the Debtor's records pertaining thereto. Upon the occurrence and
during the continuation of a default hereunder, the Debtor shall assemble the
Inventory and Equipment and make them available to the Bank at such place as may
be designated by the Bank which is reasonably convenient to both parties. At the
request of the Bank, the Debtor shall lease warehousing space in the Debtor's
own premises to the Bank for the purpose of taking any Inventory into the
custody of the Bank without removal thereof from such premises and will erect
such structures and post such signs as the Bank may require in order to place
such Inventory under the exclusive control of the Bank.
(j) The Debtor will promptly notify the Bank (i) of any material adverse
change in the Debtor's financial condition or in the financial condition of any
Account Debtor owing money to the Bank in excess of $150,000 or in the
collectibility of any of its Accounts in excess of $150,000, (ii) of all claims,
rejections, returns and adjustments which may result in a reduction of the
liability of any Account Debtor on an Account in excess of $150,000, and (iii)
of any Qualified Account which shall cease for any reason to meet the
specifications fixed hereby for Qualified Accounts and which is in excess of
$150,000.
(k) The Debtor warrants that the Debtor's chief executive office and all
of its offices where it keeps its records concerning the Collateral, all
locations at which it keeps its Inventory and Equipment and all locations at
which it maintains a place of business are listed in Section 18 hereof. Debtor
further warrants that Debtor has no plans for the removal of the Collateral to
any location not set forth in Section 18. The Debtor shall promptly notify the
Bank in writing of any change in the Debtor's name, chief executive office or
the location of the Debtor's records, of any change in the location of the
Collateral, of any change in the location of any place of business and of the
establishment of any new place of business. If any of the Collateral or any of
the Debtor's records concerning the Collateral are at any time to be located on
premises leased by the Debtor or on premises owned by the Debtor, subject to a
mortgage or other lien (other than mortgages and liens permitted under the
Credit Agreement), the Debtor shall obtain and deliver to the Bank, prior to the
delivery of any Collateral or records concerning the Collateral to said
premises, an agreement in form satisfactory to the Bank, waiving the landlord's
or mortgagee's or lienholder's rights to enforce any claim against the Debtor
for moneys due under the lease, mortgage or other lien by levy of distraint or
other similar proceedings against the Collateral or the Debtor's records
concerning the Collateral and assuring the Bank's ability to have access to the
Collateral and the Debtor's records concerning the Collateral in order to
exercise its rights hereunder to take possession thereof.
(l) The Debtor shall pay to the Bank on demand, with interest at the rate
payable by the Debtor, at the time of payment by the Bank, with respect to the
Liabilities (or the highest such rate, if there be more than one), but in no
event less than six percent (6%) per annum, any and all expenses (including
reasonable attorney's fees and legal expenses, filing fees, searches, and
termination costs), which may have been incurred by the Bank (i) to enforce
payment of any Account or to enforce any General Intangibles or to enforce any
of the Liabilities, whether as against an Account Debtor, the Debtor or any
guarantor or surety of any Account Debtor or of
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the Debtor; or (ii) in the enforcement, prosecution or defense of any action
growing out of or connected with the subject matter of this Agreement, the
Liabilities, the Collateral or any of the Bank's rights therein or thereto; or
(iii) in connection with the custody, preservation, use, operation, preparation
for sale or sale of any Collateral; or (iv) in connection with preparation and
completion of this Agreement and any and all related agreements and consummation
of the financing arrangements described herein and any modification or extension
hereof; or (v) with respect to the enforcement, protection or preservation from
time to time of the Bank's rights under this Agreement or with respect to the
Collateral. The Debtor's liability to the Bank for such repayment with interest
shall be included in the Liabilities and is secured by the Collateral.
(m) The Debtor shall provide the Bank with all financial statements or
other financial documents as the Bank may from time to time require. The Debtor
further covenants and agrees to execute from time to time any and all agreements
and documents (including financing statements) which the Bank may request in
order to perfect its lien on the Collateral and otherwise carry out the
provisions of this Agreement. The Debtor further authorizes the Bank to file a
carbon, photographic or other reproduction of this Agreement or a financing
statement previously filed under this Agreement as a financing statement in any
jurisdiction. If certificates of title are issued or outstanding with respect to
any of the Collateral, the Debtor will cause the security interest of the Bank
to be properly noted thereon and will promptly deliver such certificates to the
Bank.
(n) Except in the ordinary course of business and as limited immediately
hereafter, the Debtor shall not sell or otherwise dispose of its Inventory or
Equipment without the prior written consent of the Bank. If the Debtor seeks to
sell or otherwise dispose of Equipment having a then current fair market value
of $50,000 or more (as mutually determined in good faith between the Bank and
the Debtor), and the Debtor does not replace that Equipment with Equipment that
(i) has a then current market value of equal or greater value and (ii) is
subject to no lien, encumbrance or security interest (including title retained
as security) other than in favor of the Bank, then the Debtor must obtain the
prior written consent of the Bank.
6. ENVIRONMENTAL MATTERS.
(a) As used in this Agreement, the following terms shall have the
following meanings: (i) "Environmental Laws" means any and all applicable
federal, state and local environmental laws, rules and regulations whether now
existing or hereafter enacted together with all amendments, modifications and
supplements thereof; and (ii) "Hazardous Materials" means any contaminants,
hazardous substances, regulated substances, or hazardous wastes which may be the
subject of liability pursuant to any Environmental Law.
(b) The Debtor represents and warrants that, except as otherwise expressly
set forth in Section 11(a) of the Credit Agreement, no property owned or leased
by the Debtor or any subsidiary of the Debtor is in violation of any
Environmental Laws, no Hazardous Materials are present on said property and
neither the Debtor nor any subsidiary of the Debtor has been identified in any
litigation, administrative proceedings or investigation as a responsible party
for any liability under any Environmental Laws.
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(c) Except as otherwise expressly permitted in Section 11(a) of the Credit
Agreement, the Debtor shall not use, generate, treat, store, dispose of or
otherwise introduce, or permit any subsidiary to use, generate, treat, store,
dispose of or otherwise introduce, any Hazardous Materials into or on any
property owned or leased by the Debtor, and will not, and will not permit any
subsidiary to, cause, suffer, allow or permit anyone else to do so, except in an
environmentally safe manner through methods which have been approved by and meet
all of the standards of the federal Environmental Protection Agency and any
other federal, state or local agency with authority to enforce Environmental
Laws. The Debtor hereby agrees to indemnify, reimburse, defend and hold harmless
the Bank and its directors, officers, agents and employees ("Indemnified
Parties") for, from and against all demands, liabilities, damages, costs,
claims, suits, actions, legal or administrative proceedings, interest, losses,
expenses and reasonable attorney's fees (including any such fees and expenses
incurred in enforcing this indemnity) asserted against, imposed on or incurred
by any of the Indemnified Parties, directly or indirectly pursuant to or in
connection with the application of any Environmental Law, to acts or omissions
occurring at any time on or in connection with any property owned or leased by
the Debtor or any subsidiary of the Debtor or any business conducted thereon.
7. DEFAULT. With respect to Liabilities owing under the Credit Agreement, the
occurrence of an Automatic Termination Event shall represent a default
hereunder. With respect to all other Liabilities, the Debtor shall be in
default hereunder upon the occurrence of any of the following events:
(a) The nonpayment when due of any amount payable on any of the
Liabilities by the Debtor or by any other person liable, either absolutely or
contingently, for payment, including endorsers, guarantors and sureties (each
such person is referred to as a "Obligor");
(b) If the Debtor or any Obligor has failed to observe or perform any
existing or future agreement of any nature whatsoever with the Bank (other than
those described in clause (a) above);
(c) If any representation, warranty, certificate, financial statement or
other information made or given by the Debtor or any Obligor to the Bank is
materially incorrect or misleading;
(d) If the Debtor or any Obligor shall become insolvent or make an
assignment for the benefit of creditors or if any petition shall be filed by or
against the Debtor or any Obligor under any bankruptcy or insolvency law which,
in the case of an involuntary petition only, is not dismissed within sixty (60)
days of filing;
(e) The entry of any judgment against the Debtor or any Obligor in excess
of $200,000 which remains unsatisfied for 15 days (unless and to the extent the
effect of the judgment is stayed by appeal, reconsideration or similar judicial
reasons) or the issuance of any attachment, tax lien, levy or garnishment
against any property of material value in which the Debtor or any Obligor has an
interest;
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(f) If any attachment, levy, garnishment or similar legal process with
respect to liabilities in excess of $200,000 is served upon the Bank as a
result of any claim against the Debtor or any Obligor or against any property of
the Debtor or any Obligor;
(g) The dissolution, merger, consolidation or change in control (as
control is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of
any Debtor which is a corporation or partnership, or the sale or transfer of any
substantial portion of any Debtor's assets, or if any agreement for such
dissolution, merger, or consolidation, change in control, sale or transfer is
entered into without the written consent of Bank;
(h) The death of any Debtor or Obligor who is a natural person;
(i) If the Bank determines reasonably and in good faith that an event has
occurred or a condition exists which has had, or is likely to have, a material
adverse effect on financial condition or creditworthiness of the Debtor or any
Obligor,
(j) If the Debtor or any Obligor shall fail to remit promptly when due to
the appropriate government agency or authorized depository, any amount collected
or withheld from any employee of the Debtor for payroll taxes, Social Security
payments or similar payroll deductions;
(k) If any Obligor shall attempt to terminate or disclaim such Obligor's
liability for the Liabilities;
(l) If the Bank shall reasonably and in good faith determine and notify
the Debtor that any collateral is insufficient as to quality or quantity;
(m) If the Debtor shall fail to pay when due any material indebtedness for
borrowed money other than to the Bank; or
(n) If the Debtor shall be notified of the failure of the Debtor or any
Obligor to provide such financial and other information promptly when reasonably
requested by the Bank and Debtor shall not have cured the failure within three
(3) business days from notice by Bank.
8. ACCELERATION AND ENFORCEMENT RIGHTS. Whenever the Debtor shall be in
default as aforesaid, in addition to and not in limitation of, any demand rights
of the Bank with respect to any Liabilities, (i) the Bank may declare the entire
unpaid amount of such of the Liabilities as are not then due and payable to
become immediately due and payable without notice to or demand on any Obligor;
and (ii) the Bank may at its option exercise from time to time any or all rights
and remedies available to it under the Uniform Commercial Code or otherwise
available to it, including the right to collect, receipt for, settle,
compromise, adjust, sue for, foreclose or otherwise realize upon any of the
Collateral and to dispose of any of the Collateral at public or private sale(s)
or other proceedings, with or without advertisement, and the Debtor agrees that
the Bank or its nominee may become the purchaser at any such sale(s). Bank shall
have the unconditional right to retain and obtain the full benefit of all
Collateral until all Liabilities of the Debtor to the Bank are paid and
satisfied in full. If any notification of intended
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disposition of the Collateral is required by law, such notice shall be deemed
reasonable if mailed at least 7 days before such disposition addressed to the
Debtor at its Address shown herein. If any of the Liabilities secured hereby is
payable on demand, Bank's right to require payment shall not be restricted or
impaired by the absence, non-occurrence or waiver of an Event of Default, and it
is understood that if such Liabilities are payable on demand, the Bank may
require payment at any time.
9. APPLICATION OF COLLATERAL. The Proceeds of any Collateral received by the
Bank at any time before or after default, whether from sale of Collateral or
otherwise, may be applied to the payment in full or in part of such of the
Liabilities and in such order as the Bank may elect. The Debtor, to the extent
that it has any right, title or interest in any of the Collateral, authorizes
Bank to proceed against the Collateral in any order that Bank may determine and
waives and releases any right to require the Bank to collect any of the
Liabilities from any source other than from the Collateral under any theory of
marshaling of assets, or otherwise, and specifically authorizes the Bank to
proceed against any of the Collateral in which the Debtor has a right, title or
interest with respect to any of the Liabilities in any manner that the Bank may
determine.
10. POWER OF ATTORNEY. Upon the occurrence and during the continuation of a
default hereunder, the Debtor does hereby appoint any officer or agent of the
Bank as the Debtor's true and lawful attorney-in-fact, with power to endorse the
name of the Debtor upon any notes, checks, drafts, money orders, or other
instruments of payment or Collateral that may come into possession of Bank; to
sign and endorse the name of the Debtor upon any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against Account
Debtors, assignments, verifications and notices in connection with Accounts, and
any instruments or documents relating thereto or to the Debtor's rights therein;
and to give written notice to such office and officials of the United States
Postal Service to effect such change or changes of address so that all mail
addressed to the Debtor may be delivered directly to Bank (Bank will return all
mail not related to the Liabilities or the Collateral within a reasonable period
of time following receipt); granting unto Debtor's said attorney full power to
do any and all things necessary to be done with respect to the above
transactions as fully and effectually as Debtor might or could do, and hereby
ratifying all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney shall be irrevocable for the term of this
Agreement and all transactions hereunder.
11. TERM. The term of this Agreement shall commence with the date hereof and
end on the date when, after receipt of written notice of the termination of this
Agreement from either party to the other, which notice may be given by either
party at any time, there shall be no Liabilities outstanding.
12. SUCCESSORS AND ASSIGNS. All provisions herein shall inure to, and become
binding upon, the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties, provided, however, that this
Agreement shall not be assignable by the Debtor without the prior written
approval of the Bank.
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13. CONFESSION OF JUDGMENT. Upon the occurrence of a default hereunder, the
Debtor hereby irrevocably authorizes and empowers any attorney of any court of
record to appear for and confess judgment against the Debtor for the unpaid
amount of the Liabilities as evidenced by an affidavit signed by an officer of
the Bank setting forth the amount then due, plus 15% thereof, but no less than
$5,000, as an attorney's commission, with costs of suit, release of errors, and
without right of appeal. If a copy hereof, verified by an affidavit, shall have
been filed in said proceeding, it shall not be necessary to file the original as
a warrant of attorney. The Debtor waives the right to any stay of execution and
the benefit of all exemption laws now or hereafter in effect. No single exercise
of the foregoing warrant and power to confess judgment shall be deemed to
exhaust the power, whether or not any such exercise shall be held by any court
to be invalid, voidable, or void, but the power shall continue undiminished and
may be exercised from time to time as often as the Bank shall elect, until all
Liabilities have been paid in full
14. THE DEBTOR'S AUTHORITY AND CAPACITY, ETC. The Debtor represents and
warrants that the Bank is obtaining and shall maintain at all times a first lien
on all of the Collateral, except for such prior liens as may be expressly
permitted under the Credit Agreement. If the Debtor is a corporation, the Debtor
further represents and warrants that it is duly organized, validly in existence
and in good standing in its state of incorporation and any other state where the
nature or extent of its business requires qualification, that the execution and
performance by the Debtor of this Agreement and any related agreements is
authorized by the Debtor's Board of Directors and does not violate the Articles
of Incorporation or By-Laws of the Debtor or any other Agreement or contract by
which the Debtor is bound. The Debtor represents and warrants that this
Agreement is the legal, valid and binding obligation of the Debtor enforceable
against the Debtor in accordance with its terms.
15. CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE RELATIONSHIP ESTABLISHED HEREUNDER, EACH UNDERSIGNED PARTY HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE THE BANK
MAINTAINS AN OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION
OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH
COUNTY. EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
PROCEEDING MAY BE DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED
MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
16. WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY HEREBY WAIVES, AND THE BANK BY
ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR
THE
12
<PAGE>
RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS AGREEMENT.
17. MISCELLANEOUS. The construction and interpretation of this Agreement and
all agreements shall be governed by the laws of the Commonwealth of
Pennsylvania. No modification hereof shall be binding or enforceable unless in
writing and signed by the party against whom enforcement is sought. If any
provision of this Agreement is determined to be unenforceable or invalid, such
determination shall not affect or impair the remaining provisions of this
Agreement. No rights are intended to be created hereunder for the benefit of any
third party beneficiary hereof. The individual signatory(ies) on behalf of the
Debtor represents that he (they) is (are) authorized to execute this Agreement
on behalf of the Debtor. This Agreement supplements the Debtor's obligations
under any promissory notes or separate agreements with the Bank,
18. LOCATIONS OF DEBTOR. The Debtor represents and warrants that the following
addresses (together with any additional addresses which may be shown on any
attached schedule) correctly set forth all of the locations where the Debtor
maintains a place of business, its records or the Collateral.
Chief Executive Office: Route 15, Kelly Township, Union County, Lewisburg, PA
17837
<TABLE>
<CAPTION>
Other Locations:
<S> <C> <C>
1. The JPM Company 2. The JPM Company 3. Electronica Pantera
Industrial Park Route 321 S.A. de C.V.
North 15th Street Winnsboro, SC 29180 Montemorelos No. 121
East Buffalo Township Fracc. Loma Bonita
Union County Zapopan, Jalisco
Lewisburg, PA 17837 Mexico, 45060
</TABLE>
19. NAME OF DEBTOR. The Debtor represents and warrants that the name of the
Debtor shown on this Agreement is the correct, full legal name of the Debtor,
that the Debtor has not at any time changed its name, identity or corporate
structure, and that the Debtor is not conducting business under an assumed name
or trade name except as set forth below. In the state of South Carolina, the
Debtor operates under the fictitious name "The JPM Company of South Carolina."
20. AMENDMENT AND RESTATEMENT. This Agreement amends and restates in its
entirety that Security Agreement dated April 19, 1996 (the "Original Agreement")
previously executed and delivered by Debtor to Commonwealth Bank, a division of
Meridian ("Meridian") predecessor-in-interest to Bank with respect to the
Liabilities and the Collateral. Debtor hereby acknowledges and consents to the
transfer of Meridian's rights and interests in the Liabilities and Collateral to
the Bank effected by the merger of Meridian into Bank. All lien priorities
effected
13
<PAGE>
pursuant to the Original Agreement shall continue, uninterrupted and in full
force and effect in favor of Bank.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
under seal and intending to be legally bound on the day and year first above
written.
CoreStates Bank. N.A.
By /s/ David M. Diffenderffer
---------------------------
THE JPM COMPANY
By: /s/ William D. Baker
---------------------
(Signature)
William D. Baker
----------------
(Print Name and Title)
Vice President, CFO and Treasurer
14
<PAGE>
GUARANTY
CoreStates
This Guaranty is made and entered into by the undersigned, and by each of
them if more than one (the "Grantor"), for the benefit of CoreStates Bank,
N.A./1/, a national banking association (the "Bank").
1. Obligor. The "Obligor" means the following person or entity, and if
more than one, any or all of the following persons or entities:
The JPM Company, a Pennsylvania corporation
2. Obligations. The "Obligations" means all existing and hereafter
incurred or arising indebtedness, obligations and liabilities of the Obligor to
the Bank, whether absolute or contingent, direct or indirect and out of whatever
transactions arising, and includes without limitation, all matured and unmatured
indebtedness, obligations and liabilities of the Obligor under or in connection
with existing and future loans and advances evidenced by promissory notes or
otherwise, letter of credit, acceptances, all other extensions of credit,
repurchase agreements, security agreements, mortgages, overdrafts, foreign
exchange contracts and all other contracts for payments or performance,
indemnities, and all indebtedness, obligations and liabilities under any
guaranty or surety agreement, or as co-maker or co-obligor with any person for
any of the foregoing, including without limitation all interest, expenses, costs
(including collection costs) and fees (including reasonable attorney's fees and
prepayment fees) incurred, arising or accruing (whether prior or subsequent to
the filing of any bankruptcy petition by or against any Obligor) under or in
connection with any of the foregoing. If the term "Obligor" includes more than
one person or entity, the Obligations shall include all Obligations of any one
or more of such persons or entities, whether such Obligations are individual,
joint, several or joint and several.
3. Unconditional Guaranty. In consideration of any existing Obligations
and any Obligations which may hereafter arise or be incurred, each Guarantor,
intending to be legally bound, absolutely and unconditionally (and jointly and
severally if more than one) guaranties to Bank the payment, performance and
satisfaction when due (whether by stated maturity, demand, acceleration or
otherwise) of all Obligations. The obligations of the Guarantor hereunder shall
continue in full force and effect irrespective of the validity, legality or
enforceability of any agreements, notes or documents pursuant to which any of
the Obligations arise, or the existence, value or condition of any collateral
for any of the Obligations, or of any other guaranty of the Obligations, or any
other circumstances which might otherwise constitute a legal or equitable
discharge of a surety or guarantor.
4. Cost of Enforcement. Each Guarantor agrees (jointly and severally if
more than one) to pay Bank all costs and expenses (including reasonable
attorneys' fees) at any time incurred by Bank in the enforcement of this
Guaranty against any Guarantor.
5. Payment by Guarantor. Payment by each Guarantor is due upon demand by
Bank and is payable in immediately available funds in lawful money of the United
States of America.
6. Continuing Guaranty. This Guaranty shall continue in full force and
effect with respect to each Guarantor and may not be revoked until all existing
Obligations and all Obligations hereafter incurred or arising have been paid,
performed and satisfied in full. Notwithstanding the foregoing, any Guarantor
may, by written notice to Bank, terminate its
- ------------------------
/1/ CoreStates Bank, N.A. also conducts business as Philadelphia National Bank,
as CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank.
<PAGE>
liability hereunder with respect to Obligations which are not Pre-Termination
Obligations as hereinafter defined. Such notice shall be ineffective unless
sent via certified mail to:
CoreStates Bank, N.A.
30 North Third Street
P. O. Box 1071
Harrisburg, PA 17108
Attn: David Diffenderffer
The burden of establishing (i) that Bank has received any termination notice
hereunder and (ii) the day on which such notice was received shall be on
Guarantor. In the event that Bank receives an effective termination notice from
Guarantor in accordance with the provisions of this paragraph, such termination
shall not affect Guarantor's liability (a) for Obligations incurred or arising
on or prior to the tenth day following receipt by Bank of such termination
notice, or any earlier day, on which Bank determines in good faith that the
appropriate Bank officers have actual knowledge of Bank's receipt of such notice
(the "Termination Effective Date"), (b) for Obligations which are renewals,
modifications, amendments, extensions, substitutions, replacements or rollovers
of, or which consist of accrued interest on. Obligations incurred or arising on
or prior to the Termination Effective Date, or (c) for Obligations incurred or
arising pursuant to a commitment existing on the Termination Effective Date
under which Bank was obligated to extend credit or make payments to Obligor or
for Obligor's account,/2/ all Obligations referred to in this sentence being
hereinafter collectively called "Pre-Termination Obligations". It is understood
that for purposes of this Guaranty and regardless of any conflicting agreement
between Bank and any Obligor, all payments on and other reductions of the
Obligations subsequent to the Termination Effective Date (other than payments
made by Guarantor in respect of the Guaranty itself) shall, unless Bank elects
otherwise in writing, be applied first to Obligations other than Pre-Termination
Obligations, and then to Pre-Termination Obligations. It is further understood
that the provisions of the preceding sentence shall be applicable regardless of
the amount of any Obligations incurred or arising subsequent to the Termination
Effective Date.
7. Waivers and Consents by Guarantor. Each Guarantor unconditionally
consents to, and waives as a defense to liability hereunder, each of the
following: (a) any waiver, inaction, delay or lack of diligence by Bank in
enforcing its rights against any Obligor or in any property, or the
unenforceability of any such rights, including any failure to perfect, protect
or preserve any lien or security interest which may be intended directly or
indirectly to secure any of the Obligations, and the absence of notice thereof
to any Guarantor, (b) the absence of any notice of the incurrence or existence
of any Obligation, (c) any action, and the absence of notice thereof to any
Guarantor, taken by Bank or any Obligor with respect to any of the Obligations,
including any release, subordination or substitution of any collateral or
release, termination, compromise, modification or amendment of any instrument
executed by or applicable to any Obligor or of any claim, right or remedy
against any Obligor or any property, (d) any impairment of Guarantor's right to
reimbursement by way of subrogation, indemnification or contribution, (e) any
other action taken or omitted by Bank in good faith with respect to the
Obligations, (f) the absence or inadequacy of any formalities of every kind in
connection with enforcement of the Obligations, including presentment, demand,
notice and protest, and (g) the waiver of any rights of Bank under or any action
taken or omitted by Bank with respect to any other guaranty of the Obligations.
8. Other Agreements By Guarantor. Each Guarantor agrees that there shall
be no requirement that Bank document its acceptance of this Guaranty, evidence
its reliance thereon, or that Bank take any action against any person or any
property prior to taking action
- -----------------------
/2/ Including without limitation all obligations arising out of that $20,000,000
line of credit extended by Bank to obligor pursuant to that Loan Commitment
dated May 28, 1997.
<PAGE>
against any Guarantor. Each Guarantor further agrees that Bank's rights
and remedies hereunder shall not be impaired or subject to any stay, suspension
or other delay as a result of Obligor's insolvency or as a result of any
proceeding applicable to Obligor or Obligor's property under any bankruptcy or
insolvency law. Each Guarantor also agrees that payments and other reductions
on the Obligations may be applied to such of the Obligations and in such order
as Bank may elect.
9. Subrogation and Similar Rights. No Guarantor will exercise any rights
with respect to Bank or any Obligor related to or acquired in connection with or
as a result of its making of this Guaranty which it may acquire by way of
subrogation, indemnification or contribution, by reason of payment made by it
hereunder or otherwise, until after the date on which all of the Obligations
shall have been satisfied in full. Until such time, any such rights against the
Obligor shall be fully subordinate in lien and payment to any claim in
connection with the Obligations which Bank now or hereafter has against the
Obligor. If any amount shall be paid to any Guarantor on account of such
subrogation, indemnification or contribution at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Bank,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to Bank to be applied in whole or in part by Bank against the
Obligations, whether matured or unmatured, in such order as the Bank shall
determine in its sole discretion. If Guarantor shall make payment to the Bank of
all or any portion of the Obligations and all of the Obligations shall be paid
in full. Guarantor's right of subrogation shall be without recourse to and
without any implied warranties by Bank and shall remain fully subject and
subordinate to Bank's right to collect any other amounts which may thereafter
become due to the Bank by the Obligor in connection with the Obligations.
account of any Obligations and Bank repays all or part of said amount by reason
of (a) any judgment, decree or order of any court or administrative body having
jurisdiction over the Bank or any of its property, or (b) any settlement or
compromise in good faith with any such claimant (including Obligor), then and in
such event each Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any termination hereof or the cancellation of any note or other instrument
evidencing any Obligation, and each Guarantor shall remain liable to the Bank
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by Bank.
11. Security Interest. Each Guarantor hereby assigns to the Bank and
grants to the bank a security interest in any balance or assets in any deposit
or other account of such Guarantor in or with the Bank whenever and so long as
any of the Obligations shall be outstanding and unpaid and agrees that the
security interest hereby granted shall be independent of the right of setoff.
12. Financial Information on Guarantor. Each Guarantor hereby agrees to
provide the Bank with such information on the business affairs and finance
condition of such Guarantor as the Bank from time to time may reasonably request
and to notify the Bank of any change in the address of such Guarantor. In the
event that such Guarantor fails to comply with a request for information as
herein agreed, within ten (10) days after receipt of the request, such Guarantor
upon demand by the Bank agrees to purchase from the Bank without representation,
warranty or recourse the Obligations and to pay therefor the unpaid principal
amount of all such Obligations, including interest thereof to the date of
purchase.
13. Effect of Other Agreement. The provisions of this Guaranty are
cumulative and concurrent with Bank's rights and remedies against Guarantor
under any existing or future agreement pertaining or evidencing any of the
Obligations. No such additional agreement shall be deemed a modification or
waiver hereof unless expressly so agreed by Bank in writing. If Bank holds any
other guaranty or surety agreement applicable to any of the Obligations, the
<PAGE>
liability of each Guarantor hereunder shall be joint and several with each party
obligated on such other guaranty or surety agreement, unless otherwise agreed by
Bank in writing.
14. Confession of Judgment; Waiver of Attorney Each Guarantor irrevocably
authorized and empowers any attorney or any clerk of court of record, upon the
occurrence of a default or an Event of Default under or in connection with any
of the Obligations, or at any time thereafter, to appear for and confess
judgment against such Guarantor for the full amount of such Guarantor's
liability under paragraph 3 hereof, with or without declarations, with costs of
suit and release of errors, without stay of execution and without an amount not
to exceed the greater of five percent (5%) of the principal amount of such
judgment or $5,000 added for collection fees. If a copy of this Guaranty,
verified by affidavit by or on behalf of Bank, shall have been filed in such
action, it shall not be necessary to file the original of this Guaranty. The
authority granted hereby shall not be exhausted by the initial exercise thereof
and may be exercised by Bank from time to time. There shall be excluded from
the lien of any judgment obtained solely pursuant to this paragraph all improved
real estate in any area identified by the Federal Emergency Management Agency as
having special flood hazards if the community in which such area is located is
participating in the National Flood Insurance Program. Any such exclusion shall
not affect any lien upon property not so excluded.
15. Guarantor's Address. Guarantor warrants and represents that the
address set forth below is Guarantor's correct mailing address and agrees
immediately to notify Bank in the event of any change therein.
16. Miscellaneous. (a) No amendment of any provision of this Guaranty
shall be effective unless it is in writing and signed by each Guarantor and
Bank, and no waiver of any provisions of this Guaranty, and no waiver or consent
to any departure by the Guarantor therefrom, shall be effective unless it is in
writing and signed by Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. (b)
Any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or affecting
the validity or enforceability of such provisions in any other jurisdiction. (c)
The obligations of such Guarantor hereunder shall not be subject to any
counterclaim, setoff, deduction or defense based upon any related or unrelated
claim which such Guarantor may now or hereafter have against Bank or any
Obligor, except payment of the Obligations, and shall not be affected by any
change in Obligor's legal status or ownership or by any change in corporate,
partnership or other organizational structure applicable to Obligor. (d) This
Guaranty shall (i) be binding on each Guarantor and its personal
representatives, estate, heirs, successors and assigns, and (ii) inure, together
with all rights and remedies of Bank hereunder, to the benefit of the Bank and
its successors, transferees and assigns. Notwithstanding the foregoing clause
(i) none of the rights or obligations of any Guarantor hereunder may be assigned
or otherwise transferred without the prior written consent of the Bank. (e) This
Guaranty shall be governed by and construed in accordance with the internal
laws, and not the law of conflicts, of the Commonwealth of Pennsylvania.
17. CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS GUARANTY OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE
AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
<PAGE>
18. WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS GUARANTY OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS GUARANTY.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as of the
____ day of May, 1997.
THE JPM COMPANY OF DELAWARE, INC.
NAME OF CORPORATION OR PARTNERSHIP GUARANTOR
Route 15 North, Lewisburg, PA 17837
ADDRESS
By: /s/ John H. Mathias
------------------------
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made this 12th day of March, 1996, by and
between THE JPM COMPANY, a Pennsylvania Business Corporation (hereinafter
"Corporation");
-AND-
WILLIAM D. BAKER, an individual, residing at 2 Mill
Park Lane, Lewisburg, Pennsylvania 17837 (hereinafter "Employee").
RECITALS
--------
Corporation has heretofore employed Employee to render
services on behalf of Corporation. Corporation desires to continue to so employ
Employee on an exclusive basis pursuant to the provisions of this Agreement and
Employee desires to so continue his employment pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, and intending to be legally bound thereby, the parties hereto
agree as follows:
1. Purpose of Agreement. The purpose of this Agreement is to
--------------------
define the employment relationship between Corporation
<PAGE>
and Employee. Corporation hereby engages Employee, and Employee hereby accepts
employment, upon the terms and conditions hereinafter set forth.
<PAGE>
2. Duties. Employee agrees perform services in the capacity of
------
Chief Financial Officer on a full-time basis solely as an employee of
Corporation and, except as otherwise provided in Paragraph 3 of this Agreement,
shall devote his entire working time to the affairs of Corporation.
3. Performance. Employee agrees to devote all necessary time
-----------
and his best efforts in the performance of his duties for Corporation in
accordance with the highest ethical standards of his occupation and to perform
such other duties as are assigned to him from time to time by the Board of
Directors of Corporation (hereinafter "Board"). The expenditure of reasonable
amounts of time for teaching, or outside business or charitable activities, is
permitted provided such activities do not materially interfere with the services
to be rendered as an employee of Corporation hereunder.
4. Entitlement to Compensation. Corporation shall be entitled
---------------------------
to all income earned on behalf of Corporation by Employee in the performance of
his duties for Corporation (except for the salary and discretionary bonuses
referred to in Paragraphs 6(a) and 6(b) respectively). In addition, any fees or
other honoraria received by Employee for services or other business activities
performed by Employee shall belong to Corpo-
-2-
<PAGE>
ration; provided, however, Employee shall be permitted to retain all income
received from activities which are not related to the business of Corporation.
5. Term. The term of this Agreement shall begin on January 24,
----
1996, and shall continue until terminated as hereinafter provided.
6. Compensation; Fringe Benefits; Working Facilities.
-------------------------------------------------
a. Corporation agrees to pay Employee an annual salary
which shall be paid at such times and in such increments as determined
by Corporation (but not less frequently than monthly). As of the date
of this Agreement, Employee's annual salary is ONE HUNDRED THOUSAND and
00/100 ($100,000.00) DOLLARS. The Board shall review Employee's salary
from time to time; the annual salary may be adjusted in the future by
the mutual agreement of the parties without the need to formally amend
this Agreement.
b. As further compensation, Employee shall be entitled to
receive any discretionary bonuses authorized and declared by the Board,
which bonuses shall be in addition to any incentive compensation
arrangement approved by the Board for its executive employees as
-3-
<PAGE>
such arrangement may be modified from time to time in the future,
payable at such times and in such amounts as the Board may determine.
c. All compensation paid to Employee shall be subject to
the customary withholding taxes and other employment taxes as required
with respect to compensation paid by Corporation to an employee.
d. Corporation agrees to provide Employee with
hospitalization and major medical insurance, disability income
insurance and group life insurance during the term of this Agreement.
The specific coverage provided by each of these insurances shall be as
determined by Corporation from time to time.
e. Employee shall also be eligible to participate in
Corporation's other fringe benefit plans, both presently existing and
those which may in the future be adopted, in accordance with the terms
and provisions of such plans.
f. Employee shall be provided with an office, books,
stenographic and technical help, and such other facilities, equipment,
supplies and services
-4-
<PAGE>
suitable to his position and adequate for the performance of his
duties.
7. Prohibition Against Competition by Employee. Without the
-------------------------------------------
prior written consent of the Board, Employee shall not, while employed by
Corporation, directly or indirectly render services which would be competitive
with or adverse to Corporation. In this regard, Employee agrees:
a. Not to call on or solicit, on behalf of himself or
on behalf of any other person or entity, any of the customers of
Corporation for the purpose of selling or distributing to any of said
customers any product comparable to or competitive with products sold
and distributed by Corporation during the period of time Employee was
employed by Corporation ("Corporation's Products"); nor will Employee
in any way, directly or indirectly, for himself, or on behalf of any
other person or entity, solicit, divert or take away any customer of
Corporation. For purposes of this Paragraph 7, "customer" shall mean
any person or entity which has purchased any of Corporation's Products,
or has received a price quotation from Corporation for any
-5-
<PAGE>
of Corporation's Products, at any time within the preceding three (3)
year period.
b. Not to, on behalf of himself or any other person
or entity, directly or indirectly, as an employee, agent, independent
contractor, owner, stockholder, partner, officer, director, or
otherwise, engage in the business of selling or distributing
Corporation's Products.
c. Not to enter or attempt to enter into an
employment or agency relationship with any person or entity who, at the
time of such entry (or attempted entry), is or previously had been an
officer, director, employee, principal or agent of Corporation.
d. Not to induce or attempt to induce any person
described in subparagraph (c) to leave his or her employment, agency,
directorship or office with Corporation.
8. Restrictive Covenant. For the two (2) year period
--------------------
immediately following the termination of Employee's employment with Corporation,
regardless of the reason for such termination, Employee agrees not to engage in
any of the following prohibited competitive conduct:
-6-
<PAGE>
a. Not to call on or solicit, on behalf of himself,
or on behalf of any other person or entity, any of the customers of
Corporation, or any other person or entity, for the purpose of selling
or distributing to any said customer, person or entity any product
comparable to or competitive with products sold and distributed by
Corporation, or about to be, or intended by Corporation to be, so sold
and distributed, and for which, at the time of Employee's termination
of employment, any one (1) of the following four (4) circumstances
exists:
i. Corporation is then selling and distributing such product
pursuant to a contract with a customer; or
ii. A price quotation for such product has been given to
a customer, or to a person or other entity not
previously a customer, and to which quotation a
response has not yet been received; or
iii. A price quotation for such product has been requested
by a customer, or by a person or other entity not
previously a customer, but which quotation has not
yet been issued by Corporation; or
iv. Information has been received by Corporation that a
customer, or a person or other entity not previously
a customer, intends to request a price quotation from
Corporation regrading such product.
-7-
<PAGE>
For purposes of this Paragraph 8, (i) "customer" shall mean any person
or entity which has purchased any of Corporation's Products, or has
received a price quotation from Corporation for any of Corporation's
Products, at any time within the three (3) year period preceding the
termination of Employee's employment with Corporation; and (ii)
"Corporation's Products" shall have the identical meaning as defined in
Paragraph 7 of this Agreement.
b. Not to induce or attempt to induce any officer,
director, employee, principal or agent of Corporation to leave his or
her employment, agency, directorship or office with Corporation.
It is understood by and between the parties to this
Agreement that the aforesaid covenant set forth in this Paragraph 8 is an
essential element of this Agreement and that, but for the agreement of Employee
to comply with such covenant, Corporation would not have agreed to the terms of
employment set forth in this Agreement. Such covenant by Employee shall be
construed as an agreement independent of any other provision in this Agreement.
The existence of any claim or cause or action of Employee against Corporation,
whether predicated on this Agree-
-8-
<PAGE>
ment or otherwise, shall not constitute a defense to the enforcement by
Corporation of such covenant.
In addition to all other legal remedies available to
Corporation for enforcement of the covenants of this Paragraph 8, the parties
agree that Corporation shall be entitled to an injunction by any court of
competent jurisdiction to prevent or restrain any breach or threatened breach
thereof.
It is further understood and agreed by and between
the parties to this Agreement that, if any portion of the restrictive covenant
set forth in this Paragraph 8 is held to be unreasonable, arbitrary or against
public policy, then such portion of such covenant shall be considered divisible
both as to time and as to the scope of the enumerated prohibited competitive
activities. The parties to this Agreement agree that, if any court of competent
jurisdiction determines the specified time period or the specified prohibited
competitive activities or the definition of Corporation's Products or customers
in such covenant to be unreasonable, arbitrary or against public policy, then a
lesser time period and/or a more restricted definition of the prohibited
competitive activities and/or a less encompassing definition of Corporation's
Products or customers which are determined to be reasonable, nonarbitrary and
not against public
-9-
<PAGE>
policy may be enforced against Employee. The parties to this Agreement agree and
acknowledge that they are familiar with the present and proposed operations of
Corporation and believe that the restrictive covenant set forth in this
Paragraph 8 is reasonable in all respects.
It is understood and agreed by the parties that this
restrictive covenant shall survive the termination of this Agreement.
9. Trade Secrets. Employee hereby recognizes,
-------------
acknowledges and agrees that Corporation is the owner of proprietary rights in
certain systems, methods, programs, processes, compilations of technical and
nontechnical information, records and other things of value relating to the
development and operation of Corporation's manufacturing business. Employee
agrees that all of the foregoing constitute valuable trade secrets of
Corporation and are disclosed to Employee in strictest confidence throughout the
course of his employment. Employee hereby further agrees as follows:
a. Except as required in the course of his employment
by Corporation, Employee will not duplicate, remove, transfer, disclose
or utilize, nor allow any other person to duplicate, remove, transfer,
disclose
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<PAGE>
or utilize, any property, assets, trade secrets or other things of
value, including, but not limited to, records, techniques, procedures,
systems, methods, advertising and promotional materials, lists of past,
present or prospective customers, and data prepared for, stored in,
processed by or obtained from an automated information system belonging
to or in the possession of Corporation which are not intended for and
have not been the subject of public disclosure. Employee will safeguard
all trade secrets at all times so that they are not exposed to, or
taken by, unauthorized persons and agrees to exercise his best efforts
to assure their safekeeping.
b. That all improvements, discoveries, systems,
techniques, ideas, processes, programs and other things of value,
whether or not patentable, made or conceived in whole or in part by
Employee while an employee of Corporation shall be and remain the sole
and exclusive property of Corporation, and Employee will disclose all
such things of value to Corporation and will cooperate with Corporation
to insure that the ownership by Corporation of such things of value is
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<PAGE>
protected. In the event of termination of his employment, all of the
property and other things of value of Corporation in Employee's
possession or control, including Employee's personal notes and
reproductions relating to the business and trade secrets of
Corporation, shall be immediately delivered to Corporation.
c. That the restrictions contained in this Paragraph
9 shall be effective during the duration of Employee's employment by
Corporation and at all times thereafter. Employee hereby acknowledges
and agrees that the breach by Employee of any of the provisions of this
Agreement will cause Corporation irreparable injury and damage.
Employee expressly agrees that Corporation shall be entitled, in
addition to all other remedies available to it, to injunctive and
equitable relief to prevent a breach or a continuation of an existing
breach of this Agreement, or any part of it, and to secure its
enforcement.
d. The foregoing Paragraph 9 is intended to supersede
in its entirety the document entitled "Security of Confidentiality and
Proprietary Customer Information" heretofore signed by Employee.
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<PAGE>
10. Vacations and Sick Pay. Employee shall be entitled to
----------------------
periodic vacations, holidays and additional leaves of absence, including absence
from work due to illness. The amount of time which Employee may utilize for such
vacations and additional leaves of absence shall be determined in accordance
with Corporation's policies in effect from time to time.
11. Expenses. Employee shall be reimbursed for all reasonable
--------
expenses incurred in carrying out his employment duties or in otherwise
promoting the business of Corporation by presenting to the designated officer of
Corporation an itemized expense account report with receipts attached.
12. Termination of Agreement.
------------------------
a. This Agreement may be terminated at any time by the
mutual written consent of Corporation and Employee.
b. This Agreement may be terminated by Employee upon at
least thirty (30) days written notice to Corporation.
c. This Agreement may be terminated, with or without
cause, by Corporation upon at least thirty (30) days written notice to
Employee.
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<PAGE>
d. This Agreement shall automatically terminate on the
death of Employee.
e. This Agreement may be terminated immediately due
to any conduct of Employee which is specifically identified in
Corporation's then-current Employee Handbook as being grounds for
immediate termination.
13. Severance Pay.
-------------
a. In the event this Agreement is terminated by
Corporation, and except as otherwise provided in subparagraph (b)
hereof, Employee shall be entitled to severance pay in an amount equal
to six (6) months of Employee's salary in effect as of the date of
termination, which amount shall be payable either in equal monthly
installments or in a lump sum, as determined by the Board. If paid in
monthly installments, the payments shall be made on the same day of
each month as salary payments had been made to Employee. If paid in a
lump sum, the payment shall be made within thirty (30) days after the
effective date of termination.
b. In the event of a sale of majority control of
Corporation, and if such sale is followed by the termination of
Employee's employment, within six
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<PAGE>
(6) months of the effective date of such sale, Employee shall be
entitled to severance pay in an amount equal to six (6) months of
Employee's salary in effect as of the date of termination, which amount
shall be payable either in equal monthly installments or in a lump sum,
as determined by the Board. If paid in monthly installments, the
payments shall be made on the same day of each month as salary payments
had been made to Employee. If paid in a lump sum, the payment shall be
made within thirty (30) days after the effective date of termination.
Such severance payment shall be in lieu of the severance pay provided
for in subparagraph (a) hereof.
14. Files and Records. All personal and regular files and
-----------------
records concerning customers of Corporation, including, with-out limitation,
customers consulted by Employee during the term of this Agreement shall at all
times belong to and remain the property of Corporation.
15. Notices and Addresses. Any notices provided for in this
---------------------
Agreement, or permitted to be given, made or accepted by any party to any other,
must be in writing and may be given to the party to be notified or be served by
depositing the same in
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<PAGE>
the United States mail, addressed to the party to be notified, postage prepaid
and registered or certified, with return receipt requested, or by delivering the
same in person to such party. Notice deposited in the mail in the manner herein
above described shall be effective only if and when received by the parties to
be notified. For purposes of notice, the addresses of the parties shall, until
changed as hereinafter provided, be as follows:
If to Corporation: THE JPM COMPANY
- ----------------- Route 15
Lewisburg, Pennsylvania 17837
If to Employee: WILLIAM D. BAKER
- -------------- 2 Mill Park Lane
Lewisburg, Pennsylvania 17837
or to such other addresses as any party may have advised the others in writing.
16. Parties Bound. Except as otherwise specifically provided
-------------
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns.
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<PAGE>
17. Pennsylvania Law to Apply. This Agreement shall be construed
-------------------------
under and in accordance with the laws of the Commonwealth of Pennsylvania.
18. Legal Construction. In the event any one or more of the
------------------
provisions contained in this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision thereof and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
19. Amendment. No amendment, modification or alteration of the
---------
terms hereof shall be binding unless the same be in writing, dated subsequent to
the date hereof and duly executed by the parties hereto.
20. Waiver of Default. No waiver by the parties hereto of any
-----------------
default or breach of any term, condition or covenant of this Agreement shall be
deemed to be a waiver of any other breach of the same or any other term,
condition or covenant contained herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed this Agreement the date and year first
above-written.
CORPORATION:
-----------
ATTEST: THE JPM COMPANY
/s/ Dara C. Leeser By: /s/ John H. Mathias
- --------------------------------- ----------------------------------
Secretary John H. Mathias, Chairman
and Chief Executive Officer
WITNESS: EMPLOYEE:
/s/Dara C. Leeser /s/ William D. Baker
- --------------------------------- ----------------------------------
[SEAL]
WILLIAM D. BAKER
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