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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
JPM Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[JPM AND LOGO APPEARS HERE]
May 5, 1997
Dear Shareholder:
A Special Meeting of the shareholders of The JPM Company will be held
at 10:00 a.m. on Wednesday, June 4, 1997, at the offices of the Company, Route
15 North, Lewisburg, Pennsylvania.
At the Special Meeting, holders of shares of JPM common stock will be
asked to consider and vote upon a proposal to approve the issuance of shares of
JPM common stock pursuant to an Agreement and Plan of Merger ("Merger
Agreement"), dated as of February 28, 1997, among JPM, a wholly-owned subsidiary
of JPM, and Denron Inc. Pursuant to the Merger Agreement, JPM's subsidiary will
be merged into Denron (the "Merger"), and Denron will become a wholly-owned
subsidiary of JPM. A copy of the Merger Agreement is attached as Annex A to the
accompanying Proxy Statement.
Denron shareholders will receive an aggregate of 1,535,500 shares of
JPM common stock in exchange for all of the outstanding shares of Denron common
stock, unless the Closing Value (defined as the trading volume weighted average
of the daily closing price per share of JPM common stock for the fifteen
consecutive trading days ended as of two trading days prior to the closing date)
is less than $8.86 or more than $11.98. If the Closing Value is less than $8.86,
the Merger Agreement may be terminated or the purchase price may be
renegotiated. If the Closing Value is more than $11.98, the aggregate number of
shares of JPM common stock to be issued to Denron shareholders will be adjusted
so that Denron shareholders participate to the extent of 50% of any increase in
the value of JPM common stock over $11.98 per share provided that the aggregate
value paid by JPM for the Denron common stock shall not exceed $23,000,000.
Assuming a Closing Value of $17.50, the Exchange Ratio would be 1.725 and the
Denron shareholders would receive, in the aggregate, 1,293,000 shares of JPM
common stock. Closing on the Merger is expected to occur approximately seven
days after an approval of the Merger by the shareholders at the Special Meeting.
Of course, due to company-specific and market risk, it is possible that the
market price of The JPM Company's common stock and therefore the actual Closing
Value could vary significantly from the Closing Value anticipated at the time of
the Special Meeting. Similarly, because the actual Closing Value cannot be
determined until two trading days prior to the actual closing, the actual number
of shares to be issued to Denron shareholders will not be ascertainable at the
time of the Special Meeting. A shareholder may obtain an updated estimate of the
number of the number of shares to be issued in the Merger (based on the
then-applicable Closing Value) by telephoning JPM Investor Relations at (717)
524-8200.
Your Board of Directors has carefully reviewed and considered the terms
and conditions of the Merger and has received the opinion of Janney Montgomery
Scott Inc., its financial advisor, that, as of February 26, 1997 and based on
and subject to certain matters stated therein, the consideration to be paid by
JPM in the Merger was fair to JPM from a financial point of view. A copy of this
opinion is attached as Annex B to the accompanying Proxy Statement. The Board of
Directors of JPM has determined that the Merger is fair to JPM and in the best
interests of its shareholders. Accordingly, the Board of Directors has
unanimously approved the Merger Agreement and recommends that you vote in favor
of the issuance of shares of JPM common stock in connection with the Merger.
Your vote is important regardless of how many shares you own. Please
take a few minutes now to review the proxy statement and to sign and date your
proxy and return it in the envelope provided. You may attend the meeting and
vote in person even if you have previously returned your proxy.
Sincerely,
/s/John H. Mathias
John H. Mathias
Chairman of the Board
and Chief Executive Officer
<PAGE>
[JPM AND LOGO APPEARS HERE]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1997
---------
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"JPM Special Meeting") of The JPM Company ("JPM") will be held at 10:00 a.m. on
Wednesday, June 4, 1997, at the offices of the Company, Route 15 North,
Lewisburg, Pennsylvania.
The meeting is called for the purpose of considering and voting upon:
1. A proposal to approve the issuance of shares of JPM common
stock, $.000067 par value, pursuant to an Agreement and Plan
of Merger, dated as of February 28, 1997 (the "Merger
Agreement"), among JPM, JPM Acquisition Company, and Denron
Inc. A copy of the Merger Agreement is attached as Annex A to
the Proxy Statement accompanying this Notice.
2. Matters incident to the conduct of the JPM Special Meeting or
any adjournments or postponements thereof.
The proposed merger and other related matters are more fully described
in the attached Proxy Statement and the Annexes thereto.
The Board of Directors has fixed the close of business on March 27,
1997 as the record date for the determination of the shareholders entitled to
notice of and to vote at the JPM Special Meeting and any adjournments or
postponements thereof. Only holders of record of JPM's common stock on the
record date are entitled to vote at the JPM Special Meeting. A list of such
shareholders will be available at the time and place of the meeting and, during
the ten days prior to the meeting, at the office of the Secretary of JPM at
Route 15 North, Lewisburg, Pennsylvania 17837.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy issued
in your name.
You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Sending in
a signed proxy will not affect your right to attend the meeting and vote in
person. You may revoke your proxy at any time before it is voted by notifying
StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, PA 19003 in writing, or by
executing a subsequent proxy, which revokes your previously executed proxy.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ Janet B. Mathias
JANET B. MATHIAS,
Secretary
May 5, 1997
Lewisburg, Pennsylvania
<PAGE>
[JPM AND LOGO APPEAR HERE]
PROXY STATEMENT
---------
This Proxy Statement ("Proxy Statement") is being furnished to the
holders of common stock, par value $.000067 per share ("JPM Common Stock"), of
The JPM Company, a Pennsylvania corporation ("JPM"), in connection with the
solicitation of proxies by the Board of Directors of JPM for use at a Special
Meeting of Shareholders of JPM to be held at the offices of the Company, Route
15 North, Lewisburg, Pennsylvania on June 4, 1997 at 10:00 a.m. and at any and
all adjournments or postponements thereof (the "JPM Special Meeting") relating
to the proposed merger (the "Merger") of JPM Acquisition Company, a California
corporation and wholly-owned subsidiary of JPM ("Merger Sub"), with and into
Denron Inc. ("Denron"), pursuant to the Agreement and Plan of Merger dated as of
February 28, 1997, by and among JPM, Merger Sub and Denron (the "Merger
Agreement"). JPM Common Stock is traded on the Nasdaq Stock Market's National
Market ("Nasdaq") under the symbol "JPMX." On April 30, 1997 the closing sale
price for JPM Common Stock as reported on the Nasdaq Composite Transactions Tape
was $18.75 per share.
Denron shareholders will receive an aggregate of 1,535,500 shares of
JPM Common Stock in exchange for all of the outstanding shares of Denron Common
Stock ("Denron Common Stock"), unless the Closing Value (defined as the trading
volume weighted average of the daily closing price per share of JPM Common Stock
for the fifteen consecutive trading days ended as of two trading days prior to
the closing date) is less than $8.86 or more than $11.98. If the Closing Value
is less than $8.86, the Merger Agreement may be terminated or the purchase price
may be renegotiated. If the Closing Value is more than $11.98, the aggregate
number of shares of JPM Common Stock to be issued to Denron shareholders will be
adjusted so that Denron shareholders participate to the extent of 50% of any
increase in the value of JPM Common Stock over $11.98 per share provided that
the aggregate value paid by JPM for the Denron Common Stock shall not exceed
$23,000,000. Assuming a Closing Value of $17.50, the Exchange Ratio would be
1.725 and the Denron shareholders would receive, in the aggregate, 1,293,000
shares of JPM Common Stock. Closing on the Merger is expected to occur
approximately seven days after an approval of the Merger by the shareholders at
the Special Meeting. Of course, due to company-specific and market risk, it is
possible that the market price of The JPM Company's Common Stock and therefore
the actual Closing Value could vary significantly from the Closing Value
anticipated at the time of the Special Meeting. Similarly, because the actual
Closing Value cannot be determined until two trading days prior to the actual
closing, the actual number of shares to be issued to Denron shareholders will
not be ascertainable at the time of the Special Meeting. A shareholder may
obtain an updated estimate of the number of shares to be issued in the Merger
(based on the then-applicable Closing Value) by telephoning JPM Investor
Relations at (717) 524-8200.
This Proxy Statement and the accompanying forms of proxy are first
being mailed to shareholders of JPM on or about May 6, 1997.
See "Risk Factors" beginning on page 15 for a discussion of certain
factors which should be considered by JPM Shareholders.
The date of this Proxy Statement is May 5, 1997.
<PAGE>
Upon consummation of the Merger, Denron will be a wholly-owned
subsidiary of JPM. Consummation of the Merger is subject to various conditions,
including the approval of the issuance of shares of JPM Common Stock in
connection with the Merger at the JPM Special Meeting by the affirmative vote of
the holders of a majority of the votes cast on this matter, provided that the
total vote cast on this matter represents more than 50% in interest of the
shares of JPM stock outstanding and entitled to vote.
All information contained in this Proxy Statement with respect to JPM
and Merger Sub has been provided by JPM. All information contained in this Proxy
Statement with respect to Denron has been provided by Denron.
A shareholder who has given a proxy in response to this proxy
solicitation may revoke it at any time prior to its exercise. See "JPM Special
Meeting - Record Date," "- Voting Rights; Proxies."
---------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN OR INCORPORATED HEREIN BY REFERENCE MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR THE DISTRIBUTION OF ANY
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR INCORPORATED
HEREIN BY REFERENCE SINCE THE DATE HEREOF.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION.................................................................................. 1
INCORPORATION OF DOCUMENTS BY REFERENCE................................................................ 1
SUMMARY................................................................................................ 3
The Companies................................................................................. 3
The Special Meeting........................................................................... 4
Change of Vote................................................................................ 4
The Merger.................................................................................... 5
Comparative Per Share Prices.................................................................. 7
Selected Historical and Pro Forma Financial Data and
Comparative Per Share Data....................................................................8
Selected Historical Financial Data............................................................9
Unaudited Pro Forma Combined Financial Data..................................................10
Comparative Per Share Data...................................................................11
RISK FACTORS........................................................................................... 12
INTRODUCTION........................................................................................... 14
JPM SPECIAL MEETING.................................................................................... 14
Purpose of the JPM Special Meeting............................................................ 14
Record Date................................................................................... 14
Quorum........................................................................................ 14
Required Vote................................................................................. 14
Voting Rights; Proxies........................................................................ 15
Solicitation of Proxies....................................................................... 15
THE MERGER............................................................................................. 16
General....................................................................................... 16
Effective Time................................................................................ 16
Conversion of Shares; Procedures for Exchange of Certificates................................. 16
Background of the Merger and Recommendation of the Board...................................... 17
Opinion of JPM's Financial Advisor............................................................ 19
Interests of Certain Persons in the Merger.................................................... 24
Certain United States Federal Income Tax Consequences......................................... 24
Anticipated Accounting Treatment.............................................................. 24
Certain Legal Matters......................................................................... 25
Resale of JPM and Denron Common Stock......................................................... 25
Dividends..................................................................................... 25
Appraisal Rights.............................................................................. 25
Fees and Expenses............................................................................. 26
THE MERGER AGREEMENT and OTHER AGREEMENTS.............................................................. 26
COMPARATIVE PER SHARE PRICES AND DIVIDENDS............................................................. 34
JPM........................................................................................... 34
Denron........................................................................................ 34
Post-Merger Dividend Policy................................................................... 35
</TABLE>
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<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................................ 36
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................... 42
THE COMPANIES.......................................................................................... 43
The JPM Company............................................................................... 43
Denron Inc.................................................................................... 43
DENRON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................... 44
BENEFICIAL OWNERSHIP OF JPM COMMON STOCK............................................................... 48
OTHER MATTERS.......................................................................................... 50
LEGAL MATTERS.......................................................................................... 50
EXPERTS................................................................................................ 50
SHAREHOLDER PROPOSALS.................................................................................. 51
ANNEXES:
A. Agreement and Plan of Merger.............................................................. A-1
B. Opinion of Janney Montgomery Scott Inc.................................................... B-1
C. Denron Financial Statements............................................................... C-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
JPM is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following Regional Offices of the Commission: Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. JPM makes filings of reports, proxy statements and
other information pursuant to the Exchange Act with the Commission
electronically, and such materials may be inspected and copied at the
Commission's Web site (http://www.sec.gov). In addition, material filed by JPM
can be inspected at the offices of the Nasdaq Stock Market, 1735 K St., NW,
Washington, DC 20006, on which the shares of JPM Common Stock are listed.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and, while such summaries contain all
material provisions of such documents, each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission or attached as an annex hereto.
INCORPORATION OF DOCUMENTS BY REFERENCE
JPM hereby incorporates by reference into this Proxy Statement the
following documents previously filed with the Commission pursuant to the
Exchange Act under file number 0-27738:
1. JPM's Current Report on Form 8-K filed on March 12, 1997;
2. JPM's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996; and
3. JPM's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (which incorporates by reference certain
information from JPM's Proxy Statement relating to the 1997
Annual Meeting of Shareholders and JPM's 1996 Annual Report to
Shareholders).
The JPM Quarterly Report on Form 10-Q and JPM Annual Report on Form
10-K listed under items 2 and 3 above are also being mailed to JPM shareholders
along with this Proxy Statement.
In addition, all reports and other documents filed by JPM pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the JPM Special Meeting shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
reports and documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein (in the case of any statement in an
incorporated document filed with the Commission prior to the date of this Proxy
Statement) or in any other subsequently filed document that also is incorporated
or deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement .
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH, THESE DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
1
<PAGE>
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY
PERSON TO WHOM THIS PROXY STATEMENT IS DELIVERED, INCLUDING ANY BENEFICIAL
OWNER, IN THE CASE OF DOCUMENTS RELATING TO JPM, TO THE JPM COMPANY, ROUTE 15
NORTH, LEWISBURG, PENNSYLVANIA 17837, ATTENTION: WILLIAM D. BAKER, CHIEF
FINANCIAL OFFICER (TELEPHONE NO. (717) 524-8200). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE
MAY 20, 1997.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement and the Annexes hereto. This summary does not contain a
complete statement of all material information relating to the Merger Agreement
and the Merger and is subject to, and is qualified in its entirety by, the more
detailed information and financial statements contained or incorporated by
reference in this Proxy Statement. Shareholders of JPM should read carefully
this Proxy Statement in its entirety. Certain capitalized terms used in this
summary are defined elsewhere in this Proxy Statement.
The Companies
The JPM Company
JPM is a leading independent manufacturer of cable assemblies and wire
harnesses for original equipment manufacturers ("OEM's") in the computer
networking and telecommunications sectors of the electronics industry. JPM is
certified as an ISO 9002 Company by the International Organization for
Standardization for meeting certain total quality standards and documentation
requirements. The Company manufactures over 5,000 products which transfer power
or transmit voice, data or video within the OEM's equipment or to external
connections. Principal applications of the Company's products include computers,
network bridges and routers, self-service terminals (including automatic teller
machines), PBX switching equipment, cellular digital switching equipment,
industrial electrical controls and medical electronic equipment. By integrating
its design and engineering capabilities with its customers' product development
activities, the Company customizes its products to satisfy its customers'
particular needs in a price-competitive manner.
The business of the Company was started by Jay P. Mathias in 1949. The
Company operates manufacturing facilities in Lewisburg and Beaver Springs,
Pennsylvania, Winnsboro, South Carolina and Guadalajara, Mexico. The Company was
incorporated in 1968 as the successor to Mr. Mathias' prior business structures.
Its principal executive offices are located at Route 15 North, Lewisburg,
Pennsylvania 17837, with a telephone number of (717) 524-8200.
Denron Inc.
Denron Inc. is a privately-held, ISO-registered independent
manufacturer of cable assemblies and wire harnesses with principal operations in
San Jose, California. Like JPM, Denron sells primarily to leading OEM's in the
computer and telecommunications markets. Denron's customers include Hewlett-
Packard, 3Com, Bay Networks and Silicon Graphics.
Denron was founded in 1980. The executive offices of Denron are located
at 2135 Ringwood Avenue, San Jose, CA 95131 and Denron's telephone number is
(408) 435-8588.
3
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The Special Meeting
Time, Place and Date
The Special Meeting of JPM's shareholders will be held at the offices
of the Company, Route 15 North, Lewisburg, Pennsylvania on June 4, 1997, at
10:00 a.m. (including any and all adjournments or postponements thereof, the
"JPM Special Meeting").
Purpose of the Special Meeting
At the JPM Special Meeting, holders of JPM Common Stock will consider
and vote upon the issuance of JPM Common Stock in connection with the Merger
Agreement (the "JPM Share Proposal"). Based upon the shares of JPM Common Stock
and shares of Denron Common Stock outstanding as of March 27, 1997 and assuming
a Closing Value (as defined in the Merger Agreement) of $17.50 for JPM Common
Stock on the closing date, resulting in an exchange ratio of 1.725 shares of
JPM Common Stock for each share of Denron Common Stock (the "Exchange Ratio"),
JPM would issue approximately 1,293,000 shares of JPM Common Stock to Denron
shareholders in the Merger, representing approximately 17.6% of outstanding JPM
Common Stock following consummation of the Merger. Holders of JPM Common Stock
may also consider and vote upon matters incident to the conduct of the JPM
Special Meeting.
The Board of Directors of JPM has unanimously approved the Merger and
the JPM Share Proposal and recommends that JPM Shareholders vote FOR approval of
the JPM Share Proposal. See "The Merger - Background of the Merger" and "Recom-
mendation of the Board of Directors of JPM; Reasons for the Merger."
Votes Required; Record Date
Under the rules of the Nasdaq Stock Market's National Market, the JPM
Share Proposal will require approval by the affirmative vote of the holders of a
majority of the votes cast on this matter, provided that the total vote cast on
this matter represents more than 50% in interest of the shares of JPM Common
Stock outstanding and entitled to vote. Holders of JPM Common Stock are entitled
to one vote per share. Only holders of JPM Common Stock at the close of business
on March 27, 1997 (the "JPM Record Date") will be entitled to notice of and to
vote at the JPM Special Meeting. See "JPM Special Meeting." As of the JPM Record
Date, the directors and executive officers of JPM and their affiliates
beneficially owned as a group approximately 66.0% of the outstanding shares of
JPM Common Stock. Such directors and executive officers of JPM have indicated to
JPM that they and their affiliates presently intend to vote all such shares in
favor of the JPM Share Proposal.
Change of Vote
JPM shareholders who have executed a proxy may revoke the proxy at any
time prior to its exercise at the JPM Special Meeting by giving written notice
to StockTrans, Inc., 7 East Lancaster Avenue, Ardmore, PA 19003, by signing and
returning a later dated proxy or by voting in person at the JPM Special Meeting.
Accordingly, shareholders of JPM who have executed and returned proxy cards in
advance of the JPM Special Meeting may change their vote at any time prior to
the vote at the JPM Special Meeting.
4
<PAGE>
The Merger
The Merger
Pursuant to the Merger Agreement, Merger Sub will be merged with and
into Denron and Denron will become a wholly-owned subsidiary of JPM.
Merger Consideration and Exchange Ratio
The Merger Agreement provides that Merger Sub will be merged into
Denron, each share of common stock of Merger Sub shall be converted into one
share of common stock of Denron, and all shareholders of Denron ("Denron
Shareholders") shall exchange their Denron Common Stock for JPM Common Stock at
which time all shares of Denron Common Stock shall be cancelled.
The aggregate number of shares of JPM Common Stock which the Denron
Shareholders will receive shall be determined by dividing $16,000,000 by a value
of $10.42 per share of JPM Common Stock, which will equal approximately
1,535,500 shares of JPM Common Stock, unless the Closing Value (defined below)
------
of JPM Common Stock is less than $8.86 or more than $11.98. The Closing Value is
the trading volume weighted average of the daily closing price per share of JPM
Common Stock for the fifteen consecutive trading days ended as of two trading
days prior to the Closing Date. If the Closing Value is less than $8.86, the
Merger Agreement may be terminated by either JPM or Denron or the purchase price
may be renegotiated. If the Closing Value is less than $8.86 and the purchase
price is renegotiated, JPM would seek shareholder approval for a revised merger
agreement. If the Closing Value is greater than $11.98, the aggregate number of
shares of JPM Common Stock to be issued to Denron Shareholders shall be adjusted
so that the Denron Shareholders shall participate to the extent of 50% of any
increase in the value of JPM Common Stock over $11.98 per share provided however
-------- -------
that the aggregate value paid by JPM for the Denron Common Stock shall not
exceed $23,000,000. Assuming a Closing Value of $17.50, the Exchange Ratio
(number of shares of JPM Common Stock for each share of Denron Common Stock)
would be 1.725. Unless the Closing Value is less than $8.86 and the purchase
price is renegotiated, the maximum number of shares of JPM Common Stock issued
to Denron Shareholders will be 1,535,500.
Exchange of Certificates
As soon as practicable after the filing of a certificate of merger with
the Secretary of State of the State of California (the time of such filing being
the "Effective Time"), StockTrans, Inc., as exchange agent for the Merger (the
"Exchange Agent"), will send a transmittal letter to each Denron Shareholder.
The transmittal letter will contain instructions with respect to the surrender
of certificates representing Denron Common Stock to be exchanged for JPM Common
Stock. See "The Merger Agreement - Exchange of Certificates."
Conditions to the Merger, Termination; Fees
The obligations of JPM, Merger Sub and Denron to consummate the Merger
are subject to various conditions, including but not limited to obtaining
requisite shareholder approvals and the absence of any preliminary or permanent
injunction or other order by any court or governmental authority of competent
jurisdiction preventing or restricting the consummation of the Merger. See "The
Merger Agreement - Conditions to the Merger."
The Merger Agreement may be terminated at any time prior to the Closing
Date, notwithstanding approval thereof by the shareholders of Denron or JPM: (i)
by the mutual consent of JPM and the Denron Shareholders; (ii) by JPM if any
conditions precedent to JPM's obligation become impossible of performance or
have not been satisfied in full or previously waived by JPM in writing at or
prior to the Closing Date; (iii) by Denron if any conditions precedent to
Denron's obligation become impossible of performance or have not been satisfied
in full or previously
5
<PAGE>
waived by Denron in writing at or prior to the Closing Date; or (iv) by either
JPM, Denron, or the Denron Shareholders if the Closing has not occurred (other
than through the failure of any party seeking to terminate to comply fully with
its obligations under the Merger Agreement) on or before May 31, 1997, or such
later date as the parties may agree upon. By letter agreement, the
termination date has been extended to June 15, 1997. See "The Merger
Agreement - Termination - Conditions to Termination."
The parties have agreed to bear their own fees and expenses in
connection with the Merger provided however that any fees and expenses incurred
by Denron and the Denron Shareholders and paid by Denron in excess of $130,000
may, at JPM's option, be subtracted from the purchase price for the Denron
Common Stock and the number of shares issued to the Denron Shareholders shall be
reduced accordingly. See "The Merger - Fees and Expenses."
Dividends
JPM has never paid dividends on shares of JPM Common Stock. After the
Merger, JPM intends to continue to retain future earnings for use in its
business and does not anticipate paying cash dividends on JPM 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. By the terms of its
credit arrangements with lenders, the Company is limited in its ability to pay
dividends up to a maximum of 25% of JPM's pretax profits. See "Comparative Per
Share Prices and Dividends."
Appraisal Rights
Under the Business Corporation Law of the Commonwealth of Pennsylvania,
the holders of JPM Common Stock are not entitled to any appraisal rights with
respect to the Merger. See "The Merger - Appraisal Rights."
Anticipated Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes.
Opinion of Financial Advisor
Janney Montgomery Scott Inc. ("Janney") delivered its written opinion
dated February 26, 1997 to the Board of Directors of JPM that, as of such date
and based on and subject to the matters stated therein, the consideration
proposed to be paid by JPM pursuant to the Merger was fair to JPM from a
financial point of view.
For information on the assumptions made, matters considered and limits
of the review undertaken by Janney, see "The Merger - Opinion of JPM's Financial
Advisor." Shareholders are urged to read in its entirety the opinion of Janney
attached as Annex B to this Proxy Statement.
Interests of Certain Persons in the Merger
The Merger Agreement also provides for certain arrangements with
respect to indemnification and insurance arrangements for Denron officers and
directors. At closing, JPM and the Denron Shareholders will have entered into a
Registration Rights Agreement (the "Registration Rights Agreement") pursuant to
which the Denron Shareholders may require JPM, subject to the terms and
conditions set forth therein, to register the shares of JPM Common Stock to be
received by them in the Merger for sale in accordance with the Securities Act.
At closing, JPM will also enter into Employment Agreements with John M. Denman,
Donald Mills and Ronald C. Mills. See "The Merger - Interests of Certain Persons
in the Merger" and "Other Agreements - Registration Rights Agreement, -
Employment Agreements."
6
<PAGE>
Certain United States Federal Income Tax Consequences
It is the intention of the parties that the Merger constitute a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). Consequently, no gain or loss will be recognized by
Denron, Merger Sub or JPM as a result of the Merger. No ruling has been sought
from the Internal Revenue Service and no opinion has been received from legal
counsel as to the United States Federal income tax consequences of the Merger.
See "The Merger - Certain United States Federal Income Tax Consequences." Denron
Shareholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the Merger.
Comparative Per Share Prices
The following table sets forth the closing prices per share as reported
on the Nasdaq Stock Market's National Market Composite Transactions Tape on
November 22, 1996, the last full trading day before the announcement of the
proposed Merger, on February 28, 1997, the last full trading day before
announcement of the execution of the Merger Agreement, and on April 30, 1997,
and the equivalent pro forma per share value of Denron Common Stock based on JPM
Common Stock prices on those dates. Denron Common Stock is not registered or
traded on a securities exchange and there is no established public trading
market for Denron Common Stock. Denron is aware of no transactions in Denron
Common Stock during the previous three years.
<TABLE>
<CAPTION>
JPM Denron
Common Stock Pro Forma
Price Equivalent (1)
-------------------------------------------------
<S> <C> <C>
November 22, 1996..................................................... $11.75 $20.27
February 28, 1997 $16.75 $28.89
April 30, 1997........................................................ $18.75 $32.34
</TABLE>
- -----------------
(1) Represents the equivalent pro forma value of one share of Denron Common
Stock calculated by multiplying the closing price of one share of JPM
Common Stock on the dates listed above by the Exchange Ratio.
See "Comparative Per Share Prices and Dividends."
7
<PAGE>
Selected Historical and Pro Forma Financial Data and
Comparative Per Share Data
The following selected historical financial data of JPM as of the end
of and for each of the years in the five year period ended September 30, 1996
has been derived from the historical audited consolidated financial statements
of the Company and should be read in conjunction with such consolidated
financial statements and notes thereto, including the Company's Annual Report on
Form 10-K for the year ended September 30, 1996 incorporated herein by reference
and accompanying this Proxy Statement. The selected historical financial
information of JPM as of December 31, 1996 and for the three months ended
December 31, 1996 and 1995 has been derived from the unaudited consolidated
financial statements incorporated herein by reference to JPM's Quarterly Report
on Form 10-Q for the three months ended December 31, 1996, accompanying this
Proxy Statement. Such unaudited information reflects all adjustments, consisting
only of normal, recurring adjustments, necessary for the fair presentation of
the financial condition as of that date and the results of operations for those
unaudited interim periods. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the entire year.
The following selected historical financial data of Denron as of
December 31, 1996 and for the nine month period then ended has been derived from
the historical audited financial statements of Denron and should be read in
conjunction with such financial statements and the notes thereto, including the
balance sheet at December 31, 1996 and the related statements of operations and
of cash flows for the nine months ended December 31, 1996 and notes thereto,
attached hereto as Annex C. The financial data of Denron as of the end of and
for each of the years in the four year period ended March 31, 1996 has been
derived from unaudited financial statements which, in the opinion of management,
include all adjustments, consisting only of normal, recurring adjustments,
necessary for the fair presentation of the financial condition and the results
of operations for the unaudited periods.
The unaudited selected pro forma combined statements of operations
combine JPM's historical results for the three months ended December 31, 1996
and 1995 and the years ended September 30, 1996, 1995 and 1994 with Denron's
historical results for the three months ended December 31, 1996 and 1995 and the
twelve months ended December 31, 1996 and the years ended March 31, 1995 and
1994, respectively, giving effect to the Merger as if it had occurred on
October 1, 1993. The unaudited pro forma combined balance sheet combines JPM's
and Denron's consolidated condensed balance sheets at December 31, 1996, giving
effect to the Merger as if it had occurred on December 31, 1996.
JPM has a fiscal year ending September 30, and Denron has a fiscal year
ending March 31. Accordingly, the unaudited pro forma condensed combined
financial statements for the year ended September 30, 1996 include Denron's
financial information conformed to a fiscal year end (December 31) within three
months of JPM's year end.
The selected pro forma combined financial data of JPM and Denron have
been derived from the unaudited pro forma condensed combined financial
statements and should be read in conjunction with such pro forma condensed
combined financial statements and the notes thereto included elsewhere in this
Proxy Statement.
Denron's nine month period ended December 31, 1995 has been omitted
from the unaudited pro forma condensed combined statements of operations.
Denron's net sales, income from operations and net income were $18,980, $599 and
$346 respectively, for such nine month period.
8
<PAGE>
Selected Historical Financial Data
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
JPM Three Months
Ended
Fiscal Year Ended September 30, December 31,
---------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated Statement of 1996 1995 1994 1993 1992 1996 1995
---- ---- ---- ---- ---- ---- ----
Operations Data:
Net sales(1) ......................... $60,073 $ 36,568 $ 25,640 $ 23,084 $ 23,808 $ 20,217 $ 12,385
Income from operations ............... 6,374 2,714 1,111 623 796 2,436 1,014
Income before change in accounting
principle ............................ 2,775 804 393 154 202 1,590 211
Income (loss) per common share before
change in accounting principle ....... $ .50 $ .14 $ .04 $ (.03) $ (.01) $ .24 $ .04
Weighted average number of common
shares outstanding ................... 4,892 3,599 3,489 3,489 3,489 6,498 3,925
<CAPTION>
September 30, December 31,
---------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Historical Consolidated Balance Sheet 1996 1995 1994 1993 1992 1996
---- ---- ---- ---- ---- ----
Data:
Total assets.......................... $34,716 $21,585 $13,678 $11,599 $11,465 $36,261
Long-term debt........................ 3,249 4,275 2,402 2,556 2,373 4,164
Total shareholders' equity(2)......... 18,569 4,007 2,961 2,803 2,764 20,186
<CAPTION>
Denron Nine Months Three Months
Ended Ended
December 31, Fiscal Year ended March 31, December 31,
--------------- --------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Consolidated Statement of 1996 1996 1995 1994 1993 1996 1995
---- ---- ---- ---- ---- ---- ----
Operations Data:
Net sales............................. $18,789 $25,310 $17,475 $15,778 $11,184 $ 6,504 $ 6,828
Income from operations................ 779 411 265 132 152 321 256
Income before change in accounting
principle ............................ 476 206 132 69 44 183 153
Income per common share before change
in accounting principle .............. $ .63 $ .27 $ .18 $ .09 $ .06 $ .24 $ .20
Weighted average number of common
shares outstanding.................... 750 750 750 750 750 750 750
<CAPTION>
December 31, March 31,
--------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Historical Consolidated Balance Sheet 1996 1996 1995 1994 1993
---- ---- ---- ---- ----
Data:
Total assets.......................... $ 5,687 $ 5,019 $ 3,842 $ 2,967 $ 2,100
Long-term debt........................ 14 19 18 - -
Total shareholders' equity............ 1,540 1,064 858 726 658
</TABLE>
- ------------------
(1) Reflects completion of the acquisition of Electronica Pantera in April 1996.
(2) Reflects completion of the Company's initial public offering of common stock
in April 1996.
9
<PAGE>
Unaudited Selected Pro Forma Combined Financial Data
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended
Fiscal Year ended September 30, December 31,
-------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Pro Forma Combined Statement of Operations 1996 1995 1994 1996 1995
---- ---- ---- ---- ----
Data: (1)
Net sales........................................ $85,192 $54,042 $41,418 $26,721 $19,213
Income from operations........................... 6,966 2,979 1,244 2,757 1,269
Income before change in accounting principle..... 3,111 936 462 1,773 569
Income per common share before change in
accounting principle (2)...................... $ .48 $ .13 $ .04 $ .23 $ .11
Weighted average number of common shares
outstanding (2).................................. 6,186 4,893 4,783 7,792 5,219
December 31, 1996
-----------------
Pro Forma Combined Balance Sheet Date: (1)
Total assets..................................... $41,948
Long-term debt................................... 4,178
Total shareholders' equity....................... 21,176
</TABLE>
(1) It is estimated that Merger related costs of approximately $550 will be
incurred for direct costs of the Merger, consisting primarily of
transaction costs for investment bankers' fees, attorneys, accountants,
financial printing and other related charges. The pro forma condensed
combined balance sheet gives effect to these costs as if they had been
incurred as of December 31, 1996, but the pro forma condensed combined
statements of operations do not give effect to any such expenses.
(2) The pro forma combined income per common share before change in
accounting principle amounts are based on the combined weighted average
number of common shares of JPM and Denron outstanding during each
period and an assumed Exchange Ratio of 1.725 shares of JPM Common
Stock for each issued and outstanding share of Denron Common Stock. The
actual number of shares of JPM Common Stock to be issued in the Merger
will be determined at the Closing Date. See "The Merger Agreement--
Merger Consideration and Exchange Ratio."
10
<PAGE>
Comparative Per Share Data
The following tabulation reflects (a) the historical income per share
before change in accounting principle of JPM Common Stock in comparison with the
pro forma income per share before change in accounting principle after giving
effect to the proposed Merger on a "pooling of interests" basis with Denron as
if it had occurred on October 1, 1993 and (b) the historical income per share
before change in accounting principle of Denron Common Stock in comparison with
the pro forma income before change in accounting principle attributable to 1.725
shares of JPM Common Stock received for each share of Denron. Neither JPM nor
Denron have paid cash dividends on their common stock. The information presented
in this tabulation should be read in conjunction with the pro forma condensed
combined financial statements and the separate financial statements of the
respective companies and the notes thereto appearing elsewhere herein or
attached hereto. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had JPM and Denron been a single entity
during the periods presented.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September 30, December 31,
----------------------------------------------- ----------------------
1996(1) 1995(1) 1994(1) 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
JPM
Income before change in accounting principle:
Historical................................... $ .50 $ .14 $ .04 $ .24
Pro forma.................................... $ .48 $ .13 $ .04 $ .23
<S> <C> <C> <C> <C>
Denron
Income before change in accounting principle:
Historical................................... $ .45 $ .18 $ .09 $ .24
Pro forma, adjusted for exchange ratio (2)... $ .83 $ .22 $ .07 $ .40
</TABLE>
(1) The pro forma combined per share data combine financial information of JPM
for the three months ended December 31, 1996 and the fiscal years ended
September 30, 1996, 1995 and 1994 with the financial information of Denron
for the three months ended December 31, 1996 and the twelve months ended
December 31, 1996 and the fiscal years ended March 31, 1995 and 1994,
respectively. JPM has a fiscal year ending September 30, and Denron has a
fiscal year ending March 31. Accordingly, the pro forma combined per share
data for the year ended September 30, 1996 include Denron's financial
information conformed to a fiscal year end (December 31) within three
months of JPM's year end.
(2) Pro forma amounts for JPM multiplied by 1.725 (assumed exchange ratio).
Book Value Per Share
Pro Forma
---------
JPM Denron JPM Denron(1)
-------- -------- -------- ----------
Book values at
September 30, 1996 $ 3.09 $ 1.81 $ 2.65 $ 4.57
December 31, 1996 $ 3.41 $ 2.05 $ 2.89 $ 4.99
(1) Pro forma amounts for JPM multiplied by 1.725
(assumed exchange ratio).
11
<PAGE>
RISK FACTORS
Shareholders of JPM, in considering whether to approve the JPM Share
Proposal, should consider the following matters. These matters should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement.
Potential Changes in Stock Prices. The Exchange Ratio described herein
is based on a Closing Value (as defined in the Merger Agreement) of $17.50 for
JPM Common Stock on the closing date. However, the ultimate Closing Value of the
JPM Common Stock on the closing date will most likely vary from the assumed
Closing Value of $17.50 as well as its Closing Value at the time of this Proxy
Statement and at the date of the JPM Special Meeting. Such a change will impact
on the Exchange Ratio and therefore the actual number of shares of JPM Common
Stock received by the Denron Shareholders. Such variations may be the result of
changes in the business, operations or prospects of JPM or Denron, market
assessments of the likelihood that the Merger will be consummated, the timing
thereof and the prospects of the Merger and post-Merger operations, regulatory
considerations, general market and economic conditions and other factors.
Because the closing date may occur at a date later than the JPM Special Meeting,
there can be no assurance that the Closing Value of JPM Common Stock on the date
of the JPM Special Meeting will be indicative of its Closing Value on the
closing date. The Merger Agreement provides that the closing date will occur on
the later of April 30, 1997 or eight business days following the JPM Special
Meeting unless otherwise extended by the parties. Shareholders of JPM are urged
to obtain current market quotations for JPM Common Stock. See "The Merger
Agreement -Terms of the Merger."
Shares Eligible for Future Sale. Sales of a significant number of
shares of JPM Common Stock in the public market after the Merger may have an
adverse effect on the market price of the JPM Common Stock. The Denron
Shareholders will receive approximately 1,293,000 shares of JPM Common Stock in
the Merger (assuming a Closing Value of $17.50), resulting in a total of
approximately 7,360,000 shares of JPM Common Stock outstanding upon completion
of the Merger.
All JPM Common Stock issued in connection with the Merger will be
restricted stock and may not be transferred except pursuant to a subsequent
registration or exemption from registration. In the Merger Agreement, however,
JPM has agreed to file with the Securities and Exchange Commission a
Registration Statement on Form S-3, or other applicable form, within ninety (90)
days after the Closing Date, to register all shares of JPM Common Stock received
by the Shareholders of Denron in exchange for their Denron Common Stock. In
addition, under the terms of the Registration Rights Agreement, the Denron
Shareholders have certain demand and piggyback registration rights pursuant to
which they may require, subject to the terms and conditions thereof, JPM to
register under the Securities Act all or part of the JPM Common Stock received
by such Denron Shareholders in connection with the Merger. Consequently, upon
the effectiveness of an S-3 Registration Statement, or other applicable form, up
to 1,293,000 additional shares of JPM Common Stock will be immediately eligible
for sale in the public market
Nonrealization of Synergies. The Merger involves the integration of two
companies that have previously operated independently. No assurance can be given
that JPM will integrate the respective operations of JPM and Denron without
encountering difficulties or experiencing the loss of key Denron personnel or
that the benefits expected from such integration will be realized. In addition,
there can be no assurance that JPM will realize anticipated synergies from the
Merger. See "The Merger - Recommendation of the Board of Directors of JPM;
Reasons for the Merger."
Certain Risks Inherent in International Businesses. The financial
conditions and results of operations of each of JPM and Denron may be adversely
affected when one or more of the global markets in which JPM or Denron operates
or competes is affected by variations in political, economic or other factors,
such as exchange rates, inflation rates, recessionary or expansive trends, tax
changes, legal and regulatory changes or other external factors over which
neither JPM nor Denron has control.
Forward-Looking Statements. Certain statements made or incorporated by
reference in this Proxy Statement are forward-looking, including without
limitation statements with respect to the expected financial impact and other
aspects of the proposed Merger and the future financial condition or results of
operations of Denron and JPM. Forward looking statements made or incorporated by
reference herein are not guarantees of future performance and are subject to
risks and uncertainties that could cause actual results to differ materially. In
addition to the facts discussed above under "- Nonrealization of Synergies" and
"- Certain Risks Inherent in International Businesses," the following are some
of the factors that could cause actual results to differ materially from those
in the forward-looking statements: JPM's and Denron's reliance on key customers
and suppliers and the potential loss thereof; maintenance of ISO registration
for JPM's and Denron's operations; the impact of JPM's operations in Mexico; the
pattern of sales, including variations in sales volume within a period, which
makes forward-looking statements about sales and earnings difficult and may
result in variances of actual results from those contained in statements made at
any time prior to the period's close; vigorous competition within JPM's and
Denron's product markets, including pricing and promotional, advertising or
other activities in order to preserve or gain market share, the timing of which
cannot be foreseen by JPM or Denron; the reliance on the development of new
products and the inherent risks associated with new product introductions,
including uncertainty of trade and customer acceptance and competitive reaction;
the costs and effects of unanticipated legal and administrative proceedings; the
impact of unusual items resulting from ongoing
12
<PAGE>
evaluations of business strategies, asset valuations and organizational
structure; and the fact that, historically, approximately one-fifth of Denron's
sales have been made outside the United States, making forward-looking
statements more difficult.
13
<PAGE>
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of JPM in
connection with the solicitation of proxies by the Board of Directors of JPM for
use at a Special Meeting of Shareholders of JPM to be held at the offices of the
Company, Route 15 North, Lewisburg, Pennsylvania on June 4, 1997 at 10:00 a.m.,
and at any and all adjournments or postponements thereof.
JPM SPECIAL MEETING
Purpose of the JPM Special Meeting
At the JPM Special Meeting, holders of JPM Common Stock will consider
and vote upon the JPM Share Proposal, which provides for the issuance of JPM
Common Stock in connection with the Merger, pursuant to which (i) Denron will
become a wholly-owned subsidiary of JPM and (ii) each outstanding share of
Denron Common Stock (other than shares owned by Denron as treasury stock, all of
which shall be canceled) will be converted into the right to receive 1.725
shares of JPM Common Stock (assuming a Closing Value, as defined in the Merger
Agreement, of $17.50 for JPM Common Stock on the closing date). Although
Pennsylvania law and the Articles of Incorporation of JPM do not require JPM to
obtain shareholder approval of the Merger, the rules of the Nasdaq Stock
Market's National Market require JPM to obtain shareholder approval of the
issuance of such shares due to the number of authorized but unissued shares of
JPM Common Stock expected to be issued in the Merger. Holders of JPM Common
Stock may also consider and vote upon matters incident to the conduct of the JPM
Special Meeting.
Based upon the assumed Exchange Ratio of 1.725 and the number of shares
of Denron Common Stock outstanding at March 27, 1997, JPM would issue
approximately 1,293,000 shares of JPM Common Stock to Denron shareholders in the
Merger.
The Board of Directors of JPM has unanimously approved the Merger and
the JPM Share Proposal and recommends that JPM shareholders vote FOR approval of
the JPM Share Proposal. See "The Merger - Background of the Merger" and
"Recommendation of the Board of Directors of JPM; Reasons for the Merger."
Record Date
The JPM Board of Directors has fixed the close of business on March 27,
1997 as the JPM Record Date for determining holders entitled to notice of and
to vote at the JPM Special Meeting.
As of the JPM Record Date, there were 6,067,141 shares of JPM Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote.
Quorum
The presence in person or by properly executed proxy of holders of 50%
in interest of the issued and outstanding shares of JPM Common Stock entitled to
vote is necessary to constitute a quorum at the JPM Special Meeting.
Required Vote
Under the rules of the Nasdaq Stock Market's National Market the JPM
Share Proposal will require approval by the affirmative vote of the holders of a
majority of the votes cast on this matter, provided that the total votes cast on
this matter represent more than 50% in interest of the votes entitled to be
cast. As of the JPM Record Date, the directors and executive officers of JPM and
their affiliates beneficially owned as a group
14
<PAGE>
approximately 66.0% of the outstanding shares of JPM Common Stock. Such
directors and executive officers of JPM have indicated to JPM that they and
their affiliates presently intend to vote all such shares in favor of the JPM
Share Proposal.
Voting Rights; Proxies
All shares of JPM Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF JPM COMMON STOCK WILL BE VOTED IN FAVOR OF THE JPM
SHARE PROPOSAL. JPM does not know of any matters other than as described in the
accompanying Notice of Special Meeting that are to come before the JPM Special
Meeting. If any other matter or matters are properly presented for action at the
JPM Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld. A shareholder who
has given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to JPM's Transfer Agent, StockTrans, Inc., 7 East
Lancaster Avenue, Ardmore, PA, 19003, by signing and returning a later dated
proxy, or by voting in person at the JPM Special Meeting. Accordingly, JPM
shareholders who have executed and returned proxy cards in advance of the JPM
Special Meeting may change their votes at any time prior to the vote on the JPM
Share Proposal at the JPM Special Meeting; however, mere attendance at the JPM
Special Meeting will not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the JPM Special Meeting will be
tabulated by the judges of election appointed for the meeting who will determine
whether or not a quorum is present. The judges of election will count shares
represented by proxies that reflect abstentions and "broker non-votes" (i.e.,
shares represented at the meeting held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) only as shares that are present and
entitled to vote on the matter for purposes of determining the presence of a
quorum, but neither abstentions nor broker non-votes have any effect on the
outcome of voting on the matter.
Solicitation of Proxies
JPM will bear its own cost of solicitation of proxies. Brokerage
houses, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of stock held
in their names.
THE MATTER TO BE CONSIDERED AT THE JPM SPECIAL MEETING IS OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF JPM. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
15
<PAGE>
THE MERGER
General
The Merger Agreement provides that the Merger will be consummated if
the approvals of the JPM shareholders required therefor are obtained and all
other conditions to the Merger are satisfied or waived. Upon consummation of the
Merger, Merger Sub will be merged with and into Denron, the separate corporate
existence of Merger Sub shall cease, and Denron shall continue as the surviving
corporation (the "Surviving Corporation") and a wholly-owned subsidiary of JPM.
Pursuant to the Merger, each outstanding share of Denron Common Stock (other
than shares owned by Denron as treasury stock, all of which shall be canceled
and retired) will be converted into the right to receive 1.725 shares of JPM
Common Stock, assuming a Closing Value, as defined in the Merger Agreement, of
$17.50 for JPM Common Stock on the closing date.
Based upon the outstanding shares of JPM and Denron as of March 27,
1997 and the assumed Exchange Ratio of 1.725, the shareholders of Denron
immediately prior to the consummation of the Merger would own approximately
17.6% of the outstanding JPM Common Stock following consummation of the Merger.
Such percentage could change depending upon: (i) whether shares of JPM Common
Stock issuable upon exercise of outstanding JPM stock options or other rights
are issued; and (ii) the actual Closing Value of JPM Common Stock on the closing
date.
The following table sets forth a range of potential Closing Values with
corresponding exchange ratios, aggregate number of shares of JPM Common Stock
issued to Denron Shareholders, and aggregate Closing Values of JPM Common Stock
(closing value multiplied by number of shares) issued to Denron Shareholders,
using the number of shares of Common Stock of each of JPM and Denron outstanding
as of the record date, March 27, 1997.
<TABLE>
<CAPTION>
Aggregate Closing
Number of JPM Shares Value of JPM Common
Issued to Denron Stock Issued to Denron
Closing Value(1) Exchange Ratio Shareholders Shareholders
---------------- -------------- -------------------- ----------------------
<S> <C> <C> <C>
20.000 1.533 1,150,000 23,000,000
18.000 1.704 1,277,778 23,000,000
17.975(2) 1.706 1,279,555 23,000,000
17.948(3) 1.707 1,280,342 22,979,578
17.693(4) 1.717 1,287,730 22,783,807
15.000 1.841 1,381,083 20,716,245
10.000 2.047 1,535,500(5) 15,355,000
</TABLE>
- -------------------
(1) The actual Closing Value, Exchange Ratio, Number of JPM Shares Issued to
Denron Shareholders, and Aggregate Closing Value of JPM Common Stock Issued
to Denron Shareholders may differ from the examples used throughout this
Proxy Statement because the actual Closing Value and Number of JPM Shares
Issued to Denron Shareholders will not be determined until immediately
preceding the closing.
(2) Closing Value above which the Aggregate Closing Value of JPM Common Stock
Issued to Denron Shareholders is fixed by the $23,000,000 cap.
(3) Closing Value as of March 27, 1997
(4) Closing Value as of April 30, 1997
(5) Maximum number of shares of JPM Common Stock to be issued to Denron
Shareholders under the Merger Agreement.
Effective Time
Consummation of the Merger will occur upon the filing of a certificate
of merger, together with any required related certificates, with the Secretary
of State of the State of California (the "Certificate of Merger"). The Merger
Agreement provides that filing of the Certificate of Merger will occur after the
satisfaction or waiver of all conditions to the closing of the Merger. The
Merger Agreement may be terminated by either party under certain circumstances.
See "The Merger Agreement - Conditions to the Merger" and "- Termination."
Conversion of Shares; Procedures for Exchange of Certificates
The conversion of Denron Common Stock into the right to receive JPM
Common Stock at the Exchange Ratio will occur automatically at the Effective
Time.
As soon as reasonably practicable after the Effective Time, JPM will
supply to StockTrans, Inc. or such other company as shall be designated by JPM
(the "Exchange Agent") certificates evidencing the JPM Common Stock issuable in
exchange for Denron Common Stock. In addition, a transmittal letter and
instructions will be mailed by the Exchange Agent to each shareholder of Denron
informing such shareholder of the procedures to follow in forwarding stock
certificates representing Denron Common Stock to the Exchange Agent. Upon
receipt of such Denron stock certificates together with such transmittal letter,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the Exchange Agent will deliver full shares of JPM Common
Stock to such shareholder and cash in lieu of fractional shares pursuant to the
terms of the Merger Agreement and in accordance with the transmittal letter,
together with any dividends or other distributions to which such shareholder is
entitled.
If any issuance of shares of JPM Common Stock in exchange for shares of
Denron Common Stock is to be made to a person other than the Denron shareholder
in whose name the certificate is registered at the Effective Time, it will be a
condition of such exchange that the certificate so surrendered be properly
endorsed or otherwise in proper form for transfer and that the Denron
shareholder requesting such issuance either pay any transfer or other tax
required or establish to the satisfaction of JPM that such tax has been paid or
is not payable.
After the Effective Time, there will be no further transfers of Denron
Common Stock on the stock transfer books of Denron. If a certificate
representing Denron Common Stock is presented for transfer, it will be
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canceled and a certificate representing the appropriate number of full shares of
JPM Common Stock and cash in lieu of fractional shares and any dividends and
distributions will be issued in exchange therefor.
After the Effective Time and until surrendered, shares of Denron Common
Stock will be deemed for all corporate purposes, other than the payment of
dividends and distributions and subject to the right to receive cash in lieu of
fractional shares, to evidence ownership of the number of full shares of JPM
Common Stock which such shares of Denron Common Stock represented the right to
receive at the Effective Time. No dividends or other distributions declared or
made after the Effective Time with respect to JPM Common Stock with a record
date after the Effective Time will be paid to the holders of any certificates
for shares of Denron Common Stock until such certificates are surrendered. Upon
surrender of such certificates, all such declared dividends and distributions
which shall have become payable with respect to such JPM Common Stock in respect
of a record date after the Effective Time will be paid to the holder of record
of the full shares of JPM Common Stock represented by the certificate issued in
exchange therefor, without interest. See "The Merger Agreement Exchange of
Certificates."
Background of the Merger
In June, 1996, JPM formed a task force to identify target companies for
potential acquisition. The primary requirement was that the target company be
able to provide quick turn manufacturing for JPM's West Coast customers. The
task force identified approximately twenty companies in the western United
States and then quickly screened the list to about twelve potential candidates.
In July, 1996, the task force, headed by John H. Mathias, Chairman and
Chief Executive Officer of JPM, discussed the list with the senior management of
JPM. As a result of that discussion, Denron became the primary candidate for
acquisition.
On July 11, 1996, Mr. Mathias made a telephone call to J. Michael
Denman, President of Denron. The telephone call was returned by Ronald C. Mills,
Chief Executive Officer of Denron. During the phone call, Mr. Mathias outlined
his proposal and discussed the strategic advantages of JPM and Denron operating
together. Mr. Mills, although not in favor of being acquired, agreed to have a
dinner meeting in San Jose, California with Mr. Mathias.
On July 17, 1996, Mr. Mathias, Robert R. Langton, Vice President of
Sales and Marketing for JPM and Mr. Mills had a dinner meeting in San Jose. The
advantages and synergies of a potential merger were discussed at length as well
as the reservations of Mr. Mills concerning being acquired. Mr. Mills agreed to
take the proposal under consideration over the next several weeks.
On July 28, 1996, Mr. Mathias reported on the status of acquisition
initiatives at the regularly scheduled meeting of The JPM Company Board of
Directors.
In August, 1996, Mr. Mathias called Mr. Mills and was informed Denron
had no interest in being acquired at this time. The JPM task force reconvened to
prioritize secondary choices and Mr. Mathias began to make contacts with other
companies over the next several weeks.
On September 24, 1996, Mr. Mathias and Mr. Mills circumstantially met
each other at an industry conference in California. Mr. Mills informed Mr.
Mathias he would like to reopen their discussions. Mr. Mills and Mr. Mathias
discussed potential synergies of a combination and proposed to begin a more
formal dialogue. On September 26, 1996, Messrs. Mills, John Mathias, Langton,
Denman and James P. Mathias, President and
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Chief Operating Officer of JPM met for dinner in Palo Alto, California and
agreed to pursue further merger discussions.
On October 4, 1996, JPM and Denron executed a confidentiality letter
with respect to the exchange of nonpublic information between the companies.
On October 28, 1996, Messrs. John and James Mathias, Mills and Denman
met in the Lewisburg, Pennsylvania offices of JPM. They discussed merging the
two companies provided the value of Denron would be set at the asking price of
$16 million. Additionally, at that time the Denron shareholders were proposing a
mostly cash transaction.
On November 6, 1996, and based on further financial information
provided by Denron, Mr. Mathias and William D. Baker, Chief Financial Officer of
JPM informed Mr. Mills and Mr. Denman the asking price of $16 million could only
be justified if the transaction were an exchange of common stock. A formula was
developed to determine the number of shares of JPM Common Stock exchanged for
all of the outstanding shares of Denron Common Stock.
Between October 28, 1996 and November 25, 1996, John and James Mathias,
Mills and Denman negotiated other material terms of the Merger. Because the
transaction was structured as a pooling of interests, a formula for determining
an exchange ratio was negotiated. The parties believed that price collars of
$8.86 to $11.98 for the JPM Common Stock permitted a reasonable variation in
price to reflect general market risk. If the value of JPM Common Stock exceeded
$11.98 after the announcement of the proposed Merger, the parties believed that
a portion of that increase should be attributable to the market's valuation of
the Merger with Denron. The formula ultimately agreed upon was a negotiated
compromise to allow attribution of the price increase to the Merger as well as
other company-specific actions and results. Because of the importance of Mills
and Denman to the ongoing operations of Denron, JPM also required employment and
non-competition agreements with each of them. Other customary provisions were
negotiated with the assistance of counsel.
On November 25, 1996, JPM and Denron signed a non-binding Letter of
Intent which outlined the exchange of all outstanding shares of Denron Common
Stock for shares of JPM Common Stock and employment contracts of Messrs. Ronald
Mills, J. Michael Denman and Donald Mills. The Letter of Intent was subject to
the approval of both companies' Boards of Directors. On that day, JPM issued a
press release announcing the signing of the Letter of Intent.
On November 27, 1996, Mr. John Mathias reported the status of the
negotiations to the JPM Board of Directors at the regularly scheduled board
meeting. The Board of Directors voted unanimously to seek a fairness opinion on
the merger consideration. The Board concluded it would seek proposals from the
two investment banking firms which co-managed JPM's initial public offering in
April, 1996. Subsequent to the board meeting, the proposal submitted by Janney
Montgomery Scott Inc. ("Janney") was accepted.
On January 28, 1997, the JPM Company Board of Directors considered the
proposed Merger at its regularly scheduled meeting. Janney presented an oral
report on the fairness of the merger consideration in the proposed merger
transaction to the Board. Janney noted that the price of JPM Common Stock had
risen to $21.00 per share. Janney noted that if the price of JPM Common Stock
continued to trade at this level or higher, the exchange ratio formula of the
letter of intent would require JPM to issue approximately 1,200,000 shares
having a market value of approximately $25,500,000. Janney advised the Board of
Directors that, based on its analysis, that level of consideration was exceeding
the level which Janney felt was fair and justifiable to JPM shareholders due to
Denron's relative size and stage of development. Janney suggested that the
formula be amended to cap the consideration paid if the average closing price of
JPM exceeded $18.00 per share so that the market value of the consideration to
Denron would not exceed $23,000,000.
Over the next several weeks, management of JPM and Mr. Mills and Mr.
Denman negotiated provisions of the Merger Agreement, including the proposed cap
of $23,000,000 on the merger consideration. Upon completion of this negotiation,
as of February 28, 1997, the directors of JPM executed a unanimous written
consent approving the form of Merger Agreement.
Recommendation of the Board of Directors of The JPM Company; Reasons for the
Merger
In approving the Merger, The JPM Company Board of Directors considered
the following:
1. Denron's geographic location and the need for JPM to develop
West Coast manufacturing capability.
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2. Denron's proximity to the development center of JPM's target
industry markets.
3. The complementary nature of Denron and JPM's respective
customer bases.
4. Denron's experience in sourcing both components and assemblies
in Asia.
5. Denron's manufacturing skills and experience and its ISO 9002
certification.
6. The potential for synergistic benefits, including sales
penetration, global presence, operating efficiencies
generated by purchasing leverage, and complementary
distribution points, manufacturing facilities and processes
and management resources.
7. The potential for growth in revenues and resulting financial
performance as a result of the Merger beyond what JPM could
achieve on a stand-alone basis.
8. The opinion of Janney that, as of February 26, 1997 and based
on and subject to the matters stated therein, the
consideration proposed to be paid by JPM pursuant to the
Merger was fair to JPM.
9. The business, operations, properties, assets, financial
conditions, operating results and prospects of JPM and Denron.
10. The current industry, economic and market conditions and
trends.
11. The terms of the Merger Agreement, Employee Agreements, and
Registration Rights Agreement.
12. The expected accounting treatment of the transaction as a
pooling of interests.
13. The historical trading prices and trading activity for JPM
Common Stock.
Opinion of JPM's Financial Advisor
Janney delivered its oral opinion on January 28, 1997, subsequently
confirmed in a written opinion dated February 26, 1997, to the Board of
Directors of JPM that, as of such date, and based upon the assumptions made,
matters considered and limits of review in connection with such opinion, and
assuming a price cap of $23,000,000 would be imposed, the consideration to be
paid by JPM in the Merger was fair to JPM from a financial point of view. A copy
of the opinion of Janney which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Annex B to
this Proxy Statement and is incorporated herein by reference. While the summary
of the opinion of Janney set forth in this Proxy Statement contains all material
provisions of the opinion, such summary is qualified in its entirety by
reference to the full text of the opinion. The opinion of Janney is addressed to
the JPM Board of Directors, is directed only to the fairness from a financial
point of view of the consideration to be paid by JPM pursuant to the Merger and
does not constitute a recommendation to any JPM shareholder as to how such
shareholder should vote at the JPM Special Meeting. JPM's shareholders are urged
to read the opinion in its entirety.
Opinion of Janney Montgomery Scott, Inc.
On January 28, 1997, Janney delivered its oral opinion to the JPM Board
of Directors, which was subsequently confirmed in a written opinion dated
February 26, 1997, to the effect that, as of such date, and based upon the
assumptions made, matters considered and limits of review in connection with
such opinion, and assuming a price cap of $23,000,000 would be imposed, the
consideration to be paid by JPM pursuant to the Merger was fair to JPM from a
financial point of view. No limitations were imposed on Janney by the JPM Board
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of Directors with respect to the investigations made or the procedures followed
by it in rendering its opinion. References herein to the "Janney Opinion" refer
to such written opinion.
In rendering its opinion, Janney reviewed, among other things: (a) a
draft of the Merger Agreement; (b) the unaudited historical financial statements
of Denron for the nine month period ended December 31, 1996 and the fiscal years
ended March 31, 1996, 1995 and 1994 (the audited historical financial statements
of Denron for the nine month period ended December 31, 1996 were reviewed by
Janney prior to release of their opinion dated February 26, 1997); (c) certain
financial and other data provided to Janney by Denron that is not publicly
available relating to the business and prospects of Denron, including financial
projections for the calendar years 1977 through 2001 prepared by the management
of Denron; (d) publicly available business and historical financial information
relating to JPM, including its 1996 Annual Report, Form 10-K for the year ended
September 30, 1996 and audited financial statements for the fiscal years ended
September 30, 1995, 1994 and 1993; (e) the reported historical market prices and
trading volume of JPM Common Stock; (f) selected financial and stock market data
for certain other publicly traded companies in lines of business comparable to
Denron and JPM; and (g) the financial terms of certain other recent mergers and
acquisitions of electronic connector, electronic wire and cable, and cable
assembly and wire harness manufacturers. For comparative and valuation purposes,
Janney adjusted Denron's projections to conform to JPM's fiscal year ended
September and then extrapolated a projection for Denron's fiscal year ended
March 1997 from its actual results for the nine months ended December 31, 1996.
Janney used the extrapolated March 1997 results as a proxy for Denron's latest
twelve months operation results. These adjustments to Denron's financial
statements were prepared by Janney and reviewed and approved by the management
of both Denron and JPM. Janney then compared these adjusted projections to the
Denron calendar year projections to ensure that the adjustments accurately
reflected Denron's projected results. Further, Janney held discussions with the
management of Denron regarding Denron's business, operating results, financial
condition, prospects and the Merger, and undertook other analyses, studies and
investigations as it considered appropriate. Janney also held discussions with
the management of JPM regarding JPM's business, operating results, financial
condition, prospects and the Merger, and undertook other analyses, studies and
investigations as it considered appropriate.
In connection with its review, Janney relied, without independent
verification, upon the accuracy and completeness of the financial and other
information used by it in arriving at its opinion. Janney also relied upon the
assessment of the management of Denron regarding its business, prospects and the
Merger and also assumed that the financial projections of Denron, as adjusted,
were reasonably prepared by management on bases reflecting the best currently
available estimates and good faith judgments of the future financial performance
of Denron. Janney did not undertake any independent valuations or appraisals of
the real properties or other assets of Denron, nor was it furnished with any
such valuations or appraisals. Janney did not perform a liquidation valuation
analysis as Denron was deemed an ongoing entity.
The Janney Opinion was necessarily based on economic, market and other
conditions as in effect on, and information made available to it as of, the date
of the Janney Opinion. Janney expressed no opinion as to the price at which JPM
Common Stock will trade at any future time. In addition, any forward-looking
statements made or incorporated by reference herein are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially. See "Risk Factors -- Forward Looking
Statements."
The following is a summary of certain financial and comparative
analyses performed by Janney in arriving at its oral opinion delivered to the
JPM Board of Directors on January 28, 1997.
Analysis of Operating Results and Financial Condition for Denron, Inc.
Janney reviewed the historical operating performance and financial condition of
Denron with its senior management. Denron's net sales increased from $15.8
million in fiscal 1994 to $17.5 million in fiscal 1995 and $25.3 million in
fiscal 1996. Net sales for the nine months ended December 31, 1996 were $18.8
million. Denron's operating margins were 0.8%, 1.5% and 1.6% during the fiscal
years ended March 1994, 1995, and 1996 respectively, and 4.2% for the nine
months ended December 31, 1996. Pre-tax income margins were 0.8%, 0.9%, and
1.2% during the fiscal years ended March 1994, 1995, and 1996 respectively, and
3.7% for the nine months ended December 31, 1996.
In its fiscal year 1994, Denron developed a strategic plan to focus on
the rapidly growing industry leaders in the computer and computer networking
industries and to discontinue sales to certain other customers. With this
strategy, Denron's management believed that it could grow its revenues by
approximately 20% per year and improve its operating efficiencies by
significantly penetrating a limited number of customers. Consequently, Janney
believes that the underlying growth in Denron's sales to these industries is not
reflected in its results over the last 24 months as Denron continues to refine
its customer base. Discussions with Denron's
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management indicated that if it were to separate the revenues of its
discontinued customers, revenues from its continuing customer base of six
customers (64% of revenues from three customers in nine months ended December
31, 1996) were approximately $8.0, $10.0 and $17.0 in the fiscal years 1994,
1995, and 1996 respectively, and are projected to be approximately $22.0 million
in fiscal year 1997, a compound annual growth rate of 40%. Denron's management
estimated that its operating margins would have been 2.0%, 4.0%, 6.0% and 7.0%
during the fiscal years ended March 1994, 1995, 1996 and 1997 respectively under
this scenario. Similarly, Denron estimated that net income margins would have
been 1.0%, 2.0%, 3.0% and 4.0% during the fiscal years ended March 1994, 1995,
1996 and 1997 respectively.
At the time of Janney's investigation, Denron currently had long-term
debt of $13,000, a revolving line of credit balance of $1.3 million and
stockholder's equity of $1.5 million as of December 31, 1996. Capital
expenditures were approximately $200,000 and $300,000 in the fiscal years ended
March 1995 and 1996, respectively, and $171,000 in the nine months ended
December 31, 1996. Capital expenditures are expected to be approximately
$300,000 again in the next year. Denron has established a relationship in China
to manufacture cable assemblies and wire harnesses for shipment to a major
customer in Singapore and to handle the production requirements in excess of its
production capacity in the United States. Denron believes that it will be able
to fulfill its financial projections through the continued execution of its
sales and marketing strategy and the use of its manufacturing relationship in
China.
Analysis of Comparable Publicly Traded Companies for Denron. Janney
reviewed and analyzed the publicly available information and stock market data
for ten publicly traded electronic connector, wire harness and cable assembly
companies: The JPM Company, ADFlex Solutions, Inc., AMP Inc., Amphenol Corp.,
Beldon Inc., Berg Electronics Corp., Cable Design Technologies, Inc., Kent
Electronics Corp., Methode Electronics Corp., and Molex Inc. (the "Comparable
Companies") and compared the data to Denron. In Janney's opinion, the company
most comparable to Denron is The JPM Company. The Comparable Companies consist
predominantly of much larger, diversified electronic connector or wire and cable
companies which also produce cable assemblies and wire harnesses and have
considerably greater financial and other resources than Denron. Janney believes
that the Comparable Companies serve as the most representative industry group
and advised the Board to consider these public companies as comparable to Denron
for purposes of this analysis.
The financial information and stock market data reviewed by Janney
included (a) stock price multiples to historical and estimated earnings; (b)
enterprise value (total stock market value adjusted for debt and cash) to latest
twelve months revenues, operating cash flow (earnings before interest, taxes,
depreciation and amortization) and operating profits (earnings before interest
and taxes); (c) profit margins and returns on assets and equity; (d) historical
and estimated growth rates; and (e) the capitalization of the Comparable
Companies and Denron. Janney noted that stock price multiples of the Comparable
Companies averaged 22.7 times 1996 estimated earnings and 18.3 times 1997
estimated earnings. Based on the closing price for JPM Common Stock of $18.38 on
January 23, 1997, ("Janney's Price Assumption"), JPM was trading at 31.2 and
20.4 times 1996 and 1997 earnings, respectively. Enterprise value multiples
averaged 1.6 times latest twelve months revenues, 12.7 times latest twelve
months operating cash flow and 13.2 times latest twelve months operating
profits. Based on Janney's Price Assumption, JPM was trading at enterprise value
multiples of 1.9, 15.1 and 17.8 times last twelve months revenue, cash flow and
operating income, respectively. Janney applied the range of multiples of the
Comparable Companies to Denron's financial projections for: (i) the fiscal year
ending March 1997 as extrapolated; (ii) the fiscal year ending September 1997;
and (iii) the calendar year ending 1997. This resulted in a range of estimated
values of approximately $11.4 million to $46.8 million. Janney noted that the
range of estimated values is quite broad and, therefore, subject to
interpretation. Janney concluded that the appropriate range of value was between
$18.3 million and $24.1 million in view of Denron's operating rate for the
fiscal year end September 1997 and its projected earnings for the calendar year
1997.
Discounted Cash Flow Analysis. Janney prepared a discounted cash flow
analysis to estimate the present value of the unlevered free cash flows and the
estimated terminal value of the business as projected by the management of
Denron. As previously discussed, Janney adjusted the projections provided by
Denron to
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conform to the JPM fiscal year ending September, 1997. Janney considered a range
of terminal exit values, which reflected enterprise multiples of 9.0 to 11.0
times projected operating cash flows in fiscal year 2001. Janney discounted the
unlevered free cash flows for the five year period and the terminal exit value
to present values using a range of discount rates from 16.0% to 20.0% and
deducted the existing debt to arrive at a range of estimated equity values. On
the basis of the projected September 1997 fiscal year end results, the equity
valuation range resulting from the discounted cash flow analysis was $24.3
million to $34.5 million.
Analysis of Mergers and Acquisitions in the Electronic Connector and
Wire and Cable Industry. Janney identified 11 completed mergers and acquisitions
of wire and cable, electronic connectors, electronic components and electronic
parts companies since January 1995. The transactions included
(acquiror/acquiree): Bell Industries/Milgray Electronics, Kent
Electronics/Futronix Systems, Thomas & Betts/Augat, Farnell Electronics/Premier
Industrial, Kuhlman/Communication Cable, Bell Industries/Sterling Electronics,
Danaher/Joslyn, General Signal/Best Power, Arrow Electronics/Anthem Electronics,
AEG/Electrocom Automation, and Read-Rite/Sunward Technologies. The average
enterprise value to revenue, cash flow and operating income multiples were 1.1,
12.3 and 14.2 times, respectively. Janney applied the range of multiples of the
Comparable Companies to Denron's financial projections for: (i) the fiscal year
ending March 1997 as extrapolated; (ii) the fiscal year ending September 1997;
and (iii) the calendar year ending December, 1997. This resulted in a range of
estimated values of approximately $11.6 million to $30.6 million. Janney also
noted that this range of estimated values is quite broad and, therefore, subject
to interpretation. Janney concluded that the appropriate range of value was
between $19.7 and $27.6 in view of Denron's operating rate for the fiscal year
end September 1997 and its projected earnings for the calendar year 1997.
Additionally, Janney reviewed the publicly available information on the
activity in 1996 for all mergers and acquisitions as well as the mergers and
acquisitions in the technology market as defined by the industry codes for
computers, electronics and telecommunications. Janney found that the average
multiples of enterprise value to revenue, cash flow and operating income for all
deals in 1996 was 4.3, 13.2 and 18.1 times, respectively. For technology deals,
the average multiples of enterprise value to revenue, cash flow and operating
income were 7.0, 15.3 and 15.6 times, respectively. Janney suggested that these
multiples supported the validity of the multiples derived from the 11 comparable
merger and acquisition transactions and showed that they were conservative
relative to the average multiples paid in 1996 overall and in the technology
markets.
Contribution Analysis. Janney analyzed the relative contribution of
Denron to revenues, gross profit, operating profit and net income of the
combined entity based on the projected fiscal year end September 1997 before
taking into account any synergies discussed with the management of JPM and
Denron, and also after taking into account such synergies. The analysis
indicated that Denron would contribute 24.6%, 22.7%, 15.7% and 15.4% to
revenues, gross profit, operating profit and net profit, respectively, before
considering the synergies of the Merger. Upon consideration of the synergies,
the analysis indicated that Denron would contribute 27.1%, 29.2%, 28.1% and
27.7% of revenues, gross profit, operating profit and net income, respectively,
to the combined company. Using Janney's Price Assumption and the resulting
exchange rate of 1.68, the shareholders of Denron would own 16.4% of the shares
outstanding of the combined entity.
Other Considerations. Janney also reviewed the earnings dilution or
accretion that would be incurred by JPM based on the proposed exchange ratio for
the projected fiscal year end September 1997. The analysis showed a less than 1%
earnings dilution before the benefit of potential synergies estimated by the
managements of JPM and Denron and approximately 9% earnings accretion including
such estimated synergies.
Analysis of Operating Results and Financial Condition of JPM. Janney
reviewed and analyzed publicly available financial information for JPM as well
as the financial information and stock market data for the Comparable Companies
(not including JPM) and compared the data to JPM. The financial information and
stock market data reviewed by Janney included (a) stock price multiples to
historical and estimated earnings; (b) enterprise value (total stock market
value adjusted for debt and cash) to latest twelve months revenues, operating
cash flow (earnings before interest, taxes, depreciation and amortization) and
operating profits (earnings before interest and taxes); (c) profit margins and
returns on assets and equity; (d) historical and estimated growth rates; and (e)
the capitalization of the Comparable Companies and Denron.
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Janney noted that JPM's revenues had increased from $36.6 million in
its fiscal year 1995 to $60.1 million in fiscal year 1996 and that net income
and net margin had increased from $804,000 and 2.2% respectively to $2.8
million and 4.6% respectively. During this period, JPM completed its initial
public offering and used part of the proceeds to reduce its debt and preferred
stock from approximately $13.2 million to approximately $4.1 million. Janney
also noted that stock price multiples of the Comparable Companies ranged from
17.5 to 29.0 times 1996 estimated earnings and 14.0 to 26.0 times 1997 estimated
earnings while JPM was trading at 31.2 and 20.4 times 1996 and 1997 earnings,
respectively, based on Janney's Price Assumption. Enterprise value multiples
ranged from 1.1 to 2.0 times latest twelve months revenues, 4.8 to 32.1 times
latest twelve months operating cash flow and 7.5 to 18.3 latest twelve months
operating profits while JPM was trading at enterprise value multiples of 1.9,
15.1 and 17.8 times revenue, cash flow and operating income, respectively, based
on Janney's Price Assumption. Janney noted that JPM's stock price has
appreciated considerably over the recent period and that its earnings and
enterprise multiples were generally at or above the high end of the range of its
peer group.
The summary set forth above, while containing the material elements of
the analyses performed by Janney, does not purport to be a complete description
of such analyses. Arriving at a fairness opinion is a complex process not
necessarily susceptible to partial or summary description. Janney believes that
its analysis must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the process underlying
its analyses set forth in the Janney Opinion. The matters considered by Janney
in its analyses are based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Denron's or JPM's control
and involve the application of complex methodologies and educated judgment. Any
estimates incorporated in the analyses performed by Janney are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. No public company utilized as a comparison is
identical to Denron or JPM, and none of the acquisition comparables or other
business combinations utilized as a comparison is identical to the proposed
Merger. Accordingly, an analysis of publicly traded comparable companies and
comparable business combinations is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
The JPM Board of Directors selected Janney to act as one of its
financial advisors on the basis of Janney's reputation as a nationally
recognized investment banking firm with expertise in transactions similar to the
Merger and because it is familiar with JPM and its business. As part of its
investment banking business, Janney is continually engaged in the valuation of
business and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate and other purposes.
Janney Fees. With respect to Janney's services as a financial advisor
in connection with the Merger, pursuant to a letter agreement dated December 2,
1996, JPM has agreed to pay Janney $100,000 for its services in connection with
preparation of the Janney Opinion. In addition, JPM also has reimbursed Janney
for its reasonable out-of-pocket expenses (including reasonable fees and
expenses of its legal counsel) and agreed to indemnify Janney and certain
related persons against certain liabilities, including liabilities under the
federal securities laws, arising out of its engagement.
Janney has, in the past, provided financial advisory and financing
services to JPM and has received fees for rendering such services. In addition,
in the ordinary course of their businesses, Janney and its affiliates may
actively trade the securities of JPM for their own accounts or for the accounts
of customers and,
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accordingly, they may at any time hold long or short positions in such
securities. Janney co-managed JPM's initial public offering of April, 1996 and
in the ordinary course of its trading and brokerage activities, Janney makes a
market in the stock of JPM.
Interests of Certain Persons in the Merger
At closing, JPM and the Denron Shareholders will enter into a
Registration Rights Agreement pursuant to which the Denron Shareholders may
require, subject to the terms and conditions thereof, JPM to register the shares
of JPM Common Stock received by them in the Merger for sale in accordance with
the Securities Act. See "Other Agreements - Registration Rights Agreement."
As a condition precedent to JPM's obligation to close on the Merger
Agreement, each of John M. Denman, Ronald C. Mills and Donald Mills shall
execute Employment Agreements. See "Other Agreements -Employment Agreements."
The Merger Agreement provides that each of JPM and Denron will
indemnify and hold harmless the other, their affiliates, successors and assigns
from certain liabilities, damages, losses, deficiencies and expenses arising out
of the Merger Agreement and related agreements provided that such obligation
shall not arise until the total amount of such claims exceeds $100,000 and such
obligation shall not exist beyond 10% of the total merger consideration. See
"The Merger Agreement - Additional Agreements - Indemnification and Insurance."
Certain United States Federal Income Tax Consequences
It is the intention of the parties that the Merger constitute a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). Consequently, no gain or loss will be recognized by
Denron, Merger Sub or JPM as a result of the Merger. No ruling has been sought
from the Internal Revenue Service and no opinion has been received from legal
counsel as to the United States Federal income tax consequences of the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER JPM SHAREHOLDERS SHOULD VOTE IN FAVOR OF THE JPM SHARE PROPOSAL. THE
DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO DENRON
SHAREHOLDERS AND DOES NOT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT CHANGE, AND
ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. DENRON
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
Anticipated Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of JPM and Denron will be carried forward to
the combined corporation at their recorded amounts, subject to any adjustments
required to conform the accounting policies of the two companies; income of the
combined corporation will include income of JPM and Denron for the entire fiscal
year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of the
combined corporation.
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Certain Legal Matters
JPM and Denron do not believe that any governmental filings, other than
the Certificate of Merger, are required with respect to the Merger. Consummation
of the Merger is conditioned upon, among other things, the absence of any
preliminary or permanent injunction or other order issued by any federal or
state court of competent jurisdiction which prohibits or restricts the
consummation of the Merger.
Resale of JPM and Denron Common Stock
All JPM Common Stock issued in connection with the Merger will be
restricted stock and may not be transferred except pursuant to a subsequent
registration or exemption from registration. In the Merger Agreement, JPM has
agreed to file with the Securities and Exchange Commission a Registration
Statement on Form S-3, or other applicable form, within ninety (90) days after
the Closing Date, to register all shares of JPM Common Stock received by the
Denron Shareholders in exchange for their Denron Common Stock.
In addition, under the terms of the Registration Rights Agreement, the
Denron Shareholders have certain demand and piggyback registration rights
pursuant to which they may require, subject to the terms and conditions thereof,
JPM to register under the Securities Act all or part of the JPM Common Stock
received by such Denron Shareholders in connection with the Merger. See "Other
Agreements-Registration Rights Agreement."
JPM and Denron Common Stock
JPM is authorized to issue 40,000,000 shares of JPM Common Stock, par
value $.000067 per share and 10,000,000 shares of preferred stock, no par value.
Denron is authorized to issue 5,000,000 shares of Denron Common Stock, no par
value. Holders of shares of JPM Common Stock and Denron Common Stock are
entitled to one vote per share on all matters to be voted upon by the
shareholders. Because holders of JPM Common Stock and Denron Common Stock do not
have cumulative voting rights, holders of a majority of the shares voting for
the election of directors can elect all of the members of the respective Boards
of Directors. In the event of a liquidation, dissolution or winding up of either
company, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. The
JPM Common Stock and Denron Common Stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
available to the common stock of either company. All outstanding shares of JPM
Common Stock and Denron Common Stock are fully paid and non-assessable and the
shares of JPM Common Stock to be issued in connection with the Merger will be
fully paid and non-assessable.
Dividends
JPM has never paid dividends on shares of JPM Common Stock. After the
Merger, JPM intends to continue to retain future earnings for use in its
business and does not anticipate paying cash dividends on JPM 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. By the terms of its
credit arrangements with lenders, the Company is limited in its ability to pay
dividends up to a maximum of 25% of JPM's pretax profits. See "Comparative Per
Share Prices and Dividends."
Appraisal Rights
Holders of JPM Common Stock are not entitled to dissenters' appraisal
rights under Pennsylvania law in connection with the Merger.
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Fees and Expenses
Except for printing and filing fees in respect of this Proxy Statement
which will be paid by JPM, each of JPM and Denron will pay its own expenses in
connection with the Merger, provided however that any fees and expenses incurred
by Denron and the Denron shareholders and paid by Denron in excess of $130,000
may, at JPM's election, be subtracted from the purchase price for the Denron
Common Stock and the number of shares issued to the Denron Shareholders shall be
reduced accordingly.
THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Proxy
Statement does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Annex A to this Proxy
Statement and is incorporated by reference.
Terms of the Merger
The Merger. At the Effective Time and subject to and upon the terms and
conditions of the Merger Agreement and the California Corporations Code ("CCC"),
Merger Sub will be merged with and into Denron, the separate corporate existence
of Merger Sub will cease, and Denron will continue as the surviving corporation
("Surviving Corporation") and a wholly-owned subsidiary of JPM.
Closing Date and Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions to the Merger set forth in the Merger
Agreement, a closing will be held pursuant to the Merger Agreement. The date of
such closing is referred to as the "Closing Date." As promptly as practicable
after the Closing Date, the Merger will be consummated by filing a Plan of
Merger (the "Plan of Merger") attached as Exhibit A to the Merger Agreement,
together with any related certificates, with the Secretary of State of the State
of California in accordance with the CCC. The time of such filing is referred to
as the "Effective Time."
Articles of Incorporation and By-Laws. The Plan of Merger provides that
at the Effective Time the Articles of Incorporation of Denron will be amended
and restated in their entirety as described in the Plan of Merger and such
Articles of Incorporation shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with the CCC and
such Articles of Incorporation. The Plan of Merger further provides that at the
Effective Time the By-Laws of Denron will be amended and restated in their
entirety as described in the Plan of Merger and such By-Laws shall be the By-
Laws of the Surviving Corporation until thereafter amended in accordance with
the CCC, the Articles of Incorporation and such By-Laws.
Directors and Officers. The directors of the Surviving Corporation from
and after the Effective Time shall be John H. Mathias, James P. Mathias and
Janet B. Mathias. The officers of the Surviving Corporation from and after the
Effective Time shall be John H. Mathias, President and Secretary, and William D.
Baker, Chief Financial Officer.
Merger Consideration and Exchange Ratio. The Merger Agreement provides
that Merger Sub shall be merged into Denron, each share of common stock of
Merger Sub shall be converted into one share of common stock of Denron, and all
shareholders of Denron shall exchange their Denron Common Stock for JPM Common
Stock at which time all shares of Denron Common Stock shall be cancelled.
The aggregate number of shares of JPM Common Stock which the Denron
Shareholders will receive shall be determined by dividing $16,000,000 by a value
of $10.42 per share of JPM Common Stock, or 1,535,500 shares of JPM Common
Stock, unless the Closing Value (defined below) of JPM Common Stock is
------
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less than $8.86 or more than $11.98. The Closing Value is the trading volume
weighted average of the daily closing price per share of JPM Common Stock for
the fifteen consecutive trading days ended as of two trading days prior to the
Closing Date. If the Closing Value is less than $8.86, the Merger Agreement may
be terminated by either JPM or Denron or the purchase price may be renegotiated.
If the Closing Value is greater than $11.98, the aggregate number of shares of
JPM Common Stock to be issued to Denron Shareholders shall be adjusted so that
the Denron Shareholders shall participate to the extent of 50% of any increase
in the value of JPM Common Stock over $11.98 per share provided however that the
----- --------
aggregate value paid by JPM for the Denron Common Stock shall not exceed
$23,000,000. Assuming a Closing Value of $17.50, the Exchange Ratio (number of
shares of JPM Common Stock for each share of Denron Common Stock) would be
1.725. The actual Closing Value of JPM Common Stock on the Closing Date will
probably vary from $17.50.
Conversion of Denron Common Stock in the Merger and Fractional Shares.
At the Effective Time, each share of Denron Common Stock (a "Denron Share")
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive 1.725 shares of validly issued, fully paid and
nonassessable shares ("JPM Shares") of JPM Common Stock, assuming a Closing
Value of $17.50 for JPM Common Stock as of the Closing Date. No certificates
or scrip representing less than one JPM Share shall be issued in connection with
the Merger. In lieu of any such fractional share, each holder of a certificate
or certificates representing Denron Shares ("Certificates") who would otherwise
have been entitled to a fraction of a JPM Share upon surrender of Certificates
for exchange shall be paid upon such surrender cash equal to the product of (i)
such fraction, multiplied by (ii) the closing price per share on the Nasdaq
Stock Market's National Market of JPM Common Stock as reported in the Eastern
Edition of the Wall Street Journal on the trading date prior to the date on
---- ------ -------
which the Effective Time occurs.
Exchange of Certificates
Exchange Agent. As soon as practicable after the Effective Time, JPM
shall supply to StockTrans, Inc. or such other agent as shall be designated by
JPM (the "Exchange Agent"), in trust for the benefit of the holders of Denron
Common Stock, for exchange in accordance with the Merger Agreement, through the
Exchange Agent, certificates evidencing the JPM Shares issuable in exchange for
outstanding Denron Shares. JPM will make available to the Exchange Agent from
time to time as needed, cash sufficient to pay cash in lieu of fractional shares
and any dividends and distributions.
Exchange Procedures. As soon as practicable after the Effective Time,
JPM will instruct the Exchange Agent to mail to each holder of record of Denron
Common Stock a letter of transmittal and instructions to effect the surrender of
the certificates representing Denron Common Stock in exchange for certificates
evidencing JPM Common Stock. Upon surrender of a certificate representing Denron
Common Stock for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such certificate will be
entitled to receive in exchange therefor (i) certificates evidencing that number
of whole JPM Shares which such holder has the right to receive in the Merger,
(ii) any dividends or other distributions on the shares of JPM Common Stock
which such holder is entitled to receive, and (iii) cash in respect of
fractional shares of JPM Common Stock (the JPM Shares, dividends, distributions
and cash being, collectively, the "Merger Consideration"), and the certificate
representing Denron Common Stock so surrendered shall forthwith be cancelled. In
the event of a transfer of ownership of Denron Shares which is not registered in
the transfer records of Denron as of the Effective Time, JPM Shares, dividends
and distributions may be issued and paid to a transferee if the certificate
evidencing such Denron Shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding certificate that, prior to the Effective Time, represented shares of
Denron Common Stock will be deemed from and after the Effective Time, for all
corporate purposes (other than payment of dividends and subject to the
provisions described below under "- Exchange of Certificates - No Liability,
Escheat
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and Withholding"), to evidence the ownership of the number of full JPM Shares
into which such Denron Shares shall have been so converted.
Distributions With Respect to Unexchanged Denron Common Stock. No
dividends or other distributions declared or made after the Effective Time with
respect to JPM Common Stock with a record date after the Effective Time will be
paid to the holder of an unsurrendered certificate representing shares of Denron
Common Stock with respect to the shares of JPM Common Stock they are entitled to
receive until the holder of such certificate shall surrender such certificate.
Subject to applicable law and the provisions described below under "Exchange of
Certificates - No Liability, Escheat and Withholding," following surrender of
any certificate representing shares of Denron Common Stock, there will be paid
to the record holder of the certificates representing whole shares of JPM Common
Stock issued in exchange therefor, without interest, at the time of surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of JPM Common
Stock.
Transfers of Ownership. If any certificate for shares of JPM Common
Stock is to be issued in a name other than that in which the certificate
representing shares of Denron Common Stock surrendered in exchange therefor is
registered, it will be a condition of the issuance that the certificate
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to JPM or any
designated agent any transfer or other taxes required by reason of the issuance
of a certificate for shares of JPM Common Stock in any name other than that of
the registered holder of the certificate surrendered, or have established to the
satisfaction of JPM or any designated agent that such tax has been paid or is
not payable.
No Liability, Escheat and Withholding. At any time following one year
after the Effective Time, JPM shall be entitled to require the Exchange Agent to
deliver to JPM any Merger Consideration which has been made available to the
Exchange Agent by or on behalf of JPM and which has not been disbursed to
holders of certificates representing shares of Denron Common Stock, and
thereafter such holders shall be entitled to look to JPM only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of such certificates. Notwithstanding the foregoing, neither JPM,
Merger Sub nor Denron will be liable to any holder of Denron Common Stock for
any Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. JPM or the Exchange Agent
will be entitled to deduct and withhold from the Merger Consideration otherwise
payable to any Denron stockholder such amounts as JPM or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
any provision of federal, state, local or foreign tax law.
Lost, Stolen or Destroyed Certificates. In the event any certificates
representing shares of Denron Common Stock have been lost, stolen or destroyed,
the Exchange Agent will issue shares of JPM Common Stock in exchange for such
lost, stolen or destroyed certificates upon the making of an affidavit of that
fact by the owner of such certificates and delivery of a bond in a reasonable
sum as indemnity against any claim that may be made against JPM or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
Representations and Warranties
The Merger Agreement contains various representations and warranties
made by Denron in favor of JPM and Merger Sub and made by JPM and Merger Sub, in
respect of JPM and its subsidiaries, in favor of Denron relating, among other
things, to the following matters (which representations and warranties are
subject, in
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certain cases, to specified exceptions): (i) corporate organization, standing,
qualification and similar corporate matters, except where failure to be so
qualified or in good standing do not have a material effect on operations; (ii)
completeness of corporate documents; (iii) capitalization; (iv) ownership of
shares; (v) subsidiaries; (vi) authorization, execution, delivery and
enforceability of the Merger Agreement and related documents; (vii) the absence
of violation of or breach of provisions of charter documents, bylaws, material
agreements or laws and the absence of the need for consents for the execution of
the Merger Agreement; (viii) an affirmation of the financial statements
provided; (ix) an absence of undisclosed or contingent liabilities except those
which are provided for in JPM's September 30, 1996 balance sheet or Denron's
December 31, 1996 balance sheet (respectively, the "Balance Sheet Date"),
liabilities arising in the ordinary course of business since the Balance Sheet
Date, or liabilities disclosed on schedules to the Merger Agreement; (x) the
absence of certain changes or events since the Balance Sheet Date; (xi) the
absence of undisclosed guaranties; (xii) payment of taxes and certain other tax
matters; (xiii) the absence of pending litigation or known threatened
litigation; (xiv) ownership and lease of certain real and personal property;
(xv) condition of tangible personal property; (xvi) accounts receivable, certain
contracts, inventories and supplies, prepaid items and deposits and other
assets; (xvii) bank and personnel matters; (xviii) labor and employment matters;
(xix) continuation of certain business relationships; (xx) maintenance of
insurance; (xxi) compliance with laws; (xxii) licenses and permits; (xxiii)
relationships with affiliates; (xxiv) compliance with environmental laws; (xxv)
ownership and rights to use certain intellectual property; and (xxvi) full
disclosure of relevant facts.
Conduct of Business Pending the Merger
Conduct of Business by Denron. The Merger Agreement provides that,
prior to the Closing Date, Denron will conduct its business efficiently and in a
manner consistent with past practice and Denron will use its best efforts to
preserve its current business organization to keep available the services of the
present officers, employees, consultants and agents of Denron and to preserve
the present relationships of Denron with customers, suppliers and other persons
with which Denron has business relations. Except as contemplated by the Merger
Agreement, Denron will not: (i) enter into any business combination transaction
(such as a merger, consolidation, sale of stock or sale of assets) with any
person other than Merger Sub; (ii) amend or authorize any amendment to or
modification of its Articles of Incorporation or By-laws or other organizational
document; (iii) make any change in its authorized or issued capital stock, or
issue any corporate securities of any nature or options for any of the
foregoing, or enter into any contract of any nature respecting shares of its
capital stock or otherwise make any changes in its capital structure; (iv) make
any distribution or payment in respect of its equity or shares of its capital
stock or purchase or redeem any equity interests or shares of its capital stock;
(v) enter into any contract or commitment extending beyond the Effective Time,
except in the ordinary course of business; (vi) terminate, modify or amend any
lease, license, permit, contract or other agreement, except in the ordinary
course of business and not involving an increase in liability or reduction in
revenue; (vii) except in the ordinary course of business consistent with past
practice for any employee who is not an officer or director, adjust in any way,
either directly or indirectly, or grant or agree to grant any increase in the
wages, salary, bonus or other compensation, remuneration or benefit, of any
employee, officer, director, consultant, shareholder or agent except as required
under existing collective bargaining agreements or in other existing agreements
or become a party to any employment agreement or any consulting arrangement, or
become a party to any contract or arrangement providing for payment of bonuses,
profits, shares, stock benefits, severance payments or retirement benefits, or
increase the number of shares subject to any stock option or stock bonus plan or
reduce the time required for exercisability of any option or vesting of any
right granted under any such plan, except as required by contract; (viii) except
in the ordinary course of business, make any, capital expenditure in excess of
$25,000; (ix) incur any indebtedness, liabilities or obligations of any nature
except current liabilities in the ordinary course of business consistent with
past practice; (x) sell or transfer any property otherwise than in the ordinary
course of business, or acquire or dispose of any fixed assets in excess of
$25,000; (xi) release, waive, sell or assign any debts, claims, rights or other
intangible obligations, or accept or agree to accept less than the stated or
face amount in settlement, discharge or satisfaction of any receivable; (xii)
discharge or satisfy any lien or encumbrance or pay any obligation or liability
(absolute or contingent), except current liabilities in the ordinary
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course of business and in normal amounts; (xiii) mortgage, pledge or subject to
any lien, charge or encumbrance any assets, tangible or intangible; (xiv) enter
into, any transaction other than in the ordinary course of business; (xv) take
any action which would materially adversely affect the corporate existence,
rights and franchises of Denron; (xvi) make any bids or proposals or enter into
any contracts for the sale of products or the performance of services by Denron
except in the ordinary course of business; (xvii) enter into any material lease,
contract or agreement of any type, except for purchase orders covering inventory
or supplies which are entered into in the ordinary course of business after
notice to JPM; (xviii) institute any litigation (other than collection matters);
(xix) make any change in any method of accounting or accounting principle,
practice or policy affecting or relating to Denron; or (xx) agree, whether in
writing or otherwise, to do any of the foregoing or do any act or thing which
under the terms and conditions of the Merger Agreement would be in violation of
any of the covenants or agreements of Denron under the Merger Agreement, or
which would make any representation or warranty of Denron under the Merger
Agreement inaccurate or untrue as of the Closing Date.
Conduct of Business by JPM. The Merger Agreement provides that, prior
to the Closing Date, JPM will conduct its business, and cause the businesses of
its subsidiaries to be conducted efficiently, consistent with past practice and
JPM shall use its best efforts to preserve its current business organization of
JPM and its subsidiaries, to keep available the services of the present
officers, employees, consultants and agents of JPM and its subsidiaries and to
preserve the present relationships of JPM and its subsidiaries with customers,
suppliers and other persons with which JPM or any of its subsidiaries has
business relations. Except as contemplated by the Merger Agreement, neither JPM
nor any of its subsidiaries, without the prior written consent of Denron, will:
(i) increase the rate of compensation paid, or pay any bonus, to any officer or
executive of JPM, except for those increases or bonuses planned, in the ordinary
course of business consistent with past practices; (ii) incur any material fixed
or contingent obligation or enter into any material agreement, commitment or
other transaction or arrangement with any of its officers or directors, or any
related person, corporation or other entity that is not in the ordinary course
of business consistent with past practices; or (iii) declare any dividend or
make any distribution or payment in respect of its equity or shares of its
capital stock or purchase or redeem any equity interests or shares of its
capital stock.
Additional Agreements
Registration of Shares. Within ninety (90) days after the Closing Date,
JPM shall file with the Securities and Exchange Commission a Registration
Statement on Form S-3, or other applicable form, to register all shares of JPM
Common Stock received by the shareholders of Denron in exchange for their Denron
Common Stock.
Disposition of Share Consideration. The Denron Shareholders agree they
will refrain from disposing of any shares received pursuant to the Merger
Agreement until publication of combined sales and net income covering a period
of at least 30 days of post-Closing operations.
Access to Information; Confidentiality. Upon reasonable notice and
subject to certain restrictions contained in the Merger Agreement, Denron and
JPM shall each afford to the officers, employees, and other representatives of
the other, access, during the period prior to the Closing Date, to all its
properties, books, contracts, accounts and records and, during such period,
Denron and JPM each shall furnish promptly to the other information concerning
its business, properties and personnel as such other party may request. Each
party shall keep such information confidential in accordance with the terms of
the Merger Agreement.
Consents, Approvals. Denron and JPM will each obtain any consents or
approvals required for the consummation of the transactions contemplated by the
Merger Agreement.
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Indemnification and Insurance. The Merger Agreement provides that each
of JPM and Denron will indemnify and hold harmless the other, their affiliates,
successors and assigns from certain liabilities, damages, losses, deficiencies
and expenses arising out of the Merger Agreement and related agreements provided
that such obligation shall not arise until the total amount of such claims
exceeds $100,000 and such obligation shall not exist beyond 10% of the total
merger consideration.
Notification of Certain Matters. Denron and JPM will each give the
other prompt notice of the occurrence of any event which would be likely to
cause any representation or warranty of the notifying party contained in the
Merger Agreement to be inaccurate.
Public Announcements. JPM and Denron have agreed to consult with each
other before issuing any press release with respect to the Merger or the Merger
Agreement and will not issue any such press release or make any such public
statement without the prior consent of the other party except as required by law
or otherwise permitted by the Merger Agreement.
Dispute Resolution. Any controversy, dispute or claim arising out of or
relating to the Merger Agreement, or any modification, amendment or extension
thereto, or the breach thereof, including any claim to rescind or set aside any
of the same shall be settled by arbitration conducted in Denver, Colorado, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA").
Conditions to the Merger
Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger are subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(i) Shareholder Approval. The requisite percentages of
shareholders (for JPM 50% of those shareholders voting, for Denron 100% of its
shareholders) shall have approved the Merger.
(ii) Accuracy of Representations and Warranties. Each of the
representations and warranties of the parties set forth in the Merger Agreement
shall be true and correct on and as of the Closing Date and the parties shall
have performed and complied with each of the agreements, covenants,
stipulations, terms and conditions contained in the Merger Agreement on or prior
to the Closing Date.
(iii) No Material Adverse Change. There shall have been no material
adverse change in the consolidated financial condition, assets or liabilities of
the parties from the date of the Merger Agreement until the Closing Date.
(iv) Opinion of Counsel. Each party shall have furnished to the
other on the Closing Date an opinion of their respective counsel regarding
certain closing matters.
(v) No Injunction; Consents. No action, proceeding or
investigation shall have been instituted or threatened to set aside the
transactions provided for in the Merger Agreement or to enjoin or prevent the
consummation of the transactions contemplated by the Merger Agreement and all
consents, authorizations, orders and approvals required to be obtained by the
parties for the consummation of the transactions shall have been secured.
(vi) No Losses. Neither party shall have suffered any loss on
account of fire, flood, accident, strike or other calamity which has a material
adverse effect on the financial condition or any assets of the party, whether or
not such loss shall been covered by insurance.
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(vii) Due Diligence. Each party shall be satisfied, in its sole
discretion and without regard to materiality, with the results of its due
diligence with respect to the business, operations, condition (financial or
otherwise), assets or property of the other party and without regard to any
knowledge of such facts prior to execution of the Merger Agreement.
Additional Conditions to Obligations of JPM and Merger Sub. The
obligations of JPM and Merger Sub to effect the Merger are also subject to the
following conditions:
(i) Resignations. All of the existing Denron directors and
officers shall resign effective at the Effective Time.
(ii) Employment Agreements. John M. Denman, Ronald C. Mills and
Donald Mills shall each have executed and delivered to JPM an Employment
Agreement, substantially in the form attached to the Merger Agreement.
(iii) Uniform Commercial Code Searches. JPM shall have received from
Denron Uniform Commercial Code searches of filings in all jurisdictions where
any assets of Denron are located which shall not disclose any liens, claims,
security interests or encumbrances against any of Denron's assets except as
previously disclosed by Denron.
(iv) Accounting Matters. The Merger shall have been effectuated
using the pooling of interests method of accounting.
(v) Registration Rights Agreement. JPM shall have received an
executed Registration Rights Agreement from Denron.
(vi) Tax Matters. The Merger shall comply with the provisions of
Sections 368(a)(1)(A) and368(a)(2)(E) of the Internal Revenue Code.
Termination
Conditions to Termination. The Merger Agreement may be terminated at
any time prior to the Closing Date, notwithstanding approval thereof by the
stockholders of Denron or JPM:
(i) by the mutual consent of JPM and the Denron
Shareholders;
(ii) by JPM if any conditions precedent to JPM's obligation
become impossible of performance or have not been satisfied in full or
previously waived by JPM in writing at or prior to the Closing Date;
(iii) by Denron if any conditions precedent to Denron's
obligation become impossible of performance or have not been satisfied
in full or previously waived by Denron in writing at or prior to the
Closing Date; or
(iv) by either JPM, Denron, or the Denron Shareholders if the
Closing has not occurred (other than through the failure of any party
seeking to terminate to comply fully with its obligations under the
Merger Agreement) on or before May 31, 1997, or such later date as the
parties may agree upon. By letter agreement, the termination date has
been extended to June 15, 1997.
If the Merger Agreement is terminated pursuant to clause (i) above, all
obligations of the parties under the Merger Agreement (with certain specified
sections relating to mutual covenants, expenses, brokers and news
32
<PAGE>
releases) shall terminate without any further liability or obligation of either
party to the other, and notwithstanding such termination, JPM shall pay a
maximum of $55,000 for the fees and expenses incurred by Denron with respect to
the audit of Denron's financial statements for the nine month period ended
December 31, 1996 by Price Waterhouse LLP. Except as limited by the preceding
sentence, the exercise by any party of the right to terminate the Merger
Agreement shall not terminate or limit any remedy that such party may have at
law or in equity by reason of another party's breach of any obligation under the
Merger Agreement prior to such termination.
OTHER AGREEMENTS
The descriptions of the Registration Rights Agreement and Employment Agreements
contained in this Proxy Statement do not purport to be complete and are
qualified in their entirety by reference to such agreements, which are exhibits
to the Merger Agreement.
Registration Rights Agreement
As a condition precedent to Denron's obligation to close on the Merger
Agreement, JPM must execute the Registration Rights Agreement attached to the
Merger Agreement as Exhibit B. Pursuant to the Registration Rights Agreement,
within ninety (90) days after the Closing Date, JPM shall file with the
Securities and Exchange Commission a Registration Statement on Form S-3, or
other applicable form, to register all shares of JPM Common Stock received by
the shareholders of Denron in exchange for their Denron Common Stock. JPM shall
keep the Form S-3 Registration Statement effective for twenty-four months. In
addition, the Denron Shareholders shall receive the right to participate in any
underwritten public offering of JPM Common Stock. These "piggyback registration
rights" may be limited in certain circumstances.
The Registration Rights Agreement contains customary indemnification
provisions whereby JPM is obligated to indemnify and hold harmless the Denron
Shareholders and certain related parties, and the Denron Shareholders are
obligated under certain circumstances to indemnify and hold harmless JPM and
certain related parties, in each case in connection with liabilities relating to
the registration of the Registrable Securities.
Employment Agreements
As a condition precedent to JPM's obligation to close on the Merger
Agreement, each of John M. Denman, Ronald C. Mills and Donald Mills shall
execute Employment Agreements. The Employment Agreements provide that each of
John M. Denman, Ronald C. Mills and Donald Mills shall be employed by JPM for a
period of three years at a salary of $160,000, $160,000 and $125,000,
respectively. Ronald C. Mills and Donald Mills will each be eligible for certain
incentive bonuses, generally amounting to 20% of base salary, provided certain
financial objectives are achieved by the combined companies. Donald Mills will
receive 30,000 stock options under JPM's 1995 Stock Option Plan on the date of
signing his Employment Agreement and will also receive not less than 10,000
additional stock options on the first anniversary of his Employment Agreement.
Each employee will also be eligible for the benefit programs of JPM on the same
basis as other executive personnel of JPM. Each Employment Agreement contains a
three year covenant-not-to-compete, a covenant against disclosure of
confidential information, a covenant against solicitation of JPM employees and a
covenant against solicitation of JPM customers. Each Employment Agreement
provides for severance pay equal to one year's base salary, provided termination
is not for cause or the result of the employee's death or disability.
33
<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
JPM
Pursuant to its initial public offering on April 30, 1996, JPM Common
Stock is listed and traded on the Nasdaq Stock Market's National Market. The
following table sets forth the high and low sales prices per share of JPM Common
Stock as reported on the Nasdaq Composite Transactions Tape for the quarterly
periods presented below:
<TABLE>
<CAPTION>
JPM Common Stock
----------------------------------------
High Low
<S> <C> <C>
Calendar 1996:
First quarter.................................................................. -- --
Second quarter................................................................. $ 9.25 $ 7.50
Third quarter.................................................................. 9.50 7.13
Fourth quarter................................................................. 19.25 8.88
Calendar 1997:
First quarter ................................................................. 21.75 15.25
</TABLE>
On November 22, 1996, the last trading day prior to announcement of the
signing of a letter of intent for the proposed Merger, the closing price per
share of JPM Common Stock as reported on the Nasdaq Composite Transactions Tape
was $11.75. On February 28, 1997, the last trading day prior to announcement of
the execution of the Merger Agreement, the closing price per share of JPM Common
Stock as reported on the Nasdaq Composite Transactions Tape was $16.75. On
April 30, 1997, the closing price per share of JPM Common Stock as reported on
the Nasdaq Composite Transactions Tape was $18.75 Shareholders are urged to
obtain current market quotations.
As of March 27, 1997 there were approximately 2,400 beneficial
holders of JPM Common Stock.
Denron
Denron Common Stock is privately held and therefore is not registered
or traded on a securities exchange and there is no established public trading
market for Denron Common Stock. Denron is not aware of any transactions in
Denron Common Stock during the past three years.
As of March 27, 1997, there were 10 holders of Denron Common Stock.
34
<PAGE>
Post-Merger Dividend Policy
JPM has never paid dividends on shares of JPM Common Stock. After the
Merger, JPM intends to continue to retain future earnings for use in its
business and does not anticipate paying cash dividends on JPM 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. By the terms of its
credit arrangements with lenders, the Company is limited in its ability to pay
dividends up to a maximum of 25% of JPM's pretax profits.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with the historical consolidated
financial statements of JPM and notes thereto, incorporated herein by reference
to the Company's Annual Report on Form 10-K for the year ended September 30,
1996 and the Company's quarterly report on Form 10-Q for the period ended
December 31, 1996, which accompany this Proxy Statement, and the historical
financial statements and notes thereto of Denron for the nine months ended
December 31, 1996, attached as Annex C.
The following unaudited pro forma financial statements give effect to
the Merger of JPM and Denron to be accounted for on a pooling of interests
basis. The unaudited pro forma condensed combined balance sheet presents the
combined financial position of JPM and Denron as of December 31, 1996 assuming
that the proposed Merger had occurred as of December 31, 1996. Such pro forma
information is based upon the historical balance sheet data of JPM and Denron as
of that date.
The unaudited selected pro forma combined statements of operations
combine JPM's historical results for the three months ended December 31, 1996
and 1995 and the years ended September 30, 1996, 1995 and 1994 with Denron's
historical results for the three months ended December 31, 1996 and 1995 and the
twelve months ended December 31, 1996 and the years ended March 31, 1995 and
1994, respectively, giving effect to the Merger as if it had occurred on October
1, 1993. The unaudited pro forma combined balance sheet combines JPM's and
Denron's consolidated condensed balance sheets at December 31, 1996, giving
effect to the Merger as if it had occurred on December 31, 1996.
JPM has a fiscal year ending September 30, and Denron has a fiscal year
ending March 31. Accordingly, the unaudited proforma condensed combined
financial statements for the year ended September 30, 1996 include Denron's
financial information conformed to a fiscal year end (December 31) within three
months of JPM's year end.
Denron's nine month period ended December 31, 1995 has been omitted
from the unaudited pro forma condensed combined statements of operations.
Denron's net sales, income from operations and net income were $18,980, $599 and
$346 respectively, for such nine month period.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or the future financial position of JPM.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 FOR JPM AND YEARS ENDED
DECEMBER 31, 1996, MARCH 31, 1995 AND MARCH 31, 1994 FOR DENRON
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
JPM Denron
------------------------------------------ --------------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $60,073 $36,568 $25,640 $25,119 $17,474 15,778
Cost of sales.............. 48,856 30,563 22,035 21,480 14,988 13,392
------- ------ ------ ------- ------ ------
Gross profit............... 11,217 6,005 3,605 3,639 2,486 2,386
Selling, general and
administrative expenses.... 4,843 3,291 2,494 3,047 2,221 2,253
----- ----- ----- ----- ----- -----
Income from operations..... 6,374 2,714 1,111 592 265 133
Other income (expense)..... (1,044) (870) (427) (115) (109) 3
------- ----- ----- ----- ----- -
Income before taxes,
minority interest and
change in accounting
principle.................. 5,330 1,844 684 477 156 136
Provision for income tax... 2,132 841 291 141 24 67
----- --- --- --- ---- --
Income before minority
interest and change in
accounting principle....... 3,198 1,003 393 336 132 69
Minority interest.......... 423 199 - - - -
----- ----- --- ----- ----- -----
Income before change in
accounting principle....... 2,775 804 393 336 132 69
Cumulative dividends on
Preferred Stock............ 140 277 240 - - -
--- --- --- ----- ----- -----
Income applicable to
Common Stock before change
in accounting principle.... $ 2,635 $ 527 $ 153 $ 336 $ 132 $ 69
======= ======= ======= ===== ======= ====
Income per Common Share
before change in accounting
principle.................. $ 0.50 $ 0.14 $ 0.04 $0.45 $ 0.18 $ 0.09
======= ======= ======= ===== ======= ====
<CAPTION>
Pro Forma Combined
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales.................. $85,192 $54,042 $41,418
Cost of sales.............. 70,336 45,551 35,427
------- ------ ------
Gross profit............... 14,856 8,491 5,991
Selling, general and
administrative expenses.... 7,890 5,512 4,747
----- ----- -----
Income from operations..... 6,966 2,979 1,244
Other income (expense)..... (1,159) (979) (424)
----- ----- -----
Income before taxes,
minority interest and
change in accounting
principle.................. 5,807 2,000 820
Provision for income tax... 2,273 865 358
----- --- ---
Income before minority
interest and change in
accounting principle....... 3,534 1,135 462
Minority interest.......... 423 199 -
----- ----- ---
Income before change in
accounting principle....... 3,111 936 462
Cumulative dividends on
Preferred Stock............ 140 277 240
----- --- ---
Income applicable to
Common Stock before change
in accounting principle.... $2,971 $ 659 $ 222
====== ======= =======
Income per Common Share
before change in
accounting principle....... $0.48 $0.13 $0.04
====== ======= =======
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
JPM Denron
------------------------------------------ --------------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average number
of shares of Common
Stock outstanding.......... 4,892 3,599 3,489 750 750 750
====== ====== ====== ==== ==== ====
<CAPTION>
Pro Forma Combined
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average number
of shares of Common
Stock outstanding.......... 6,186 4,893 4,783
===== ===== =====
</TABLE>
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 FOR JPM AND DENRON
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
JPM Denron
-------------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales..................... $ 20,217 $ 12,385 $ 6,504 $ 6,828
Cost of sales................. 16,327 10,355 5,357 5,831
------ ------ ----- -----
Gross profit.................. 3,890 2,030 1,147 997
Selling, general and
administrative expenses....... 1,454 1,016 826 742
----- ----- ----- ---
Income from operations........ 2,436 1,014 321 255
Other income (expense)........ 213 (321) (43) (26)
--- ----- --- ---
Income before income
taxes......................... 2,649 693 278 229
Provision for income tax...... 1,059 277 95 76
----- --- --- ---
Net income.................... $ 1,590 $ 416 $ 183 $ 153
======== ======== ======== ========
Net income per common
share......................... $ 0.24 $ 0.04 $ 0.24 $ 0.20
========= ========= ======== ========
Weighted average number
of shares of Common 6,498 3,925 750 750
Stock outstanding............. ===== ===== === ===
<CAPTION>
Pro Forma
Combined
------------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales..................... $ 26,721 $ 19,213
Cost of sales................. 21,684 16,186
------ ------
Gross profit.................. 5,037 3,027
Selling, general and
administrative expenses....... 2,280 1,758
----- -----
Income from operations........ 2,757 1,269
Other income (expense)........ 170 (347)
--- -----
Income before income
taxes......................... 2,927 922
Provision for income tax...... 1,154 353
----- ---
Net income.................... $ 1,773 $ 569
======== ========
Net income per common
share......................... $ 0.23 $ 0.11
======== ========
Weighted average number
of shares of Common
Stock outstanding............. 7,792 5,219
===== =====
</TABLE>
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
JPM Denron
------------------ ---------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 752 $ -
Accounts receivable, net............................. 9,330 2,249
Inventories, net..................................... 10,679 2,648
Other current assets................................. 758 162
------ ------
Total current assets................................ 21,519 5,059
Property, plant and equipment, net...................... 9,382 599
Notes receivable-related parties........................ 203 -
Excess of cost over fair value of net
assets acquired, net.................................. 4,563 -
Other assets............................................ 594 29
------ -----
$ 36,261 $ 5,687
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................................ $ 1,030 $ 1,340
Current maturities of long-term debt................. 681 6
Accounts payable..................................... 3,870 1,930
Accrued expenses..................................... 3,584 528
Income taxes payable................................. 908 119
Deferred income taxes................................ 879 210
------ -------
Total current liabilities........................... 10,952 4,133
Long-term debt.......................................... 4,164 14
Other long-term liabilities............................. 959 -
------- ------
16,075 4,147
Shareholders' equity
Common stock......................................... - 50
Additional paid in capital........................... 16,189 -
Retained earnings.................................... 3,997 1,490
------- -------
Total shareholders' equity.......................... 20,186 1,540
$ 36,261 $ 5,687
======== ========
<CAPTION>
Pro Forma
Combined
--------------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 752
Accounts receivable, net............................. 11,579
Inventories, net..................................... 13,327
Other current assets................................. 920
------
Total current assets................................ 26,578
Property, plant and equipment, net...................... 9,981
Notes receivable-related parties........................ 203
Excess of cost over fair value of net
assets acquired, net ................................. 4,563
Other assets............................................ 623
------
$ 41,948
========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings................................ $ 2,370
Current maturities of long-term debt................. 687
Accounts payable..................................... 5,800
Accrued expenses..................................... 4,662
Income taxes payable................................. 1,027
Deferred income taxes................................ 1,089
------
Total current liabilities........................... 15,635
Long-term debt.......................................... 4,178
Other long-term liabilities............................. 959
--------
20,772
Shareholders' equity
Common stock......................................... -
Additional paid in capital........................... 16,239
Retained earnings.................................... 4,937
--------
Total shareholders' equity.......................... 21,176
$ 41,948
========
</TABLE>
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(in thousands)
Note 1. Basis of Presentation
The unaudited pro forma financial statements give effect to the Merger
of JPM and Denron to be accounted for on a pooling of interests basis. The
unaudited selected pro forma combined statements of operations combine JPM's
historial results for the three months ended December 31, 1996 and 1995 and the
years ended September 30, 1996, 1995 and 1994 with Denron's historical results
for the three months ended December 31, 1996 and 1995 and the twelve months
ended December 31, 1996 and the years ended March 31, 1995 and 1994,
respectively, giving effect to the Merger as if it had occurred on October 1,
1993. The unaudited pro forma combined balance sheet combines JPM's and
Denron's consolidated condensed balance sheets at December 31, 1996, giving
effect to the Merger as if it had occurred on December 31, 1996.
JPM has a fiscal year ending September 30, and Denron has a fiscal year
ending March 31. Accordingly, the unaudited pro forma condensed combined
financial statements for the year ended September 30, 1996 include Denron's
financial information conformed to a fiscal year end (December 31) within three
months of JPM's year end.
Denron's nine month period ended December 31, 1995 has been omitted
from the unaudited pro forma condensed combined statements of operations.
Denron's net sales, income from operations and net income were $18,980, $599 and
$346 respectively, for such nine month period.
No adjustments have been made in these pro forma financial statements
to conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
Note 2. Pro Forma Net Income Per Share and Number of Shares Outstanding
The number of shares of JPM Common Stock which will be issued in
exchange for the outstanding shares of Denron is based on an Exchange Ratio of
1.725 shares of JPM Common Stock for each share of Denron Common Stock issued
and outstanding immediately prior to the closing date, which assumes a Closing
Value (as defined in the Merger Agreement) of $17.50 for JPM Common Stock on
the closing date. The 1.725 Exchange Ratio was used in preparing the pro forma
combined financial data and the following table provides the pro forma number of
shares to be issued in connection with the Merger:
<TABLE>
<CAPTION>
(Shares in
thousands)
<S> <C>
Number of shares of Denron Common Stock outstanding as of
December 31, 1996................................................................... 750
Exchange Ratio........................................................................ 1.725
Number of shares of JPM Common Stock issued in the Merger............................. 1,294
Number of shares of JPM Common Stock outstanding as of
December 31, 1996................................................................... 6,040
Number of shares of JPM Common Stock outstanding after completion
of the Merger....................................................................... 7,334
</TABLE>
The pro forma combined net income per common share amounts are based on
the combined weighted average number of common shares of JPM and Denron
outstanding during each period and the Exchange Ratio of 1.725 shares of JPM
Common Stock for each issued and outstanding share of Denron Common Stock,
assuming a Closing Value of $17.50 for JPM Common Stock on the closing date.
The actual number of shares of JPM Common Stock to be issued in the Merger will
be determined at the closing date.
Note 3. Merger-Related Expenses
It is estimated that Merger-related costs of approximately $550
will be incurred for direct costs of the Merger, consisting primarily of
transaction costs for investment bankers, attorneys, accountants, financial
printing, and other related charges. The pro forma condensed combined balance
sheet gives effect to these costs as if they had been incurred as of December
31, 1996, but the pro forma condensed combined statements of operations do not
give effect to any such expenses.
41
<PAGE>
Note 4. Pro Forma Adjustments
Pro forma adjustments to reflect the effect of the Merger transaction
on the pro forma condensed combined balance sheet at December 31, 1996 are as
follows:
a. The capital accounts have been adjusted to reflect the
issuance of 1,294 shares of JPM Common Stock in exchange for
all the outstanding shares of Denron. The excess of $50 of
the par value of Denron shares received in exchange over the
par value of JPM shares issued has been credited to additional
paid in capital.
b. Accrued expenses and retained earnings reflect the estimated
Merger related costs of $550.
42
<PAGE>
THE COMPANIES
The JPM Company
JPM is a leading independent ISO-registered manufacturer of cable
assemblies and wire harnesses for OEM's in the computer networking and
telecommunications sectors of the electronics industry. The Company manufactures
over 5,000 products which transfer power or transmit voice, data or video within
the OEM's equipment or to external connections. Principal applications of the
Company's products include computers, network bridges and routers, self-service
terminals (including automatic teller machines), PBX switching equipment,
cellular digital switching equipment, industrial electrical controls and medical
electronic equipment. By integrating its design and engineering capabilities
with its customers' product development activities, the Company customizes its
products to satisfy its customers' particular needs in a price-competitive
manner.
The business of the Company was started by Jay P. Mathias in 1949. The
Company operates manufacturing facilities in Lewisburg and Beaver Springs,
Pennsylvania, Winnsboro, South Carolina and Guadalajara, Mexico. The Company was
incorporated in 1968 as the successor to Mr. Mathias' prior business structures.
Its principal executive offices are located at Route 15 North, Lewisburg,
Pennsylvania 17837, with a telephone number of (717) 524-8200.
Denron Inc.
Denron Inc. is a privately-held, ISO-registered independent
manufacturer of cable assemblies and wire harnesses with principal operations in
San Jose, California. Like JPM, Denron sells primarily to leading OEM's in the
computer and telecommunications markets. Denron's customers include Hewlett-
Packard, 3Com, Bay Networks and Silicon Graphics.
Denron was founded in 1980. The executive offices of Denron are located
at 2135 Ringwood Avenue, San Jose, CA 95131 and Denron's telephone number is
(408) 435-8588.
Denron's financial statements for the nine months ended December 31,
1996, and for the years ended March 31, 1996 and March 31, 1995 are attached to
this Proxy Statement as Annex C.
43
<PAGE>
DENRON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Denron, founded in 1980, is strategically located in the Silicon Valley where it
is the largest independent ISO registered manufacturer of cable assemblies and
wire harnesses for OEMs in the computer and electronics industries. Denron
manufactures products which transfer power or transmit voice, data or video
within the OEMs' equipment or to external connections. Principal applications of
Denron's products include computers, network bridges and routers. Substantially
all of Denron's business is contract manufacture of cable assemblies and wire
harnesses. By integrating its design and engineering capabilities with its
customers' product development activities, Denron customizes its products to
satisfy its customers' particular needs in a price-competitive manner.
Consistent with its marketing strategy, a substantial portion of Denron's
products are sold to a limited number of customers. Denron's strategy is to
focus on industry leaders in the computer and networking markets with whom it
can develop mutually beneficial relationships. Denron 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 to develop. Denron'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 40,000 square foot domestic facility, Denron has
manufacturing services arrangements with companies in Taipei, Taiwan and in The
Peoples Republic of China.
The following table presents, as a percentage of sales, certain selected
consolidated financial data for each of Denron's three fiscal periods completed
December 31, 1996, March 31, 1996 and 1995.
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
------------------------------------------
DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1995
------------------------------------------
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of sales............................... 83.3 87.5 85.8
----- ----- -----
Gross profit................................ 16.7 12.5 14.2
Selling, general and administrative......... 12.6 10.9 12.7
----- ----- -----
Income from operations...................... 4.1 1.6 1.5
Interest and Other expense, net............. (.4) (.4) (.6)
----- ----- -----
Income before taxes......................... 3.7% 1.2% .9%
===== ===== =====
</TABLE>
44
<PAGE>
Comparison of the Nine Month Periods Ending December 31, 1996 and 1995.
Net sales for the nine months ended December 31, 1996 decreased $191,000, or
1.0%, compared to the same period one year earlier. The sales decrease was
primarily the result of the strategic decision to refocus Denron on a limited
number of high growth computer customers and market segments. Denron stopped
doing business with several customers that existed in 1995 that did not meet
this criteria.
45
<PAGE>
Gross profit increased $481,000, or 18.1%, for the nine month period when
compared to the corresponding period one year earlier. Gross profit as a
percentage of net sales increased to 16.7% from 14.0% for the nine month period
compared to the same period one year earlier. The increased gross margin for the
nine month period was mainly the result of decreased production costs on a
portion of Denron's business which is produced in Southeast Asia and in The
Peoples Republic of China and sales growth with the targeted customer base.
Selling, general and administrative ("SG & A") expenses increased $300,000, or
14.6% for the nine month period, compared to the same period one year earlier.
As a percentage of net sales, SG & A increased to 12.6% from 10.9% for the nine
month period compared to the same period one year earlier. The increase during
the nine month period in SG & A expenses was primarily due to compensation
expenses necessary to support Denron's growth.
Other expense increased $3,000, or 4.2%, for the nine months when compared to
the same period one year earlier, mainly because of increased interest expense.
Denron's effective tax rate for the nine months decreased to 31.8% from 33.6%,
when compared to the same period one year earlier.
Net earnings increased $130,000, or 37.6%, when compared to the nine month
period one year earlier. The net earnings increase during the nine month period
was mainly due to increased margins as discussed above.
Comparison of Fiscal Year 1996 with Fiscal Year 1995
Net sales for fiscal 1996 increased by $7,835,000, or 44.8%, as compared to
fiscal 1995. This increase came from two sources: sales to new OEM customers and
increased sales to certain existing customers. During fiscal 1994, Denron
implemented a strategic plan that focused Denron's efforts on a limited number
of leading OEM's in the computer industry and Denron elected to stop doing
business with those customers that did not meet this criteria. Sales to
customers on which the Company has chosen to focus its efforts increased from
approximately $10,000,000 in 1995 to approximately $17,000,000 in 1996.
Gross profit increased by $672,000, or 27.0%, in fiscal 1996 as compared to
fiscal 1995. As a percentage of revenue, gross profit decreased from 14.2% to
12.5%. The decreased gross margin was primarily due to product mix and the
refocus on customers who are the leaders in the computer industry while
discontinuing business with other customers along with the transfer of
manufacturing of certain products to suppliers in China and Southeast Asia.
Selling, general and administrative expenses for fiscal 1996 increased $526,000,
or 23.7%, as compared to fiscal 1995, primarily as a result of increased
compensation expense.
Other expense for fiscal 1996 increased by $2,000, or 1.8%, as compared to
fiscal 1995. The increase was associated with slightly higher borrowing levels.
The effective income tax rate for fiscal 1996 was 31.2% as compared to 15.5% in
fiscal 1995. The increase in the effective income tax rate was primarily due to
greater pre-tax income which reduced the impact of the lower rates for the
initial amounts of income and greater use of research tax credits during the
1995 fiscal year.
Net income for fiscal 1996 increased $75,000, or 56.7% to $206,000 as compared
to fiscal 1995 net income of $132,000. Net income increased during the year
mainly because of increased net sales as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities during the nine months ended December 31, 1996 utilized
cash in the amount of $16,000 mainly to finance increased accounts receivable
and inventory needed to support sales growth. Net cash provided (used) from
operating activities during 1996 and 1995 was $191,000 and $(231,000),
respectively. The cash generated during 1996 was mainly the cash generated from
net income, depreciation and accounts payable increases. The cash utilized in
1995 was mainly utilized to finance increases in accounts receivable and
inventory, as a result of increased sales growth.
Working capital at December 31, 1996 was $926,000, an increase of $455,000 from
March 31, 1996. The increase was primarily the result of increased internal
generation of cash. Working capital was $471,000 at March 31, 1996, an increase
of $62,000 from March 31, 1995. The increase in working capital was primarily
the result of increases in accounts receivable and inventory growth in response
to current sales levels and inventory growth in anticipation of future sales.
During the nine months ended December 31, 1996 Denron had capital expenditures
of $171,000, comprised mainly of production equipment. During fiscal 1996,
Denron expended $296,000 for capital expenditures compared to $200,000 for
fiscal 1995.
Financing activities generated cash in the amount of $367,000, $116,000 and
$177,000 for the periods ended December 31, 1996, March 31, 1996 and March 31,
1995 respectively, primarily because of increased borrowing to finance increased
inventory required to support sales growth.
46
<PAGE>
CREDIT FACILITIES
On March 31, 1996, Denron's bank revolving line of credit was amended to permit
Denron to draw up to $1,600,000 collateralized by Denron's inventories,
property, plant and equipment and accounts receivable. In September 1996, Denron
again amended its bank revolving credit line to permit Denron to draw up to
$2,000,000 collateralized by Denron's inventories, fixed assets and accounts
receivable. Pursuant to this amendment, the interest rate was changed from a
fixed rate of 9.75% to the bank's prime lending rate plus 0.75%. The line of
credit provides for advances up to a percentage of eligible accounts receivable
at 80%, provides certain restrictions with regard to acquisitions, mergers,
dissolution, capital expenditures and the incurrence of additional indebtedness,
and prohibits loans to or investments in other entities or persons. The line of
credit expires July 31, 1997. Denron was in compliance with all loan covenants
at December 31, 1996. Borrowings under the line of credit at December 31, 1996
amounted to $1,340,000 against an availability of $1,800,000 based on the
collateral base and the $2,000,000 limit.
Denron believes that its cash flow from operations and credit facilities will be
sufficient to satisfy its working capital requirements and capital expenditure
needs over at least the next twelve months. Prior to the Merger, Denron expected
to spend approximately $300,000 on capital expenditures during fiscal 1997.
However, assuming no Merger and depending on its rate of growth, profitability
and potential acquisition activity, Denron may require additional equity or debt
financing to meet its working capital requirements, capital expenditure,
additional manufacturing capacity or acquisition needs.
47
<PAGE>
BENEFICIAL OWNERSHIP OF JPM COMMON STOCK
The following table sets forth, as of March 27, 1997, the amount and
percentage of JPM's outstanding Common Stock beneficially owned by (i) each
person known to the Company to beneficially own more than five percent of the
outstanding Common Stock, (ii) each director, (iii) the Chief Executive Officer
and each of the other four most highly compensated executive officers, and (iv)
all directors and executive officers of JPM as a group. Except as otherwise
indicated, each person has sole investment and voting power with respect to the
shares shown. The information with respect to each person specified is as
supplied or confirmed by such person.
<TABLE>
<CAPTION>
Shares Beneficially Percent of Common Percent of Common
Name Owned (1) Stock Prior to Merger (2) Stock After Merger (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5% Holders (4):
- ---------------
John H. Mathias (5) 1,158,651 19.1% 15.7%
James P. Mathias (6) 1,130,141 18.5 15.3
Janet B. Mathias (7) 938,253 15.5 12.7
Directors (8):
- --------------
Bruce M. Eckert (9) 278,059 4.6 3.8
Wayne A. Bromfield (10) 267,635 4.4 3.6
Steven N. Brody (11) 55,280 * *
Executive Officers (12):
- ------------------------
John M. Spangler (13) 245,030 4.0 3.3
Maria Luisa Lozano (14) 19,100 * *
Robert Verbosh(15) 19,100 * *
William D. Baker (16) 3,000 * *
All executive officers and
directors as a group
(11 persons)(17) 4,159,999 66.0 54.7
</TABLE>
- -------------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Includes shares of Common Stock issuable upon the exercise of stock
options granted under the Company's stock option plans which are
exercisable within 60 days of March 27, 1997. As used in this table,
"beneficial ownership" means the sole or shared power to vote or direct
the voting of a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose, or direct the
disposition, of a security). A person is deemed as of any date to have
"beneficial ownership" of any security that such person has the right
to acquire within 60 days after such date.
(2) Assumes 6,067,141 shares of JPM Common Stock outstanding. This number
could change upon the exercise of outstanding JPM stock options. In
calculating the tabulated percent of class for each director and
officer, the shares of JPM Common Stock underlying outstanding options
currently held by an individual director or officer were added to the
total number of shares held by such director and officer and to the
total outstanding shares assuming that such director or officer
exercised his or her outstanding options. In addition, the percent of
class of all directors and executive officers assumes all outstanding
options issued to such executive officers and directors have been
exercised.
(3) Assumes issuance of 1,293,000 of JPM Common Stock in connection with
the Merger, for a total of 7,360,141 shares of JPM Common Stock
outstanding after the Merger.
(4) The address of John H. Mathias, James P. Mathias and Janet B. Mathias
is: c/o The JPM Company, Route 15 North, Lewisburg, PA 17837.
48
<PAGE>
(5) Includes: (a) 35,000 of Common Stock held with his spouse as joint
tenants in common; (b) 100,000 shares of Common Stock held by his
spouse; (c) 25,200 shares of Common Stock held by his daughter; (d)
77,691 shares of Common Stock held in the John H. Mathias Trust, of
which John. H. Mathias is the residuary beneficiary as to which he has
no voting or dispositive power; and (e) 125,000 shares of Common Stock
held in the Smoketown Limited Partnership. See footnote (9) below.
(6) Includes: (a) 35,000 shares of Common Stock held with his spouse as
joint tenants in common; (b) 10,000 shares of Common Stock held by his
spouse; (c) 30,400 shares of Common Stock held by his children; (d)
77,691 shares of Common Stock held in the James P. Mathias Trust, of
which James P. Mathias is the residuary beneficiary as to which he
has no voting or dispositive power; and (e) 125,000 shares of Common
Stock held in the Afallon Family Limited Partnership. Also includes
options granted to his spouse to purchase 40,750 shares of Common
Stock. See footnote (9) below.
(7) Includes 77,253 shares owned by the Janet B. Mathias Trust, of which
Janet B. Mathias is the residuary beneficiary but as to which she has
no voting or dispositive power. See footnote (9) below.
(8) Excludes Directors listed under 5% holders.
(9) Includes: (a) an aggregate of 232,635 shares of Common Stock held by
the Janet B. Mathias Trust, John H. Mathias Trust and James P. Mathias
Trust, as to which Mr. Eckert shares voting and dispositive power as a
trustee but disclaims beneficial ownership; (b) 12,424 shares of Common
Stock held in trust by Lewis, Eckert, Robb & Co. Profit Sharing Plan
for the benefit of Bruce M. Eckert, for which Mr. Eckert serves as the
Trustee; and (c) 33,000 shares issuable upon the exercise of stock
options granted by the Company which are exercisable within 60 days of
March 27, 1997.
(10) Includes an aggregate of 232,635 shares of Common Stock held by the
Janet B. Mathias Trust, John H. Mathias Trust and James P. Mathias
Trust, as to which Mr. Bromfield's wife, Kathleen, shares voting and
dispositive power as a trustee but disclaims beneficial ownership and
35,000 shares issuable upon the exercise of stock options granted by
the Company which are exercisable within 60 days of March 27, 1997.
(11) Represents shares of Common Stock held by Brody Associates Retirement
Plan for the benefit of Steven N. Brody, for which Mr. Brody serves as
the Trustee. Also includes 21,000 shares issuable upon the exercise of
stock options granted by the Company which are exercisable within 60
days of March 27, 1997.
(12) Excludes Executive Officers listed under Directors or 5% Holders.
(13) Includes 80,000 shares of Common Stock held by the Profit Sharing Plan
for the benefit of John Spangler. Also includes 60,750 shares issuable
upon the exercise of stock options granted by the Company which are
exercisable within 60 days of March 27, 1997.
(14) Includes 2,500 shares issuable upon the exercise of stock options
granted by the Company which are exercisable within 60 days of
March 27, 1997.
(15) Includes 2,500 shares issuable upon the exercise of stock options
granted by the Company which are exercisable within 60 days of
March 27, 1997.
(16) Represents 3,000 shares issuable upon the exercise of stock options
granted by the Company which are exercisable within 60 days of
March 27, 1997.
(17) Includes 239,250 shares of Common Stock issuable upon the exercise of
stock options granted by the Company which either are currently
exercisable or will become exercisable within 60 days of March 27,
1997.
49
<PAGE>
OTHER MATTERS
If sufficient votes in favor of the JPM Share Proposal are not received
by the time scheduled for the JPM Special Meeting, the persons named as proxies
may propose one or more adjournments of the JPM Special Meeting for a period or
periods of not more than 30 days in the aggregate for the JPM Special Meeting to
permit further solicitation of proxies. The persons named as proxies will vote
in favor of such adjournment those proxies which authorize them to vote in favor
of the JPM Share Proposal. They will vote against any such adjournment those
proxies which direct them to vote against the JPM Share Proposal. Any such
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the JPM Special Meeting to
be adjourned. The costs of any such additional solicitation and of any adjourned
session will be borne by JPM.
It is not expected that any matters other than those described in this
Proxy Statement will be brought before the JPM Special Meeting. If any other
matters are presented, however, it is the intention of the persons named in the
JPM proxy to vote the proxy in accordance with the discretion of the persons
named in such proxy.
LEGAL MATTERS
Certain legal matters with respect to the Merger will be passed upon
for JPM by Duane, Morris & Heckscher, Harrisburg, Pennsylvania. Certain legal
matters in connection with the Merger will be passed upon for Denron by Ferrari,
Olsen, Ottoboni and Bebb, P.C., San Jose, California.
EXPERTS
The consolidated financial statements of JPM incorporated in this Proxy
Statement by reference to JPM's Annual Report on Form 10-K for the year ended
September 30, 1996 have been incorporated herein by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
The financial statements of Denron as of December 31, 1996 and for the
nine months then ended attached hereto as Annex C have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
Representatives of Price Waterhouse LLP expect to be present at the JPM
Special Meeting and, while such representatives have stated that they do not
plan to make a statement at such meetings, they will be available to respond to
appropriate questions from shareholders in attendance.
50
<PAGE>
SHAREHOLDER PROPOSALS
Any JPM shareholder who wishes to submit a proposal for presentation to
JPM's 1998 Annual Meeting of Shareholders must have submitted the proposal to
JPM, Route 15 North, Lewisburg, Pennsylvania, 17837 Attention: Secretary, in
advance of September 30, 1997 for inclusion, if appropriate, in JPM's proxy
statement and form of proxy relating to its 1998 Annual Meeting.
By Order of the Board of Directors
JANET B. MATHIAS
Secretary
May 5, 1997
Lewisburg, Pennsylvania
51
<PAGE>
Annex A
AGREEMENT AND PLAN OF MERGER
By and Among
THE JPM COMPANY,
JPM ACQUISITION COMPANY,
AND
DENRON, INC. AND THE DENRON SHAREHOLDERS
February 28, 1997
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1. THE MERGER................................................... 2
1.1 The Merger of JPM Acquisition into Denron.............. 2
1.2 Effective Time and Effective Date...................... 2
2. CLOSING, CLOSING DATE AND CONSIDERATION....................... 2
2.1 The Closing and Closing Date........................... 2
2.2 Conversion of Capital Stock............................ 2
2.3 Registration Rights Agreement.......................... 5
2.4 Accounting Matters..................................... 5
2.5 Tax Matters............................................ 5
3. REPRESENTATIONS AND WARRANTIES OF DENRON...................... 5
3.1 Organization, Qualification and Status................. 5
3.2 Corporate Instruments and Records...................... 6
3.3 Capitalization......................................... 6
3.4 Ownership of Shares.................................... 6
3.5 Subsidiaries........................................... 7
3.6 Authorization; Valid and Binding Obligation............ 7
3.7 No Violation........................................... 7
3.8 Financial Statements................................... 8
3.9 Absence of Undisclosed and Contingent Liabilities...... 9
3.10 No Adverse Changes..................................... 9
3.11 Guarantees............................................. 11
3.12 Tax Matters............................................ 11
3.13 Litigation............................................. 13
3.14 Owned Real Estate...................................... 13
3.15 Leased Real Property................................... 14
3.16 Owned and Leased Tangible Personal Property............ 14
3.17 Condition of Buildings and Tangible Personal Property.. 15
3.18 Accounts and Notes Receivable.......................... 15
3.19 Contracts.............................................. 16
3.20 Inventories and Supplies............................... 16
3.21 Prepaid Items and Deposits............................. 16
3.22 Other Assets........................................... 16
3.23 Bank and Personnel Matters............................. 16
3.24 Labor and Employment Matters........................... 17
3.25 Termination of Business Relationships.................. 20
3.26 Insurance.............................................. 20
3.27 Compliance with Laws................................... 21
3.28 Material and Affiliate Contracts....................... 21
3.29 Licenses and Permits................................... 22
3.30 No Interest in Suppliers............................... 23
3.31 All Business Conducted by Denron....................... 23
3.32 Environmental Matters.................................. 23
3.33 Intellectual Property Matters.......................... 24
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.34 Consents and Approvals................................. 25
3.35 Disclosure............................................. 25
4. REPRESENTATIONS AND WARRANTIES OF JPM AND JPM ACQUISITION..... 25
4.1 Organization and Qualification......................... 25
4.2 Authorization; Valid and Binding Obligation............ 26
4.3 Financial Statements................................... 26
4.4 Periodic Reports....................................... 27
4.5 Corporate Instruments and Records...................... 27
4.6 Subsidiaries........................................... 27
4.7 Absence of Undisclosed and Contingent Liabilities...... 27
4.8 Consents and Approvals................................. 28
4.9 Litigation............................................. 28
4.10 Licenses and Permits................................... 28
4.11 No Violation........................................... 29
4.12 Condition of Buildings and Tangible Personal Property.. 29
4.13 Accounts and Notes Receivable.......................... 30
4.14 Contracts.............................................. 30
4.15 Termination of Business Relationships.................. 30
4.16 All Business Conducted by JPM.......................... 30
4.17 Intellectual Property Matters.......................... 30
4.18 Capitalization......................................... 31
4.19 Compliance with Laws................................... 32
4.20 No Adverse Changes..................................... 32
4.21 Disclosure............................................. 34
5. CONSENTS AND GOVERNMENTAL FILINGS............................. 34
6. COVENANTS AND UNDERTAKINGS OF DENRON AND JPM.................. 34
6.1 Denron's Affirmative Covenants......................... 34
6.2 Other Transactions..................................... 35
6.3 Consents............................................... 36
6.4 Denron's Negative Covenants............................ 36
6.5 JPM's Affirmative Covenants............................ 38
6.6 JPM's Negative Covenants............................... 39
6.7 Consents............................................... 39
7. POST-CLOSING COVENANTS OF JPM AND THE DENRON SHAREHOLDERS..... 40
7.1 Registration of Shares................................. 40
7.2 Disposition of Share Consideration..................... 40
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER.............. 40
8.1 Accuracy of Representations and Warranties............. 40
8.2 No Material Adverse Change............................. 40
8.3 No Loss................................................ 41
8.4 Sellers' Certificate................................... 41
8.5 No Injunction: Consents............................... 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C> <C>
8.6 Deliveries by Denron................................... 41
8.7 Opinion of Counsel..................................... 42
8.8 Denron Shareholder Approval............................ 42
8.9 Consents and Proceedings............................... 42
8.10 Resignations........................................... 42
8.11 Employment Agreements.................................. 42
8.12 Due Diligence.......................................... 43
8.13 Uniform Commercial Code Searches....................... 43
8.14 Accounting Matters..................................... 43
8.15 Registration Rights Agreement.......................... 43
8.16 JPM Shareholder Approval............................... 43
8.17 Tax Matters............................................ 43
9. CONDITIONS TO THE OBLIGATIONS OF DENRON....................... 43
9.1 Accuracy of Representations and Warranties............. 43
9.2 No Material Adverse Change............................. 44
9.3 Officers' Certificates................................. 44
9.4 Opinion of Counsel..................................... 44
9.5 No Injunction; Consents................................ 44
9.6 Merger Consideration................................... 44
9.7 Deliveries By Buyer.................................... 44
10. MUTUAL COVENANTS.............................................. 45
10.1 Access To and Use of Information....................... 45
10.2 Further Mutual Covenants............................... 46
11. EXPENSES...................................................... 46
12. TERMINATION................................................... 46
13. ABSENCE OF BROKER OR FINDER................................... 47
14. NEWS RELEASES................................................. 47
15. NOTICES....................................................... 48
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION.. 49
16.1 Survival of Representations and Warranties............. 49
16.2 Indemnification........................................ 49
16.3 Indemnification with Respect to Third Party Claims..... 50
16.4 Limitation on Denron and the Majority
Shareholders' Obligation to Indemnify.................. 53
16.5 Limitation on Buyer's Obligation to Indemnify.......... 53
17. COOPERATION; FURTHER ASSURANCES............................... 53
18. MISCELLANEOUS................................................ 54
18.1 Dispute Resolution..................................... 54
18.2 Counterparts/Use of Facsimiles......................... 57
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C> <C>
18.3 Entire Agreement....................................... 57
18.4 No Presumption Against Draftsman....................... 57
19. SUCCESSORS AND ASSIGNS....................................... 57
20. EFFECT OF INVESTIGATION...................................... 58
</TABLE>
-iv-
<PAGE>
MERGER AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of February
28, 1997, among The JPM Company, a Pennsylvania corporation whose address is
Route 15 North, Lewisburg, Pennsylvania 17837 ("JPM"); JPM Acquisition Company,
a California corporation and a wholly-owned subsidiary of JPM whose address is
Route 15 North, Lewisburg, Pennsylvania 17837 ("JPM Acquisition"; JPM and JPM
Acquisition are sometimes collectively referred to as "Buyer"); Denron, Inc., a
California corporation whose address is 2135 Ringwood Avenue, San Jose,
California 95131 ("Denron"; Denron is sometimes referred to as "Seller"); John
M. Denman, an individual (referred to herein as "Denman"); Ronald C. Mills, an
individual (referred to herein as "Mills") (collectively, Denman and Mills are
sometimes referred to herein as the "Majority Shareholders"); and Linda Denman,
Marita Mills, Herbert Renz, Irma Renz, Viva Denman, Harold Renz, Joseph Harold,
Jr. and Pamela Kay Ward, who are sometimes referred to collectively herein as
the "Minority Shareholders".
WITNESSETH:
WHEREAS, Denron is engaged in the manufacture of cable assemblies and wire
harnesses for original equipment manufacturers ("OEMs") and operates
manufacturing facilities in the State of California; and
WHEREAS, JPM is engaged in the manufacture of cable assemblies and wire
harnesses for OEMs in the computer, telecommunications and networking sectors of
the electronics industry and operates manufacturing facilities in the
Commonwealth of Pennsylvania, State of South Carolina and United Mexican States
("Mexico"); and
WHEREAS, JPM owns 100% of the issued and outstanding stock of JPM
Acquisition; and
WHEREAS, the respective Boards of Directors of JPM and JPM Acquisition and
the Board of Directors of Denron have each approved the merger of JPM
Acquisition with and into Denron, with Denron as the surviving corporation, upon
the terms and conditions set forth herein and in the Plan of Merger attached
hereto as Exhibit A (the "Plan of Merger") and have approved the Agreement; and
WHEREAS, in accordance with the terms of the Plan of Merger, it is proposed
that JPM Acquisition be merged with and into Denron and that the presently
issued and outstanding shares of common stock, without par value, of Denron be
converted into common stock of JPM, subject to fulfillment of the conditions
described herein; and
WHEREAS, Seller and Buyer desire to enter into and carry out the
transactions contemplated by the Agreement in accordance with the terms hereof,
the Plan of Merger and the provisions of the Pennsylvania Business Corporation
Law and the California Corporations Code.
-1-
<PAGE>
NOW, THEREFORE, for and in consideration of the promises, the mutual
covenants and agreements set forth in the Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. THE MERGER
----------
1.1 The Merger of JPM Acquisition into Denron.
-----------------------------------------
Subject to the terms and upon the conditions set forth herein, on or prior
to the Closing Date (as defined in Article 2 hereof), Denron shall, and JPM
shall cause JPM Acquisition to, execute and deliver the Plan of Merger,
substantially in the form of Exhibit A attached hereto. Additionally, on the
Closing Date, Denron and JPM Acquisition shall execute Articles of Merger and
file them with the Secretary of the State of California in form mutually
satisfactory to Denron and Buyer (the "Articles of Merger").
1.2 Effective Time and Effective Date.
---------------------------------
The effective date of the Merger shall be the date upon which the Articles
of Merger are filed with the Secretary of the State of California, as provided
in the Plan of Merger (the "Effective Date"), and the effective time of the
Merger shall be the time on the Effective Date at which the Articles of Merger
are filed with the Secretary of the State of California (the "Effective Time").
At the Effective Time, JPM Acquisition will be merged with and into Denron in
accordance with the Plan of Merger, with Denron as the surviving corporation
(the "Merger"), and the separate existence of JPM Acquisition shall cease.
2. CLOSING, CLOSING DATE AND CONSIDERATION
---------------------------------------
2.1 The Closing and Closing Date.
----------------------------
The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Duane, Morris & Heckscher, 305 North Front
Street, Harrisburg, PA 17108, at 10:00 a.m. local time on the later of (i)
April 30, 1997, (ii) eight (8) business days following the special meeting of
JPM Shareholders, or (iii) at such other date and at such other place as the
parties may agree. The date of the Closing is hereinafter referred to as the
"Closing Date."
2.2 Conversion of Capital Stock.
---------------------------
At the Effective Time on the Effective Date, the capital stock of Denron
and the capital stock of JPM Acquisition outstanding immediately prior thereto
shall be canceled or converted, as the case may be, as follows:
-2-
<PAGE>
2.2.1 At the Effective Time, each share of common stock, no par value
per share, of JPM Acquisition ("JPM Acquisition Common Stock") issued and
outstanding immediately prior thereto shall be converted into one share of
Denron Common Stock.
2.2.2 At the Effective Time, all of the shareholders of Denron (the
"Denron Shareholders") shall exchange their shares of Denron common stock,
no par value, ("Denron Common Stock") for shares of common stock, par value
$ .000067 per share, of JPM ("JPM Common Stock"). Each Denron Shareholder
shall receive that pro rata portion of JPM Common Stock issued in the
transaction, that the amount of Denron Common Stock he or she currently
holds bears to all of the outstanding Denron Common Stock. After the
exchange of Denron Common Stock for JPM Common Stock, all outstanding
shares of Denron Common Stock formerly held by the Denron Shareholders
shall be cancelled.
2.2.2.1 Consideration. The aggregate number of shares of JPM
Common Stock which the Denron Shareholders will receive ("Share
Consideration") shall be determined by dividing $16,000,000 by the per
share value of $10.42 (the "Starting Value"). To the extent that the
Closing Value, as hereinafter defined, of JPM Common Stock is not less than
nor greater than 85% and 115% ($8.86 and $11.98), respectively, of the
Starting Value, the aggregate number of shares of JPM Common Stock to be
issued to the Denron Shareholders shall not change.
If the Closing Value, of the JPM Common Stock shall be less than 85%
of the Starting Value of the JPM Common Stock, the Agreement may be
terminated by either JPM or Denron or the purchase price may be
renegotiated by the parties hereto. If the Closing Value is greater than
115% of the Starting Value, the aggregate number of shares of JPM Common
Stock to be issued to the Denron Shareholders shall be adjusted based on
the following formula (the effect of which is that the Denron Shareholders
shall participate to the extent of 50% of any increase in the value of JPM
shares over $11.98/share):
A = Closing Value (as defined in this subsection)
B = 1,535,500 shares
C = (A) x (B) = Aggregate Market Value
D = C - $18,400,000 = Additional Value to Denron Shareholders
---------------
2
E = $18,400,000 + D = Final Number of Shares Issuable to Denron
---------------
A Shareholders at Closing
provided that the aggregate value as calculated under this paragraph
-------- ----
2.2.2.1 to be received by the Denron Shareholders shall not exceed Twenty-
Three Million Dollars ($23,000,000).
-3-
<PAGE>
Further, as set forth in Article 11, if the Denron Expenses, as defined
herein, exceed $130,000, such amount in excess of $130,000 shall be
subtracted from the Additional Value to Denron Shareholders (see D above)
---
and the number of shares of JPM Common Stock issuable to the Denron
Shareholders shall be adjusted accordingly provided, however, only for
--------
purposes of calculating the Denron Expenses, to the extent that the value
of the Share Consideration as calculated under this paragraph 2.2.2.1
exceeds $23,000,000, Buyer shall, in its sole discretion, permit Denron to
pay any Denron Expenses that are in excess of $130,000.
On the Closing Date, the per share value of the JPM Common Stock shall
be calculated using the trading volume weighted average of the daily
Closing Price, as hereinafter defined, per share of the JPM Common Stock
for the fifteen (15) consecutive trading days ended as of two (2) trading
days immediately prior to the Closing Date (the "Closing Value").
The "Closing Price" for any day shall be calculated using (i) the last
sale price, or, (ii) in the case no such sale takes place on such day, the
average of the closing bid and asked prices, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the National Association of
Securities Dealers Automated Quotations ("NASDAQ") National Market System
("NMS").
2.2.3 Surrender and Exchange of Denron Common Stock. After the
---------------------------------------------
Effective Time, each holder of an outstanding certificate or certificates
(the "Old Certificates") theretofore representing shares of Denron Common
Stock, upon surrender thereof to StockTrans, Inc. (the "Exchange Agent"),
shall be entitled to receive in exchange therefor a certificate or
certificates (the "New Certificates"), which JPM agrees to make available
to the Exchange Agent as soon as practicable after the Effective Time,
representing the number of whole shares of JPM Stock into and for which the
shares of Denron Common Stock theretofore represented by such surrendered
Old Certificates have been converted. No certificates or scrip for
fractional shares of JPM Stock will be issued, no JPM stock split or
dividend shall relate to any fractional share interest, and no such
fractional share interest shall entitle the owner thereof to vote or to any
rights of a stockholder of JPM. Any fractional share interest of JPM
Common Stock due to any Denron Shareholder shall be paid to the Denron
Shareholders by JPM in cash.
2.2.4 Transfer Taxes. If any New Certificate is to be issued in a
--------------
name other than that in which the Old Certificate surrendered for exchange
is issued, the Old Certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and the person requesting such
exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of the New Certificate in any name other
than that of the registered holder of the Old Certificate surrendered, or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
-4-
<PAGE>
2.3 Registration Rights Agreement.
-----------------------------
The Share Consideration shall be subject to registration rights, as set
forth in a Registration Rights Agreement among JPM and the Denron Shareholders,
substantially in the form of Exhibit B attached hereto (the "Registration Rights
Agreement"), which Registration Rights Agreement shall be executed by the
parties thereto on the Closing Date.
2.4 Accounting Matters.
------------------
The parties intend that the transactions contemplated herein by the
Agreement shall be accounted for using the pooling of interests method of
accounting. In the event that the transactions contemplated herein by the
Agreement cannot be accounted for using the pooling of interests method of
accounting, either party shall have the right to terminate the Agreement and
each of the parties shall be responsible for its own expenses.
2.5 Tax Matters.
-----------
The parties intend that the transactions contemplated herein by the
Agreement shall comply with the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code").
3. REPRESENTATIONS AND WARRANTIES OF DENRON
----------------------------------------
Except as otherwise disclosed herein, Denron and the Majority Shareholders
jointly and severally represent and warrant to Buyer and covenant and agree with
Buyer as follows:
3.1 Organization, Qualification and Status.
--------------------------------------
Denron is a corporation duly incorporated and organized, validly existing
and in good standing under the laws of the State of California. Denron has full
corporate power and authority to own, lease and use its properties and to carry
on it business as presently conducted. Denron is duly qualified or licensed to
do business and in good standing as a foreign corporation in each of the
jurisdictions listed on Schedule 3.1 hereto, which are all of the jurisdictions
------------
in which the nature of its business or the character of the properties and
assets which it owns or leases makes such qualification or licensing necessary,
excluding jurisdictions in which the failure to so qualify would not have a
material effect on the operations of Denron.
Except as set forth on Schedule 3.1 hereto, Denron has not, during the six-
------------
(6-) year period immediately preceding the date hereof, changed its name, been
the surviving entity of a merger, consolidation or other reorganization, or
acquired all or substantially all of the assets of any person or entity.
Schedule 3.1 also sets forth all fictitious names under which Denron or any such
- ------------
predecessors have conducted business.
-5-
<PAGE>
3.2 Corporate Instruments and Records.
---------------------------------
The copies of each of Denron's Articles of Incorporation and By-Laws, each
certified by the Secretary of Denron and heretofore furnished by Denron to JPM,
are true, correct and complete and each includes all amendments to the date
hereof. Denron's minute books, as made available to JPM, contain a true,
complete and correct record of all corporate action taken on or prior to the
date hereof at the meetings of its shareholders and directors and committees
thereof. The stock certificate books and ledgers of Denron as made available to
JPM for inspection, are true, correct and complete, and accurately reflect, at
the date hereof, the ownership of the outstanding capital stock of Denron in the
amounts set forth on Schedule 3.2.
------------
3.3 Capitalization.
--------------
The authorized capital stock of Denron consists of 5 million shares of
common stock, without par value, of which 750,000 shares are issued and
outstanding (the "Shares") and held beneficially and of record by the Denron
Shareholders and no shares are held in the treasury of Denron. All of said
issued and outstanding Shares of the Denron Common Stock are validly issued,
fully paid and non-assessable and entitled to vote at any shareholder meeting,
and none of such Shares has been issued in violation of any preemptive rights of
shareholders or transferred in violation of any transfer restrictions relating
thereto. Except as disclosed on Schedule 3.3 hereto, there are no authorized or
------------
outstanding options, warrants, convertible securities, subscription rights,
puts, calls, unsatisfied pre-emptive rights or other rights of any nature to
purchase or otherwise receive, or to require Denron to purchase, redeem or
acquire any shares of the capital stock or other securities of Denron, and there
is no outstanding security of any kind convertible into such capital stock.
Except as disclosed on Schedule 3.3 hereto, there are no existing shareholder
------------
agreements, voting agreements or voting trusts respecting any shares of the
capital stock of Denron. The Denron Shareholders shall not transfer or assign
any of their Shares prior to the Effective Time of the Merger.
3.4 Ownership of Shares.
-------------------
Each Shareholder of Denron Common Stock owns and holds, beneficially and of
record, the entire right, title and interest in and to the number of issued and
outstanding shares of Denron Common Stock set forth in Schedule 3.4 hereto, free
------------
and clear of any claim, suit, proceeding, call, commitment, voting trust, proxy,
restriction, limitation, security interest, pledge or lien or encumbrance of any
kind or nature whatsoever, and has full power and authority to vote said Shares
and to approve the transactions contemplated by the Agreement, such Shares
constituting, in the aggregate, all of the issued and outstanding shares of
capital stock of the Denron. Except as set forth on Schedule 3.4, each Denron
------------
Shareholder has full power and authority to vote, transfer and dispose of the
Shares owned and held by him, free and clear of any claim, suit, proceeding,
call, voting trust, proxy, restriction, security interest, lien or other
encumbrance of any kind or nature whatsoever. Each Denron Shareholder shall, on
the Closing Date, have full power and authority to vote, transfer and dispose of
the Shares owned and held by him or her,
-6-
<PAGE>
free and clear of any claim, suit, proceeding, call, voting trust, proxy,
restriction, security interest, lien or other encumbrance of any kind or nature
whatsoever.
3.5 Subsidiaries.
------------
Denron does not have any subsidiary or any ownership interest in any entity
except as set forth on Schedule 3.5 (individually, a "Subsidiary" and
------------
collectively, the "Subsidiaries"). Denron is not a party to any joint venture
arrangement and does not have the right to acquire any securities of or
ownership interests in any other person or entity.
3.6 Authorization; Valid and Binding Obligation.
-------------------------------------------
Denron has full corporate power and authority to execute and deliver the
Agreement, the Registration Rights Agreement, the Plan of Merger, and the
Articles of Merger (collectively, the "Denron Transaction Documents") and full
corporate power and authority to perform its obligations under the Denron
Transaction Documents and to consummate the transactions contemplated thereby.
The Agreement has been duly authorized, executed and delivered by Denron. All
corporate action (including shareholder approval) by Denron required to
authorize the execution, delivery and performance of the Denron Transaction
Documents by Denron has been taken. The Agreement constitutes, and the other
Denron Transaction Documents and the other instruments to be executed and
delivered pursuant hereto when executed and delivered by Denron (to the extent a
party thereto) will constitute, the valid and legally binding obligation of
Denron enforceable against it, in accordance with its terms.
3.7 No Violation.
------------
Denron is not (a) in default under or in violation of any provision of its
Articles of Incorporation or By-Laws or (b) in default or violation of any
provision of any agreement, understanding, arrangement, indenture, contract,
lease, sublease, loan agreement, note, restriction, obligation or liability
(individually, an "Instrument" and collectively, the "Instruments") to which it
is a party or by which it is bound or to which it or its assets are subject (the
"Denron Instruments"). Neither the execution and delivery of the Agreement or
the other Denron Transaction Documents by Denron nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with the terms
hereof or thereof, will (i) conflict with or result in a breach of any of the
terms, conditions or provisions of the Articles of Incorporation, or By-Laws of
Denron nor (ii) violate, conflict with or result in a breach of or default under
in any respect any of the terms, conditions or provisions of any Denron
Instrument nor (iii) accelerate or give to others any interests or rights,
including the right of acceleration, termination, modification or cancellation,
under any Denron Instrument or with respect to the business or the assets of
Denron nor (iv) result in the creation of any lien, claim, charge or encumbrance
on the assets, capital stock or properties of Denron, nor (v) to the Knowledge
(as hereinafter defined) of Denron and the Majority Shareholders conflict with,
violate or result in a breach of in any respect or constitute a default under
any law, statute, rule, judgment, order, decree, injunction, ruling or
regulation of any government, governmental agency, authority or instrumentality,
court or
-7-
<PAGE>
arbitration tribunal to which Denron, or any Shareholder or any of its, her or
his assets or properties is subject, nor (vi) except as otherwise disclosed on
Schedule 3.7, require Denron, or any Shareholder to give notice to, or obtain an
- ------------
authorization, approval, order, license, franchise, declaration or consent of,
or make a filing with, any foreign, federal, state, county, local or other
governmental or regulatory body or other person.
For purposes of the Merger Agreement an individual will be deemed to have
"Knowledge" of a particular fact or other matter if: (i) such individual is
actually aware of such fact or other matter; or (ii) a prudent individual could
be expected to discover or otherwise become aware of such fact or other matter
in the course of conducting a reasonably comprehensive investigation concerning
the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
For purposes of the Merger Agreement, a "Person" includes any individual,
corporation (including any non-profit corporation), general or limited liability
partnership, limited liability company, joint venture, estate, trust,
association, labor union, or other entity or governmental body.
3.8 Financial Statements.
--------------------
Schedule 3.8 hereto contains true and correct and complete copies of the
------------
following financial statements of Denron at the date and for the periods
specified:
3.8.1 Audited Balance Sheets of Denron at December 31, 1996 (the
"Balance Sheet"), and unaudited Balance Sheets of Denron as of the end of
each of its last four (4) fiscal years; and
3.8.2 Audited Income Statements and Statements of Changes in
Financial Position and Cash Flows of Denron as of the nine (9) month period
ended December 31, 1996, and unaudited Income Statements and Statements of
Changes in Financial Position and Cash Flows of Denron as of the end of
each of its previous four (4) fiscal years; in each case with respect to
audited financial statements, together with the notes thereto. Each of the
foregoing financial statements has been prepared in conformity with GAAP
applied on a consistent basis, and presents fairly the financial position
and results of operations and cash flows of Denron at the dates and for the
period specified. All material liabilities and obligations of Denron
outstanding as of the dates of the aforesaid financial statements required
to be reflected as liabilities in accordance with GAAP have been included
in said financial statements. There have been no material changes in the
financial condition, assets or liabilities of Denron from the date of the
Balance Sheet (the "Balance Sheet Date") to the date hereof, except changes
in the ordinary course of
-8-
<PAGE>
business of Denron, none of which in the aggregate, has been adverse.
Since the Balance Sheet Date, Denron has conducted its business in a normal
and customary manner. The books and records of Denron from which the
financial statements were prepared properly and accurately record in all
material respects the transactions and activities which they purport to
record. Notwithstanding the foregoing, to the extent a liability is
covered by a warranty provided elsewhere in this Agreement, where such
other warranty is limited to the Knowledge of Denron and the Majority
Shareholders, the warranty provided with respect to such item under this
paragraph 3.8.2 shall also be limited to Knowledge.
3.9 Absence of Undisclosed and Contingent Liabilities.
-------------------------------------------------
Except as set forth on Schedule 3.9 hereto, Denron has no liabilities of
------------
any nature (whether secured or unsecured, accrued, absolute or contingent,
unliquidated or otherwise and whether known or unknown or due or to become due)
as of the date hereof other than (i) liabilities disclosed or reserved against
in the Balance Sheet, including the notes thereto (ii) liabilities arising in
the ordinary course of business after the Balance Sheet Date (none of which,
either singly or in the aggregate, constitutes a material liability or a
material contingent liability), and (iii) liabilities on the Denron schedules
hereto. Notwithstanding the foregoing, to the extent a liability is covered by
a warranty provided elsewhere in this Agreement, where such other warranty is
limited to the Knowledge of Denron and the Majority Shareholders, the warranty
provided with respect to such item under this paragraph 3.9 shall also be
limited to Knowledge. Denron knows of no basis for the assertion against it by
any person of a claim based on a liability which is not disclosed on the Balance
Sheet, except as set forth on Schedule 3.9.
------------
3.10 No Adverse Changes.
------------------
Except as set forth on Schedule 3.10 hereto, since the Balance Sheet Date
-------------
there has not been:
3.10.1 to the Knowledge of Denron and the Majority Shareholders an
adverse change in the condition (financial or otherwise), properties,
assets, liabilities, rights, operations or business of Denron;
3.10.2 the issuance by Denron of any notes, bonds or other debt
securities or any equity securities;
3.10.3 the declaration, setting aside or payment of any dividend or
other distribution in respect of any Denron Common Stock, or the purchase,
redemption, issue, sale or other disposition of any such shares; or the
sale or grant of any options, warrants, puts, calls or other rights or
obligations to purchase or convert into shares of capital stock or
indebtedness of Denron;
-9-
<PAGE>
3.10.4 any mortgage or pledge of, or creation of any lien, pledge,
charge, security interest or encumbrance respecting, any property or assets
of Denron except for liens of current property taxes not yet due and
payable;
3.10.5 the borrowing by Denron of any amount of money or the
incurring of or becoming subject to any liabilities known to Denron or the
Majority Shareholders as Knowledge is defined in Section 3.7 herein, except
(i) current liabilities incurred in the ordinary course of business, and
(ii) liabilities under contracts entered into in the ordinary course of
business;
3.10.6 the discharge or satisfaction by Denron of any lien or
encumbrance or the payment of any obligation or liability, other than
current liabilities paid in the ordinary course of business;
3.10.7 any damage, theft, destruction or casualty loss, whether or
not covered by insurance adversely affecting the properties or operations
of Denron;
3.10.8 any sale, lease, transfer or assignment of any asset
(tangible or intangible) of Denron or the cancellation of any debt or claim
except for fair consideration and in the ordinary course of business;
3.10.9 the disclosure of any proprietary confidential information
of Denron to any person other than those subject to a confidentiality
agreement;
3.10.10 any cancellation, settlement or compromise of any claim or
debt due to or owing by Denron in an amount exceeding $100,000 individually
or $100,000 in the aggregate;
3.10.11 any loss, waiver or release of any rights of Denron, whether
or not in the ordinary course of business or consistent with past practice;
3.10.12 the negotiation or execution of any arrangement, agreement
or understanding to which Denron is a party which cannot be terminated by
Denron on notice of thirty (30) days or less without cost or penalty;
3.10.13 except as otherwise disclosed on Schedule 3.10, any increase
-------------
in fringe benefits or incentive compensation payable or to become payable
to any officer, director, employee or other person receiving compensation
of any nature from Denron or any increase in salary, bonus, fringe benefits
or incentive or other compensation payable or to become payable to any
affiliate of Denron or any increase in the number of shares obtainable
under, or acceleration of the time of exercisability of, any stock option,
stock bonus or similar plan of Denron;
-10-
<PAGE>
3.10.14 any capital expenditures or commitments therefor by Denron
individually in excess of $25,000
3.10.15 except as otherwise disclosed on Schedule 3.10, any change
-------------
in any accounting practice or procedure;
3.10.16 any other transaction, contract or commitment entered into
by Denron otherwise than in the ordinary course of business; or
3.10.17 any sale or transfer, or any agreement to sell or transfer
any property or rights of Seller to any person including, without
limitation, any Denron officer, director or shareholder, or any Related
Person, as hereinafter defined.
3.11 Guarantees.
----------
Except as set forth in Schedule 3.11 hereto, Denron has not guaranteed,
-------------
become surety or contingent obligor for or assumed obligation, debt or dividend
of any person or entity. No assets owned by Denron are or have been pledged,
hypothecated, delivered for safekeeping, subjected to a security interest or
otherwise provided in any way as security for payment or performance of any
obligation of a person other than Denron.
3.12 Tax Matters.
-----------
Except as set forth on Schedule 3.12 attached hereto:
-------------
3.12.1 Denron (i) has timely and properly filed or caused to be
filed all tax returns which it is or has been required to file on or prior
to the date hereof, by any jurisdiction to which it is or has been subject,
all such tax returns being materially true and correct and complete in all
respects, (ii) has timely paid or caused to be paid in full all taxes which
are or have become due and payable to all taxing authorities with respect
to such returns and periods, (iii) has made or caused to be made all
withholdings of taxes required to be made by it, and such withholdings have
either been paid to the appropriate governmental agency or set aside in
appropriate accounts for such purpose, and (iv) has otherwise satisfied, in
all respects, all applicable laws and agreements with respect to the filing
of tax returns and the payment of taxes.
3.12.2 Denron has properly accrued and reflected on the Balance
Sheet, and has thereafter to the date hereof properly accrued, and will
from the date hereof through the Closing Date properly accrue, all
liabilities for taxes and assessments, all such accruals being in the
aggregate sufficient for payment of all such taxes and assessments.
3.12.3 Denron will timely and properly file or cause to be filed
all tax returns which it will be required to file on or before the Closing
Date, all such tax returns to be materially true and correct and complete
in all respects, and will pay or cause to be paid
-11-
<PAGE>
in full when due all taxes, including estimated tax payments, if any, which
become due and payable pursuant to such returns or assessments received by
it on or before the Closing Date.
3.12.4 The federal income tax returns of Denron have been audited
by the Internal Revenue Service (or closed by applicable statutes of
limitations) and all liabilities in respect thereof have been finally
determined for all taxable years up to and including the taxable year
ending March 31, 1991.
3.12.5 To the Knowledge of Denron and the Majority Shareholders,
there are no unassessed tax deficiencies proposed or threatened against
Denron, nor are there any agreements, waivers, or other arrangements
providing for extension of time with respect to the assessment or
collection of any tax against Denron, or any actions, suits, proceedings,
investigations or claims now pending against Denron with respect to any
tax, or any matter under discussion with any federal, state, local or
foreign authority relating to any taxes.
3.12.6 Denron is not now, nor has Denron ever been, a member of an
affiliated group of corporations (within the meaning of Section 1504 of the
Internal Revenue Code), other than a group in which Denron is the common
parent.
3.12.7 Denron is not a party to, nor is it bound by, nor has any
obligation under any tax sharing, tax indemnity, or similar agreement.
3.12.8 Denron has not made and will not make a change in method of
accounting for a taxable year beginning on or before the Closing Date,
which would require it to include any adjustment under Section 481(a) of
the Internal Revenue Code in taxable income for any taxable year beginning
on or after the Closing Date.
3.12.9 Denron has not filed a consent pursuant to Section 341(f) of
the Internal Revenue Code, nor has it agreed to have Section 341(f)(2) of
the Internal Revenue Code apply to any disposition of any asset owned by
it.
3.12.10 No shareholder of Denron is a foreign person so that Section
897 and 6039C of the Internal Revenue Code are not applicable to the
transactions provided for hereunder.
3.12.11 Denron has not been a target corporation or target affiliate
in a qualified stock purchase within the meaning of Section 338 of the
Internal Revenue Code (or any predecessor provision).
3.12.12 None of the assets of Denron is property which Denron is
required to treat as being owned by any other person pursuant to the so-
called "safe harbor lease" provisions of former section 168(f)(8) of the
Internal Revenue Code.
-12-
<PAGE>
For purposes of the Agreement, "tax" and "taxes" shall include all income,
gross receipts, franchise, excise, transfer, severance, value added, ad valorem,
sales, use, wage, payroll, workmen's compensation, employment, occupation, and
real and personal property taxes; taxes measured by or imposed on capital;
levies, imposts, duties, license, and legislation fees; other taxes imposed by a
federal, state, municipal, local, foreign or other governmental authority or
agency, including assessments in the nature of taxes; including without
limitation, interest, penalties, fines, assessments and deficiencies relating to
any tax or taxes due as a result of being a member of any affiliated,
consolidated, combined or unitary group or any liability in respect of taxes
under a tax sharing, tax allocation, tax indemnity or other agreement.
For purposes of the Agreement, "tax return" or "tax returns" shall mean all
returns, reports, estimates, schedules, declarations, information statements and
documents relating to or required to be filed in connection with any taxes
pursuant to the statutes, rules or regulations of any federal, state, local or
foreign government taxing authority.
3.13 Litigation.
----------
Except as set forth on Schedule 3.13, there are no actions, suits or
-------------
proceedings at or in equity, or arbitration proceedings or claims, demands or
investigations, filed and served on or, to the Knowledge of Denron and the
Majority Shareholders, threatened against or involving Denron, or state of facts
existing which are known to Denron which could give rise to any such action,
suit, proceeding, claim, demand or investigation; there are no proceedings filed
and served on or, to the Knowledge of Denron and the Majority Shareholders,
threatened against or involving Denron by or before any governmental board,
department, commission, bureau instrumentality or agency (including but not
limited to any federal, state, local or foreign governmental agency or aid
concerned with control of foreign exchange, energy, environmental protection or
pollution control, franchising or other distribution arrangement, antitrust or
trade regulation, civil rights, labor or discrimination, wages and hours, safety
or health, zoning or land use), or state of facts existing which are known to
Denron which could give rise to any such proceedings; and Denron is not in
violation of any order, ruling, decree or judgment of any court or arbitration
tribunal or governmental board, department, commission, bureau, instrumentality
or agency.
3.14 Owned Real Estate.
-----------------
Denron owns no real estate (the "Real Property") in fee simple. Denron has
no interest in any real estate which was occupied by any structure with respect
to which a rehabilitation tax credit pursuant to Section 47 of the Internal
Revenue Code or a low income housing credit pursuant to Section 42 of the
Internal Revenue Code was allowed to Denron or any other taxpayer.
-13-
<PAGE>
3.15 Leased Real Property.
--------------------
Denron is the lessee under the real estate leases described on Schedule
--------
3.15 hereto. True, correct and complete copies of said leases and any
- ----
amendments, extensions and renewals thereof have heretofore been delivered by
Denron to Buyer. Denron enjoys quiet and undisturbed possession under each of
said leases. Except as set forth on Schedule 3.15, Denron's interest in each of
-------------
such leases is free and clear of any mortgages and liens, is not subject to any
deeds of trust, assignments, subleases or rights of any third parties other than
the lessor thereof, except as set forth on Schedule 3.15, is fully assignable
-------------
without the consent of any third party and may be subleased without the consent
of any third party. To the Knowledge of Denron and the Majority Shareholders,
such leased real estate is free and clear of any zoning or use or building
restriction or any pending, proposed or threatened zoning or use or building
restriction which would now, or on the Closing date or thereafter, interfere
with the present use of any of such leased real estate. Except as set forth on
Schedule 3.15, hereto, said leases are valid and binding and in full force and
- -------------
effect, and are not now, and on the Closing Date will not be, in default as to
the payment of rent or otherwise. The consummation of the transactions
contemplated by the Agreement will not constitute an event of default under any
of said leases and the continuation, validity and effectiveness of such leases
will not be adversely affected by the transactions contemplated by the
Agreement.
To the Knowledge of Denron and the Majority Shareholders all permits and
authorizations required by any federal, state, foreign, county or municipal
authority or public body with respect to the use, occupancy or operation of all
real estate leased by Denron have been obtained and are in full force and
effect, and all the buildings and improvements erected thereon and the present
use of any such leased real estate is in compliance in all respects with all
applicable zoning, development, fire, health and building laws, ordinances and
regulations. There are no service, management, employment, collective
bargaining or pension agreements, or any other agreements which in any way
affect any real estate leased by Denron or the use, occupancy, ownership or
operation thereof, and there exist neither contracts nor agreements which
contain covenants relating to compensation or occupation or possession of any
such leased real estate. To the Knowledge of Denron and the Majority
Shareholders, no parties have rights or options to occupy, lease or purchase any
such property. There is no claim, action or proceeding filed and served on or,
to the Knowledge of Denron and the Majority Shareholders threatened, by any
organization, person, individual or governmental agency which would affect the
use, occupancy or value of any of the real estate leased by Denron. Denron and
the Majority Shareholders have no Knowledge, nor has it received notice, of any
violation of any federal, state, foreign or local law, ordinance, regulation or
other legal requirement in respect of any such property.
3.16 Owned and Leased Tangible Personal Property.
-------------------------------------------
Schedule 3.16 hereto sets forth a true and correct list of the following:
-------------
(i) Denron's computer-generated list of assets, which Buyer acknowledges is not
exhaustive; (ii) a complete listing of all of Seller's computer hardware; and
(iii) a listing of all other equipment, vehicles, furniture and fixtures having
an original purchase price or original lease value equal to or greater
-14-
<PAGE>
than $25,000 (collectively, "Tangible Personal Property"). Denron shall use its
best efforts to provide or to make available at Denron for Buyer's inspection
all other tangible property in any form whatsoever embodying information and
know-how with respect to Denron's business. Denron has, and will have at the
Effective Time, all right, title and interest in, and good and marketable title
to, the Tangible Personal Property, except as otherwise disclosed on Schedule
--------
3.16, free and clear of any claim, lease, pledge, mortgage, security interest,
- ----
conditional sale agreement or other title retention agreement, restriction, lien
or encumbrance of any kind or nature whatsoever. Except as set forth on
Schedule 3.16, hereto, each lease and license relating to any of the Tangible
- -------------
Personal Property is valid and binding and in full force and effect, and is not
in default as to the payment of rent or otherwise. True, complete and correct
copies of all leases and licenses relating to the Tangible Personal Property
have heretofore been delivered by Denron to Buyer. Consummation of the
transactions contemplated by the Agreement will not constitute an event of
default under any of said leases or licenses and the continuation, validity and
effectiveness of such leases and licenses will not be adversely affected by the
transactions contemplated hereby.
3.17 Condition of Tangible Personal Property.
---------------------------------------
All items of Tangible Personal Property owned, leased or used by Denron are
in good operating condition and repair, reasonable wear and tear excepted, and
to the Knowledge of Denron and the Majority Shareholders, comply in all respects
with applicable laws, regulations and ordinances, including but not limited to
building and fire codes, and are suitable and sufficient for the present and
intended conduct of the business of Denron. Each item of Tangible Personal
Property owned or leased by Denron is covered by one of the insurance policies
described in Section 3.26 hereto.
3.18 Accounts and Notes Receivable.
-----------------------------
The accounts and notes receivable of Denron as of March 31, 1997 and those
existing as of five days before the Closing represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business, are free and clear of any claim, security interest, pledge or lien
or encumbrance of any kind or nature whatsoever, and, except as set forth on
Schedule 3.18, are good and fully collectible (net of reserves) in the normal
- -------------
course of business within ninety (90) days of said date without setoff, third
party collection efforts or suit. Notwithstanding the foregoing, Denron and the
Majority Shareholders shall have no indemnification obligation to Buyer for
accounts and notes receivables that are not fully collectible (net of reserves)
in the normal course of business within ninety (90) days unless and until the
total amount of such uncollectible accounts receivable shall exceed $50,000.
Except as set forth on Schedule 3.18, there are no pending nor, to the Knowledge
-------------
of Denron and the Majority Shareholders, threatened disputes with third-party
payors as to any claim or receivable of Denron, and there are no claims by
third-party payors for the repayment or refund or offset of alleged overpayments
to Denron except those which, individually or in the aggregate, will not have an
adverse effect on Denron's results of operations, financial condition,
liquidity, business or prospects.
-15-
<PAGE>
3.19 Contracts.
---------
Except as set forth on Schedule 3.19 attached hereto, to the Knowledge of
-------------
Denron and the Majority Shareholders, all contracts and agreements of any nature
to which Denron is a party have been duly and validly executed by Denron and by
the other parties thereto and are in full force and effect as of the date
hereof. Except as set forth on Schedule 3.19 attached hereto, to the Knowledge
-------------
of Denron and the Majority Shareholders no event has occurred or condition or
state of facts exists which, after notice or the passage of time, would
constitute a default under any such contract, as to time or manner of
performance, or as to warranties thereunder, or otherwise. Except as set forth
on Schedule 3.19 and unless otherwise terminated, all such contracts will
-------------
continue to be binding in accordance with their respective terms until their
respective expiration dates, and none of such contracts are reasonably
anticipated by Seller to result in a loss to Denron, or in a margin of profit
lower than normal, upon completion.
3.20 Inventories and Supplies.
------------------------
To the Knowledge of Denron and the Majority Shareholders, Denron's
inventories and/or supplies are reflected accurately on the Balance Sheet. In
addition, all inventory of Denron, whether or not reflected on the Balance
Sheet, consists of a quality and quantity consistent with historical practices
of Denron, and substantially all of which are useable and saleable in the
ordinary course of business, except for obsolete items and items of below-
standard quality, all of which have been written off or written down to net
realizable value in the Balance Sheet or on the accounting records of Denron as
of the Closing Date, as the case may be. All inventories not written off have
been priced at the lower of cost or net realizable value on a first in, first
out basis. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of Denron.
3.21 Prepaid Items and Deposits.
--------------------------
Schedule 3.21 hereto describes all of the prepaid items and deposits of
-------------
Denron as of the date hereof.
3.22 Other Assets.
------------
Except as disclosed on Schedule 3.22 or otherwise disclosed on a Denron
-------------
schedule provided herein, all other assets, both tangible and intangible, owned
by Denron are free and clear of any claim, lease, pledge, mortgage, security
interest, collateral assignment, conditional sale agreement or other title
retention agreement, restriction or lease or lien or encumbrance of any kind or
nature whatsoever.
3.23 Bank and Personnel Matters.
--------------------------
Schedule 3.23 hereto contains a true, complete and correct list of: (i) the
-------------
names of all banks and other financial institutions (with account numbers) in
which Denron has an account
-16-
<PAGE>
or safety deposit box, and all of the brokerage firms and other entities and
persons holding funds or investments of Denron, and the names of all persons
authorized to draw thereon or have access thereto; (ii) the names of all
incumbent directors and officers of Denron; (iii) the names and job
designations, descriptions and locations of all non-union employees, consultants
and agents of Denron, who spend at least fifty percent (50%) of their working
time providing services for Denron, the remuneration of each for the years 1995
and 1996, including fringe benefits, and the basis for determining such
remuneration if other than a fixed salary rate; and (iv) the names of all
persons holding powers of attorney from Denron and a summary statement of the
terms thereof. There shall be no change in any of the foregoing from the date
hereof through the Closing Date without the prior written consent of JPM.
3.24 Labor and Employment Matters.
----------------------------
3.24.1 Denron is not at present and during the five (5) year period
preceding the Closing Date has not been, a sponsor of, party to or
obligated to contribute to any employee benefit plan (as defined in (S)
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), or any employment contract, employee loan, incentive
compensation, profit sharing, retirement, pension, deferred compensation,
severance, termination pay, stock option or purchase plan, guaranteed
annual income plan, fund or arrangement, payroll incentive, policy, fund,
agreement or arrangement, non-competition or consulting agreement,
hospitalization, disability, life or other insurance plan, or other
employee fringe benefit program or plan, or any other plan, payroll
practice, policy fund agreement or arrangement similar to or in the nature
of the foregoing, oral or written ("Employee Benefit Plans" or "Plans"),
and has not been a party to any collective bargaining agreements currently
in effect or in effect during the five-year period preceding the Closing
Date, except as set forth on Schedule 3.24 hereto. Schedule 3.24
-------------
identifies which of such Plans is a multiemployer plan as defined in
Section 3(37) of ERISA. True, correct and complete copies of all written
Plans and labor agreements, and true, correct and complete written
descriptions of all of the oral Plans described in Schedule 3.24 have
-------------
heretofore been delivered by Denron to JPM.
3.24.2 Except as disclosed on Schedule 3.24, Denron does not have
-------------
any unfunded liabilities, or potential, contingent or actual multiemployer
plan withdrawal liabilities, on account of or in connection with any of the
Plans or otherwise, all contributions or premium payments due from Denron
to such Plans have been paid in a timely manner, and any additional
contributions or premium payments due on or before the Closing Date shall
have been paid by that date.
3.24.3 With respect to each Employee Benefit Plan (other than a
Plan which is a multiemployer plan as defined in Section 3(37) of ERISA):
(i) to the Knowledge of Denron and the Majority Shareholders,
all disclosures to employees relating to each such Plan and required
to have been made on or before the Closing Date have been or will be
duly made by that date;
-17-
<PAGE>
(ii) there is no litigation, disputed claim (other than
routine claims for benefits), governmental proceeding, inquiry or
investigation pending or threatened with respect to each such Plan,
its related trust, or any fiduciary, administrator or sponsor of such
Plan;
(iii) to the Knowledge of Denron and the Majority Shareholders,
each such Plan has been established, maintained, funded and
administered in all respects in accordance with its governing
documents, and any applicable provisions of ERISA, the Internal
Revenue Code, other applicable law, and all regulations promulgated
thereunder;
(iv) Denron has delivered to JPM a true, correct and complete
copy of (i) each trust or custodial agreement and each deposit
administration, group annuity, insurance or other funding contract
associated with each such Plan, (ii) the most recent financial
information for each such Plan, (iii) the most recent actuarial or
valuation report relating to each such Plan, (iv) if applicable, the
most recent Return/Report of each Plan (including attachments)
required to be filed with any governmental agency, (v) the Plan
document for each such Plan, (vi) the summary Plan description
(including summaries of material modifications, if any) for each such
Plan and (vii) if applicable, each Form 5310 (application for
Determination Upon Termination, etc.) filed with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation (the "PBGC") with
respect to any Plan in the current Plan year or any of the five (5)
Plan years preceding the current Plan year;
(v) neither any such Plan nor any fiduciary has engaged in a
prohibited transaction as defined in ERISA (S) 406 or Internal Revenue
Code (S) 4975 (for which no individual or class exemption exists under
ERISA (S) 408 or Internal Revenue Code (S) 4975, respectively);
(vi) to the Knowledge of Denron and the Majority Shareholders,
all filings and reports as to each such Plan required to have been
made on or before the Closing Date to the Internal Revenue Service, or
to the United States Department of Labor or to the PBGC, have been or
will be duly made by that date;
(vii) each such Plan which is intended to qualify as a tax-
qualified retirement plan under Internal Revenue Code (S) 401(a) has
received a favorable determination letter(s) from the Internal Revenue
Service as to qualification of such Plan for the period from its
adoption through the Closing Date, other than with respect to
amendments timely made to each such Plan to comply with the
requirements of the Tax Reform Act of 1986 for which an application
for determination letter for each such Plan is pending with the
Internal Revenue Service as of the Closing Date; nothing has occurred,
whether by action or failure
-18-
<PAGE>
to act, which has resulted in or would cause the loss of such
qualification; and each trust thereunder is exempt from tax pursuant
to Internal Revenue Code (S) 501(a);
(viii) no event has occurred and no condition exists relating to
any such Plan that would subject Denron to any tax under Internal
Revenue Code (S)(S) 4972 or 4979, or, to the Knowledge of Denron and
the Majority Shareholders, any liability under ERISA (S) 502; and
(ix) to the extent applicable, each such Plan has been funded
in accordance with its governing documents, ERISA and the Internal
Revenue Code, has not experienced any accumulated funding deficiency
(whether or not waived) and has not exceeded its full funding
limitation (within the meaning of Internal Revenue Code (S) 412) at
any time.
3.24.4 Denron has not had and does not have any Plan subject to
Title IV of ERISA ("Pension Plan") which covers employees of Denron (or any
person, firm or corporation which is or was under common control within the
meaning of (S) 4001(b) of ERISA with Denron ("affiliate") during the period
of such common control).
3.24.5 Denron has not had and does not contribute to any Pension
Plan which is a multiemployer plan as defined in Section 3(37) of ERISA.
3.24.6 With respect to any Plan which provides group health
benefits to employees of Denron and is subject to the requirements of
Internal Revenue Code (S) 4980B and ERISA Title I Part 6 ("COBRA"):
(i) to the Knowledge of Denron and the Majority
Shareholders, such group health plan has been administered in every
respect in accordance with its governing documents and COBRA; and
(ii) all filings, reports, premium payments (if any) and
notices as to each such group health plan required to have been made
on or before the Closing Date to government agencies, participants
and/or beneficiaries have been or will be duly made by that date.
3.24.7 Except as disclosed in Schedule 3.24, Denron (i) is not a
-------------
party to any collective bargaining agreement or discussions or negotiations
with any person or group which may reasonably be expected to result in any
such agreement, (ii) has not within the last five (5) years experienced any
strike, grievance, unfair labor practice claim or other labor difficulty
(other than grievances and unfair labor practice claims in which Denron's
only exposure was to monetary damages of $2,000 or less), (iii) is not
aware of any threatened strike, grievance, unfair practice claim or other
labor difficulty, nor does there exist any reasonable basis known to Denron
for the assertion of any grievance or unfair
-19-
<PAGE>
labor practice claim or other charge or complaint against Denron by or
before the National Labor Relations Board or any state labor relations
board or commission or representative thereof, (iv) is not aware of any
filing by any employee or employee group seeking recognition as a
collective bargaining representative or unit, (v) has no any reason to
believe that any former employer of any of Denron's employees is
contemplating remedial action against Denron based on the employee having
terminated the former employment and having become an employee of Denron.
3.24.8 Except as disclosed on Schedule 3.24, Denron is not
-------------
obligated to nor does it (directly or indirectly) provide death benefits or
health care coverage to any former employees or retirees.
3.24.9 To the Knowledge of Denron and the Majority Shareholders,
Denron has complied with all applicable provisions of the Immigration
Reform and Control Act of 1986 and all other applicable state immigration
laws.
3.24.10 Set forth on Schedule 3.24 is a true and correct list of all
-------------
employees of Denron, together with the compensation (for period identified
on the schedule) of each such employee for the years 1995 and 1996.
3.25 Termination of Business Relationships.
-------------------------------------
To the Knowledge of Denron and the Majority Shareholders, no supplier of
Denron which cannot be replaced on commercially reasonable terms has evidenced
to Denron's executive officers or any other employee or agent of Denron, any
intention to cancel or terminate its business relationship with Denron. No key
employee of Denron has notified Denron or its intent or desire to terminate
employment with Denron.
3.26 Insurance.
---------
Schedule 3.26 lists all policies of insurance and all surety and other
-------------
bonds to which Denron now is a party, specifying for each policy or bond the
insurer, the amount of coverage, the type of insurance and any pending claims
thereunder. All of such policies and bonds which have expired since January 1,
1995 were valid and in full force and effect during their respective terms, and
all other of such policies and bonds are valid and in full force and effect at
present, and no claim has been made, or notice given, and to the Knowledge of
Denron and the Majority Shareholders, there exists no ground to cancel or avoid
any of said policies or bonds or to reduce the coverage provided thereby. No
claims have been made or amounts paid pursuant to such insurance policies except
as set forth on Schedule 3.26. All of said insurance policies and bonds which
-------------
are now in effect shall continue to remain in full force and effect during the
later of their respective terms or until the Effective Time. Denron has not
during the past three (3) years been denied or had revoked or rescinded by a
carrier any policy of insurance. Denron is not in default regarding the
provisions of any policy insuring Denron and has not failed to give any notice
or present any claim required under any such policy in due and timely fashion.
There are no
-20-
<PAGE>
outstanding requirements or recommendations by any current insurer or
underwriter with respect to the business of Denron which require or recommend
changes in the conduct of the business of Denron or require any repairs or other
work to be done with respect to any of the properties, assets or operations of
Denron. Except as disclosed on Schedule 3.26, any policies expiring prior to
-------------
the Closing Date will be renewed or extended upon substantially the same terms
and at substantially the same premiums.
3.27 Compliance with Laws.
--------------------
To the Knowledge of Denron and the Majority Shareholders, Denron has
complied in all respects with all applicable laws, statutes, rules and
regulations, orders and engineering standards of federal, state, local and
foreign governments and governmental agencies applicable to it and its business,
assets, properties and operations and no claim of violation (or basis therefor
known to Denron) of any such laws or regulations exists on the date hereof.
3.28 Material and Affiliate Contracts.
--------------------------------
Schedule 3.28 hereto sets forth a list of all other (i.e., not identified
------------- ----
on one or more of the foregoing Schedules hereto) oral and written contracts,
commitments, or other agreements to which Denron is a party or by which Denron
or any of the assets or properties of Denron is bound or subject (a) requiring
or reasonably anticipated to require the payment by Denron of more than $25,000
in any twelve-month period, (b) under which Denron is entitled to receive
$25,000 or more annually, (c) covering indebtedness of Denron in the principal
amount of $25,000 or more, (d) covering the employment of any employee of
Denron, (e) not terminable by Denron, without penalty, within thirty (30) days
following the Closing Date, (f) terminable by or on behalf of the other party
thereto on sixty (60) days' notice or less, (g) which obligates Denron to act as
a guarantor or surety irrespective of the amount involved, (h) which are
provider, service or similar agreements, or (i) which are capital leases, loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements or equipment
financing agreements (collectively, the "Material Contracts"). True, correct
and complete copies of the written Material Contracts and true, correct and
complete written descriptions of the oral Material Contracts have heretofore
been delivered by Denron to Buyer.
There are no contracts, agreements, purchase orders, commitments, leases,
agreements, understandings or arrangements, including loan arrangements, between
Denron and any of its officers, directors or shareholders, or any Related
Person, corporation or other entity, except as set forth on Schedule 3.28 hereto
-------------
(a true, correct and complete copy of each such written document and a true,
correct and complete written description of each such oral relationship having
heretofore been delivered by Denron to JPM (collectively, the "Affiliate
Contracts"), and none shall be entered into by Denron from the date hereof
through the Closing Date other than in the ordinary course of business without
the prior written consent of JPM.
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<PAGE>
Except as set forth on Schedule 3.28, all of the Material Contracts and
-------------
Affiliate Contracts are in full force and effect, and, to the Knowledge of
Denron and the Majority Shareholders, there exists no default by Denron or, to
the Knowledge of Denron and the Majority Shareholders, any other party thereto,
and, to the Knowledge of Denron and the Majority Shareholders, no event has
occurred which, through notice or the passage of time or otherwise, would result
in a default by Denron from the date hereof through the Closing Date without the
prior written consent of JPM.
For purposes of the Merger Agreement, "Related Person" with respect to a
particular individual shall mean: (i) each other member of such individual's
Family; (ii) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family; (iii) any Person
in which such individual or members of such individual's Family hold
(individually or in the aggregate) a Material Interest; and (iv) any Person with
respect to which such individual or one or more members of such individual's
Family serves as director, officer, partner, executor, or trustee (or in similar
capacity).
With respect to a specified Person other than an individual: (i) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (ii) any Person that holds a Material Interest in such
specified Person; (iii) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (iv)
any Person in which such specified Person holds a Material Interest; (v) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (vi) any Related Person of any
individual described in clause (ii) or (iii).
For purposes of this definition, (a) the "Family" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
3.29 Licenses and Permits.
--------------------
To the Knowledge of Denron and the Majority Shareholders, Denron has
secured all licenses, franchises, permits and other authorizations from federal,
state, local and other governmental or administrative authorities (an
"Authority") applicable to its assets, properties and operations as are
necessary for the conduct of its business (the "Permits"). Schedule 3.29 hereto
-------------
sets forth a true, complete and correct list of all such Permits held or used by
Denron and true and complete copies thereof have heretofore been delivered by
Denron to Buyer. Except as set forth in Schedule 3.29, to the Knowledge of
-------------
Denron and the Majority Shareholders, (a) each of said Permits is in full force
and effect, (b) Denron (or other designated permittee or licensee
-22-
<PAGE>
thereunder) is in compliance with the terms, provisions and conditions thereof,
(c) there are no outstanding violations, notices of noncompliance therewith,
judgments, consent decrees, orders or judicial or administrative action(s) or
proceeding(s) affecting any of said Permits and (d) no condition exists and no
event has occurred which (whether with or without notice, lapse of time or the
occurrence of any other event) would permit the suspension or revocation of any
of said permits other than by expiration of the term set forth therein. To the
Knowledge of Denron and the Majority Shareholders, consummation of the
transactions contemplated by the Agreement shall not affect the validity,
enforceability or effectiveness of any such Permit and no filing with or consent
authorization or approval of any Authority is required in connection with the
consummation of the transactions contemplated hereby.
3.30 No Interest in Suppliers.
------------------------
Denron does not have any direct or indirect equity interest in, or power to
control the business or affairs of, or intention to acquire such interest in or
control of, any person that is a manufacturer, supplier, lender, lessor or
provider of services or equipment to, or any entity or person that renders
services in, the industry in which Denron is engaged.
3.31 All Business Conducted by Denron.
--------------------------------
Except as disclosed on Schedule 3.31, the business and operations of Denron
-------------
are conducted exclusively by Denron and not by any other business entity whether
or not affiliated with Denron.
3.32 Environmental Matters.
---------------------
Except as set forth on Schedule 3.32 hereto, to the Knowledge of Denron and
-------------
the Majority Shareholders, (i) Denron is currently in compliance with all
applicable Environmental Laws, and has obtained all permits and other
authorizations from, and submitted all forms, fees, registrations, reports and
similar filings to, the appropriate person or governmental agency needed, or
required, to operate its facilities in compliance with the applicable
Environmental Laws; (ii) Denron has not violated any applicable Environmental
Law; (iii) Denron is not aware of any present requirement of any applicable
Environmental Law which is due to be imposed upon it which will increase its
cost of complying with the Environmental Laws: (iv) all past on-site generation,
treatment, processing, storage and disposal of Waste by Denron and its
predecessors have been done in compliance with the currently applicable
Environmental Laws; (v) all past off-site transportation, treatment, processing,
storage and disposal of Waste, generated by Denron and its predecessors have
been done in compliance with the currently applicable Environmental Laws; (vi)
Denron, its predecessors have not released, spilled, leaked or otherwise
discharged into the environment any Regulated Substance except as expressly
authorized in all respects by the applicable Environmental Laws; and (vii)
Denron, and its predecessors have not used or otherwise managed any Regulated
Substance except in compliance in all respects with all applicable Environmental
Laws.
-23-
<PAGE>
As used in the Agreement, the terms (i) "Environmental Laws" include but
are not limited to any federal, state, foreign or local laws, statute, charter
or ordinance, and any rule, regulation, binding interpretation, binding policy,
permit, order, court order or consent decree issued pursuant to any of the
foregoing, which pertains to, governs or otherwise regulates any of the
following activities: (a) the emission, discharge, release or spilling of any
Waste, Hazardous Waste or Regulated Substance into the air, surface water,
groundwater, soil or substrata and (b) the manufacturing, processing, sale,
generation, treatment, transportation, storage, disposal, labeling or other
management of any Waste, Hazardous Waste or Regulated Substance; (ii) "Waste,"
and "Hazardous Waste" include any substance defined as such by any applicable
Environmental Law; and (iii) "Regulated Substances" include any substance the
manufacturing, processing, sale, generation, treatment, transportation, storage,
disposal, labeling or other management or use of which is regulated by any
applicable Environmental Law.
3.33 Intellectual Property Matters.
-----------------------------
3.33.1 Denron has all right, title and interest, free and clear of
any liens, charges, encumbrances, restrictions, royalties or any claims of
ownership by third parties whatsoever, to all intellectual property assets
of Denron used in connection with Denron's business, including without
limitation all patents and reissues, divisions, continuations and
extensions of such patents, patents pending and applications for patents,
patent disclosures docketed, registered and unregistered trademarks and
service marks and applications for such trademarks and service marks, trade
names, registered and unregistered copyrights and applications for
copyright registration, all trade secrets, know-how, and all rights under
any leases, licenses, franchises, permits, authorizations, agreements and
arrangements with respect to such intellectual property assets (hereinafter
all of the foregoing are collectively referred to as "Intellectual Property
Assets"), whether owned by Denron or owned by others and used by Denron.
All true and correct and complete copies of all such leases, licenses,
franchises, permits, authorizations, agreements and arrangements have
heretofore been delivered by Denron to JPM. Schedule 3.33 hereto describes
-------------
all of such Intellectual Property Assets of Denron in full. Denron has
full right and power to assign all lease and license rights with respect to
such Intellectual Property Assets.
3.33.2 The Intellectual Property Assets of Denron are fully
sufficient to enable Denron to produce and sell all products sold or
presently intended to be sold by Denron.
3.33.3 There exist no filed or served on or, to the Knowledge of
Denron and the Majority Shareholders, threatened, litigation, actions,
lawsuits or claims, including, without limitation, to the filing or
threatened filing, whether voluntary or involuntary, of insolvency or
bankruptcy proceedings or forfeiture proceedings against Denron, claims of
infringement or misappropriation, or other claims adverse to the ownership
rights of Denron with respect to the Intellectual Property Assets of
Denron.
-24-
<PAGE>
3.33.4 No failure to maintain and adequately protect exists with
respect to any of the Intellectual Property Assets, including maintenance
payments thereof and renewals or extensions thereof, except as expressly
disclosed in Schedule 3.33.
-------------
3.33.5 Denron has not consented to or otherwise knowingly
acquiesced in the use by another person or entity of Denron's name or a
name that is substantially similar to Denron's name.
3.34 Consents and Approvals.
----------------------
Except as set forth on Schedule 3.34 hereto, there are no
-------------
authorizations, consents, approvals or notices required to be obtained or given
by Denron, or any Shareholder or waiting periods required to expire in order
that the Agreement and the transactions provided for herein may be consummated
by Denron. Denron does not have total assets or annual net sales (each
calculated under the Hart-Scott-Rodino Act ("HSR Act") in excess of $100
million.
3.35 Disclosure.
----------
To the Knowledge of Denron and the Majority Shareholders, Denron has
disclosed all facts relating to Denron's assets, business, condition (financial
and otherwise) and operations in the Agreement (including the Schedules hereto).
Neither the Agreement nor any other document, certificate, exhibit, statement or
schedule furnished or to be furnished by Denron to Buyer in connection with the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the factual statements contained therein, in light of the circumstances
under which made, not misleading. Notwithstanding the foregoing, to the extent
a liability is covered by a warranty provided elsewhere in this Agreement, where
such other warranty is limited to the Knowledge of Denron and the Majority
Shareholders, the warranty provided with respect to such item under this
paragraph 3.35 shall also be limited to Knowledge.
4. REPRESENTATIONS AND WARRANTIES OF JPM AND JPM ACQUISITION
---------------------------------------------------------
Except as otherwise disclosed herein, Buyer represents and warrants to
Denron and the Majority Shareholders and covenants and agrees with Denron and
the Majority Shareholders as follows:
4.1 Organization and Qualification.
------------------------------
JPM is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania. JPM Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. JPM has the corporate power and authority to carry
on its business as presently conducted. JPM Acquisition was incorporated on
February 18, 1997, expressly for purposes of the Merger and has not conducted
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<PAGE>
any business. JPM Acquisition is not required to be licensed or qualified to do
business as a foreign corporation in any state.
4.2 Authorization; Valid and Binding Obligation.
-------------------------------------------
JPM and JPM Acquisition each has full corporate power and authority to
execute and deliver the Agreement and to perform its obligations hereunder, and
JPM Acquisition has full corporate power and authority to execute and deliver
the Plan of Merger and to perform its obligations thereunder. The Agreement has
been duly executed and delivered by JPM and JPM Acquisition and constitutes, and
the Registration Rights Agreement, the Denman Employment Agreement, the Ronald
Mills Employment Agreement, the Donald Mills Employment Agreement and the Plan
of Merger (collectively, together with the Agreement, the "JPM Transaction
Documents") and other documents to be executed and delivered pursuant hereto
when executed and delivered by JPM (to the extent a party thereto) and JPM
Acquisition will constitute, the legal, valid and binding obligations of JPM and
JPM Acquisition, enforceable against each in accordance with its terms.
4.3 Financial Statements.
--------------------
Schedule 4.3 hereto contains true and correct and complete copies of the
------------
following financial statements of JPM and its subsidiaries at the dates and for
the periods specified:
4.3.1 Audited Consolidated Balance Sheets of JPM as of the end of
its most recently ended fiscal year (the "JPM Balance Sheet") and as of the
end of each of its previous two fiscal years, and the unaudited
Consolidated Balance Sheet of JPM as of December 31, 1996 (the "JPM Interim
Balance Sheet"); and
4.3.2 Audited Consolidated Income Statements and Statements of
Changes in Financial Position and Cash Flows of JPM for each of such years,
and unaudited Consolidated Income Statement and Statement of Changes in
Financial Position and Cash Flows of JPM for the three-month period ended
December 31, 1996; in each case together with the notes thereto. Each of
the foregoing financial statements has been prepared in conformity with
GAAP applied on a consistent basis, and presents fairly the financial
position and results of operations and cash flows of JPM at the dates and
for the periods specified. All material liabilities and obligations of JPM
outstanding as of the dates of the aforesaid financial statements required
to be reflected as liabilities in accordance with GAAP have been included
in said financial statements. Except as disclosed herein or in the
periodic reports of JPM filed with the SEC, there have been no material
changes in the financial condition, assets or liabilities of JPM from the
date of the JPM Balance Sheet (the "JPM Balance Sheet Date") to the date
hereof, except changes in the ordinary course of business, none of which,
in the aggregate, has been adverse. Since the JPM Balance Sheet Date, JPM
has conducted its business in a normal and customary manner. The books and
records of JPM from which the financial statements were prepared properly
and accurately record in all material respects the transactions and
activities which
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they purport to record. Notwithstanding the foregoing, to the extent a
liability is covered by a warranty provided elsewhere in this Agreement,
where such other warranty is limited to the Knowledge of Buyer, the
warranty provided with respect to such item under this paragraph 4.3.2
shall also be limited to Knowledge.
4.4 Periodic Reports.
----------------
JPM's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
Annual Report on Form 10-K dated December 13, 1996, for the fiscal year ended
September 30, 1996, and the Proxy Statement in connection with the 1997 Annual
Meeting of Stockholders of JPM (the "Periodic Reports") complies as to form in
all material respects with the requirements of the 1934 Act, and regulations
promulgated pursuant thereto, and contains the disclosures required to be
contained therein.
4.5 Corporate Instruments and Records.
---------------------------------
The copies of each of JPM's and JPM Acquisition's Certificate or Articles
of Incorporation and By-Laws, each certified by the respective Secretary of JPM
and JPM Acquisition and heretofore furnished by JPM to Denron, are true, correct
and complete and each include all amendments to the date hereof. JPM's minute
books, as made available to Denron, contain a true, complete and correct record
of all corporate action taken on or prior to the date hereof at the meetings of
its stockholders and directors and committees thereof. The stock certificate
books and ledgers of JPM Acquisition, as made available to Denron for
inspection, are true, correct and complete, and accurately reflect, at the date
hereof, the ownership of the outstanding capital stock of JPM Acquisition.
4.6 Subsidiaries.
------------
JPM does not have any subsidiary or any ownership interest in any other
entity except set forth on Schedule 4.6 (individually, a "JPM Subsidiary" and
------------
collectively, the "JPM Subsidiaries"). JPM is not a party to any joint venture
arrangement and does not have the right to acquire any securities of or
ownership interests in any other person or entity except as set forth on
Schedule 4.6.
- ------------
4.7 Absence of Undisclosed and Contingent Liabilities.
-------------------------------------------------
Except as set forth on Schedule 4.7 hereto, neither JPM nor any JPM
------------
Subsidiary has any material liabilities of any nature (whether secured or
unsecured, accrued, absolute or contingent, unliquidated or otherwise and
whether known or unknown or due or to become due) as of the date hereof other
than (i) liabilities disclosed or reserved against in the JPM Balance Sheet,
including the notes thereto (ii) liabilities arising in the ordinary course of
business after the JPM Balance Sheet Date (none of which, either singly or in
the aggregate, constitutes a material liability), and (iii) liabilities on the
JPM schedules hereto. JPM does not know of any basis for the assertion against
it or any JPM Subsidiary by any person of a claim based on a material
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liability which is not disclosed on the JPM Balance Sheet. Notwithstanding the
foregoing, to the extent a liability is covered by a warranty provided elsewhere
in this Agreement, where such other warranty is limited to the Knowledge of
Buyer, the warranty provided with respect to such item under this paragraph 4.7
shall also be limited to Knowledge.
4.8 Consents and Approvals.
----------------------
Except as set forth on Schedule 4.8 hereto, there are no authorizations,
------------
consents, approvals or notices required to be obtained or given by JPM or any
JPM Subsidiary or waiting periods required to expire in order that the Agreement
and the transactions provided for herein may be consummated by JPM and its
subsidiaries. The Person (at that term is defined under the HSR Act) in which
JPM is included does not have total assets or annual net sales (each as
calculated under the HSR Act) in excess of $100 million.
4.9 Litigation.
----------
Except as set forth on Schedule 4.9, there are no material actions, suits
------------
or proceedings at law or in equity, or arbitration proceedings, or claims,
demands or investigations, filed or served on or, to JPM's Knowledge, threatened
against or involving JPM or any JPM Subsidiary, or state of facts existing which
are known to JPM which could give rise to any such action, suit, proceeding,
claim, demand or investigation; there are no proceedings filed or served on or,
to JPM's Knowledge, threatened against or involving JPM or any JPM Subsidiary by
or before any governmental board, department, commission, bureau,
instrumentality or agency (including but not limited to any federal state, local
or foreign governmental agency or body concerned with control of foreign
exchange, energy, environmental protection or pollution control, franchising or
other distribution arrangements, antitrust or trade regulation, civil rights,
labor or discrimination, wages and hours safety or health, zoning or land use),
or state of facts existing which are known to JPM which could give rise to any
such proceedings; and JPM is not in violation in any material respect of any
order, ruling, decree or judgment of any court or arbitration tribunal or
governmental board, department, commission, bureau, instrumental or agency.
4.10 Licenses and Permits.
--------------------
To the Knowledge of Buyer, each of JPM and its subsidiaries has secured all
material licenses, franchises, permits and other authorizations from federal,
state, local and other governmental or administrative authorities (an
"Authority") applicable to its assets, properties and operations or necessary
for the conduct of its business (the "Permits"). Schedule 4.10 hereto sets
-------------
forth a true, complete and correct list of all such Permits held or used by JPM
and its subsidiaries, and true and complete copies thereof have heretofore been
delivered by JPM to Denron. Except as set forth in Schedule 4.10, to the
-------------
Knowledge of Buyer (a) each of said Permits is in full force and effect, (b) JPM
(or other designated permittee or licensee thereunder) is in compliance with the
terms, provisions and conditions thereof, (c) there are no outstanding
violations, notices of noncompliance therewith, judgments, consent decrees,
orders or judicial or
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administrative action(s) or proceeding(s) affecting any of said Permits and (d)
no condition exists and no event has occurred which (whether with or without
notice, lapse of time or the occurrence of any other event) would permit the
suspension or revocation of any of said permits other than by expiration of the
term set forth therein. To the Knowledge of Buyer, consummation of the
transactions contemplated by the Agreement shall not affect the validity,
enforceability or effectiveness of any such Permit and no filing with or consent
authorization or approval of any Authority is required in connection with the
consummation of the transactions contemplated hereby.
4.11 No Violation.
------------
Except as disclosed on Schedule 4.11, neither JPM nor any JPM Subsidiary is
-------------
(a) in default under or in violation of any provision of its Articles of
Incorporation or By-Laws, or (b) to the Knowledge of Buyer, in material default
or violation of any provision of any agreement, understanding, arrangement,
indenture, contract, lease, sublease, loan agreement, note, restriction,
obligation or liability (individually, an "Instrument" and collectively, the
"Instruments") to which it is a party or by which it is bound or to which it or
its assets are subject (the "JPM Instruments"). Neither the execution and
delivery of this Agreement or the other JPM Transaction Documents by JPM or JPM
Acquisition, nor the consummation of the transactions contemplated hereby or
thereby, nor compliance with the terms hereof or thereof, will (i) conflict with
or result in a breach of any of the terms, conditions or provisions of the
Certificate or Articles of Incorporation, By-Laws of JPM or any JPM Subsidiary,
nor (ii) except as set forth on Schedule 4.11, violate, conflict with or result
-------------
in a breach of or default under, in any material respect, any of the terms,
conditions or provisions of any JPM Instrument, nor (iii) accelerate or give to
others any interests or rights, including rights of acceleration, termination,
modification or cancellation, under any JPM Instrument or in or with respect to
the business or the assets of JPM or its subsidiaries, nor (iv) result in the
creation of any lien, claim, charge or encumbrance on the assets, capital stock
or properties of JPM or the JPM Subsidiaries, nor (v) to the Knowledge of Buyer,
conflict with in any material respect, violate or result in a breach of in any
material respect or constitute a material default under any law, statute, rule,
judgment, order, decree, injunction, ruling or regulation of any government,
governmental agency, authority or instrumentality, court or arbitration tribunal
to which JPM or the JPM Subsidiaries or any of its or their assets or properties
is subject, nor (vi) require JPM or the JPM Subsidiaries to give notice to, or
obtain an authorization, approval, order, license, franchise, declaration or
consent of, or make a filing with, any foreign, federal, state, county, local or
other governmental or regulatory body or other person.
4.12 Condition of Buildings and Tangible Personal Property.
-----------------------------------------------------
Except as set forth on Schedule 4.12, to the Knowledge of JPM, all of
-------------
the buildings and items of Tangible Personal Property owned, leased or used by
JPM and its subsidiaries are in reasonable operating condition and repair,
reasonable wear and tear excepted, comply in all material respects with
applicable laws, regulations and ordinances, including but
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not limited to zoning, building and fire codes and are suitable and sufficient
for the present and intended conduct of JPM's business.
4.13 Accounts and Notes Receivable.
-----------------------------
Except as set forth on Schedule 4.13, to the Knowledge of Buyer, the
-------------
accounts and notes receivable reflected on the JPM Balance Sheet are materially
correct.
4.14 Contracts.
---------
Except as set forth on Schedule 4.14 attached hereto, to the Knowledge of
-------------
JPM all contracts and agreements of any nature to which JPM or any JPM
Subsidiary is a party have been duly and validly executed by all parties, and
are in full force and effect as of the date hereof. Except as set forth on
Schedule 4.14 no event has occurred or condition or state of facts exist which,
- -------------
after notice or the passage of time, would constitute a material default under
any such contract, as to time or manner of performance, or as to warranties
thereunder, or otherwise. Except as set forth on Schedule 4.14 and unless
-------------
otherwise terminated, all such contracts will continue to be binding in
accordance with their respective terms until their respective expiration dates,
subject to any early termination clauses, and none of such contracts are
reasonably anticipated by JPM to result in a material loss to JPM or any JPM
Subsidiary, or in a margin of profit materially lower than normal, upon
completion.
4.15 Termination of Business Relationships.
-------------------------------------
To the Knowledge of Buyer, no supplier of JPM or a JPM Subsidiary which
cannot be replaced on commercially reasonable terms has evidenced to JPM's
executive officers or any other employee or agent of JPM or its subsidiaries any
intention to cancel or terminate its business relationship with JPM or a JPM
Subsidiary. No key employee of JPM or a JPM Subsidiary has notified JPM or such
subsidiary of his/her intent or desire to terminate employment with JPM or such
JPM Subsidiary.
4.16 All Business Conducted by JPM.
-----------------------------
Except as disclosed on Schedule 4.16, the business and operations of JPM
-------------
are conducted exclusively by JPM and the JPM Subsidiaries, and not by any other
business entity whether or not affiliated with JPM or the JPM Subsidiaries.
4.17 Intellectual Property Matters.
-----------------------------
4.17.1 Except as set forth on Schedule 4.17, to the Knowledge of
-------------
Buyer, each of JPM and its subsidiaries has all right, title and interest,
free and clear of any liens, charges, encumbrances, restrictions, royalties
or any claims of ownership by third parties whatsoever, to all intellectual
property assets of JPM and its subsidiaries used in connection with the
business of JPM, including without limitation all patents and reissues,
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divisions, continuations and extensions of such patents, patents pending
and applications for patents, patent disclosures docketed, registered and
unregistered trademarks and service marks and applications for such
trademarks and service marks, trade names, registered and unregistered
copyrights and applications for copyright registration, mask works and
applications for mask work registration, all trade secrets, know-how, and
all rights under any leases, licenses, franchises, permits, authorizations,
agreements and arrangements with respect to such intellectual property
assets (hereinafter all of the foregoing are collectively referred to as
"Intellectual Property Assets"), whether owned by JPM or a JPM Subsidiary
or owned by others and used by JPM or a JPM Subsidiary. All true and
correct and complete copies of all such leases, licenses, franchises,
permits, authorizations, agreements and arrangements have heretofore been
delivered by JPM to Denron. Schedule 4.17 hereto describes all of such
-------------
Intellectual Property Assets of JPM in full (exclusive of JPM's trade
secrets). JPM has full right and power to assign all lease and license
rights with respect to such Intellectual Property Assets.
4.17.2 The Intellectual Property Assets of JPM and its
subsidiaries are fully sufficient to enable JPM and its subsidiaries to
produce and sell all products sold or presently intended to be sold by JPM
and its subsidiaries.
4.17.3 There exist no filed or served on or, to the Knowledge of
JPM, threatened, litigation, actions, lawsuits or claims, including,
without limitation, the filing or threatened filing, whether voluntary or
involuntary, of insolvency or bankruptcy proceedings or forfeiture
proceedings against JPM or any JPM Subsidiary, claims of infringement or
misappropriation, or other claims material and adverse to the ownership
rights of JPM or any JPM Subsidiary with respect to the Intellectual
Property Assets of JPM and its subsidiaries.
4.17.4 No failure to maintain and adequately protect exists with
respect to any of the Intellectual Property Assets, including maintenance
payments therefor and renewals or extensions thereof, except as expressly
disclosed in Schedule 4.17.
-------------
4.17.5 JPM and its subsidiaries own or are licensees of all
Intellectual Property Assets.
4.17.6 Neither JPM nor any JPM Subsidiary has consented to or
otherwise knowingly acquiesced in the use by another person or entity of
JPM's or any JPM Subsidiary's name or a name that is substantially similar
to JPM's or any JPM Subsidiary's name.
4.18 Capitalization.
--------------
The authorized capital stock of JPM is set forth in JPM's most recent
Form 10-K filed with the Securities and Exchange Commission pursuant to
Section 13 of the Securities Exchange Act of 1994 for the fiscal year ended
September 30, 1996 (the "10-K"), a copy of
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which has been provided to Denron and the Majority Shareholders. All of said
issued and outstanding shares of the JPM Common Stock are validly issued, fully
paid and non-assessable and entitled to vote at any shareholder meeting, and
none of such shares of JPM Common Stock has been issued in violation of any
preemptive rights of shareholders. Except as disclosed in the 10-K, there are
no authorized or outstanding options, warrants, convertible securities,
subscription rights, puts, calls, unsatisfied pre-emptive rights, or to require
JPM to purchase, redeem or acquire any shares of the capital stock or other
securities of JPM, and there is no outstanding security of any kind convertible
into such capital stock.
4.19 Compliance with Laws.
--------------------
To the Knowledge of Buyer, JPM has complied in all material respects with
all applicable laws, statutes, rules and regulations, orders and engineering
standards of federal, state, local and foreign governments and governmental
agencies applicable to it and its business, assets, properties and operations
and no claim of violation (or basis therefor known to JPM) of any such laws or
regulations exists on the date hereof.
4.20 No Adverse Changes.
------------------
Except as set forth on Schedule 4.20 hereto, since the JPM Balance Sheet
-------------
Date there has not been:
4.20.1 to the Knowledge of Buyer, a material adverse change in the
condition (financial or otherwise), properties, assets, liabilities,
rights, operations or business of JPM and its Subsidiaries;
4.20.2 the issuance by JPM or any JPM Subsidiary or any notes,
bonds or other debt securities or any equity securities;
4.20.3 the declaration, setting aside or payment of any dividend
or other distribution in respect of any shares of JPM's or any JPM
Subsidiary's capital stock, or the purchase, redemption, issue, sale or
other disposition of any such shares, or the sale or grant of any options,
warrants, puts, calls or other rights or obligations to purchase or convert
into shares of capital stock or indebtedness of JPM or any JPM Subsidiary;
4.20.4 any mortgage or pledge of, or creation of any lien, pledge,
charge, security interest or encumbrance respecting any property or assets
of JPM or any JPM Subsidiary, except for liens of current property taxes
not yet due and payable;
4.20.5 the borrowing by JPM or any JPM Subsidiary of any amount of
money or the incurring of or becoming subject to any liabilities known to
JPM or any JPM subsidiary as Knowledge is defined in Section 3.7 herein,
except (i) current liabilities incurred in the ordinary course of business,
and (ii) liabilities under contracts entered into in the ordinary course of
business;
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4.20.6 the discharge or satisfaction by JPM or any JPM Subsidiary
of any lien or encumbrance or the payment of any obligation or liability,
other than current liabilities paid in the ordinary course of business;
4.20.7 any damage, theft, destruction or casualty loss, whether or
not covered by insurance, adversely affecting the properties or operations
of JPM or any JPM Subsidiary;
4.20.8 any sale, lease, transfer or assignment of any asset
(tangible or intangible) of JPM or any JPM Subsidiary or the cancellation
of any debt or claim except for a fair consideration and in the ordinary
course of business;
4.20.9 the disclosure of any proprietary confidential information
of JPM or its subsidiary to any person other than those subject to a
confidentiality agreement;
4.20.10 any cancellation, settlement or compromise of any claim or
debt due to or owing by JPM or any JPM Subsidiary in an amount exceeding
$100,000 individually or $100,000 in the aggregate;
4.20.11 any loss, waiver or release of any material rights of JPM
or any JPM Subsidiary, whether or not in the ordinary course of business or
consistent with past practice;
4.20.12 the negotiation or execution of any arrangement, agreement
or understanding to which JPM or any Subsidiary is a party which cannot be
terminated by JPM or any Subsidiary on notice of thirty (30) days or less
without cost or penalty;
4.20.13 any material increase in fringe benefit or incentive
compensation payable or to become payable to any officer, director,
employee or other person receiving compensation of any nature from JPM or
any JPM Subsidiary or any increase in salary, bonus, fringe benefit or
incentive or other compensation payable or to become payable to any
affiliate of JPM or any JPM Subsidiary or any increase in the number of
shares obtainable under, or acceleration of the time of exercisability of,
any stock option, stock bonus or similar plan of JPM or any JPM Subsidiary;
4.20.14 any capital expenditures or commitments therefor by JPM or
any JPM Subsidiary individually in excess of $25,000;
4.20.15 any change in any accounting practice or procedure; or
4.20.16 any other transaction, contract or commitment entered into
by JPM otherwise than in the ordinary course of business.
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4.21 Disclosure.
----------
To the Knowledge of JPM, JPM has disclosed all material facts relating to
JPM and the JPM Subsidiaries' consolidated assets, business, condition
(financial and otherwise) and operations in the Agreement (including the
Schedules hereto). Neither the Agreement nor any other document, certificate,
exhibit, statement or schedule furnished or to be furnished by JPM to Denron in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the factual statements contained therein, in
light of the circumstances under which made, not misleading. Notwithstanding
the foregoing, to the extent a liability is covered by a warranty provided
elsewhere in this Agreement, where such other warranty is limited to the
Knowledge of Buyer, the warranty provided with respect to such item under this
paragraph 4.21 shall also be limited to Knowledge.
5. CONSENTS AND GOVERNMENTAL FILINGS
---------------------------------
Denron and Buyer shall promptly proceed to secure any consents or approvals
or the expiration of any time periods required for the consummation of the
transactions provided for hereunder and shall promptly prepare and file with the
appropriate governmental agencies and offices any documents or other information
required in connection therewith.
6. COVENANTS AND UNDERTAKINGS OF DENRON AND JPM
--------------------------------------------
6.1 Denron's Affirmative Covenants.
------------------------------
From and after the date of the Agreement to and including the Closing Date
of the Merger, Denron and the Majority Shareholders covenant and agree to:
6.1.1 use its best efforts to satisfy the conditions precedent to
the obligations of Buyer specified in Article 8, hereof.
6.1.2 (i) conduct the business efficiently and consistent with
past business practices and use its best efforts to preserve its current
business organization, (ii) use its best efforts to keep available the
services of Denron's present officers, employees, consultants and agents,
(iii) use its best efforts to maintain their present business relationships
with suppliers, customers, brokers, sales representatives and such other
persons or firms having business relationships on the date hereof with
Denron, and (iv) use its best efforts to preserve Denron's reputation and
goodwill. Denron acknowledges that the continuation of good relationships
with the suppliers and customers of Denron is important to JPM's successful
continuation of the business acquired hereunder after the Closing.
Accordingly, Denron will, to the extent reasonably requested by JPM,
between the date hereof and the Closing Date, assist JPM in arranging
meetings with suppliers and
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<PAGE>
customers and otherwise use its best efforts to assist JPM in obtaining
reasonable assurances that following the Closing such business
relationships will continue intact.
6.1.3 use its best efforts to comply with the provisions of all
laws, regulations, judicial decrees and orders applicable to it or to the
conduct of its business.
6.1.4 refrain from introducing any unusual operations or entering
into any new line of business, except with the written consent of JPM.
6.1.5 maintain its books, records and accounts in its customary
and usual manner, and shall refrain from introducing methods of accounting
inconsistent with those used in prior periods, except with the written
consent of JPM.
6.1.6 use its best efforts to maintain in full force and effect
all policies of insurance in effect on the date of the Agreement. Denron
shall report to JPM rates quoted for renewal or replacement of any
liability insurance policy.
6.1.7 maintain all of its properties in reasonable repair and
condition.
6.1.8 prepare and timely and properly prepare and file all
federal, state, local, foreign and other tax returns and reports and
amendments thereto required to be filed.
6.1.9 maintain qualification to do business in those jurisdictions
in which such qualification exists on the date of the Agreement.
6.1.10 promptly advise JPM of any known threat or assertion or of
any commencement of any litigation to which Denron is, or may be made, a
party, or by which Denron's properties may be affected.
6.2 Other Transactions.
------------------
Prior to the Termination Date, as hereinafter defined, Denron shall deal
exclusively and in good faith with Buyer with regard to the Merger and Buyer
shall deal exclusively and in good faith with Denron with regard to the Merger
and Denron will not, and Denron will direct its officers, directors, financial
advisors, accountants, agents, and counsel not to, (i) solicit submission of
proposals or offers from any person other than Buyer relating to any acquisition
of Denron or of all or of a material part of its stock or assets, or any merger,
consolidation or business combination with Denron that would have the effect of
preventing the consummation of the transactions contemplated by the Agreement
(an "Acquisition Proposal"), (ii) participate in any negotiations regarding, or
furnish, in connection with an Acquisition Proposal, any information to any
other person regarding Denron other than Buyer and its representatives or
otherwise cooperate in any way or assist, facilitate or encourage any
Acquisition Proposal by any person other than Buyer, or (iii) enter into any
agreement or understanding, whether oral or in writing, that would have the
effect of preventing the consummation of the transactions
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contemplated by the Agreement. If, notwithstanding the foregoing, Denron or its
representatives or agents should receive any Acquisition Proposal or any inquiry
regarding such proposal from a third party, such persons shall promptly inform
Buyer thereof.
6.3 Consents.
--------
Denron shall, at its sole cost and expense (except as otherwise provided
for herein), obtain, prior to the Closing, all consents and estoppels necessary
or appropriate on their part for the Merger and the consummation of the
transactions contemplated hereby. All such consents and estoppels will be in
writing and in form and substance reasonably satisfactory to Buyer, and executed
counterparts thereof will be delivered to Buyer promptly after receipt thereof
but in no event later than the Closing.
6.4 Denron's Negative Covenants.
---------------------------
Denron and the Majority Shareholders covenant and agree that from and after
the date hereof until the earlier of the Closing Date or the Termination Date
Denron will not without the prior written consent of JPM:
6.4.1 enter into any business combination transaction (such as a
merger, consolidation, sale of stock or sale of assets) with any person
other than JPM Acquisition;
6.4.2 amend or authorize any amendment to or modification of its
Articles of Incorporation or By-laws or other organizational document;
6.4.3 make any change in its authorized or issued capital stock,
or issue any corporate securities of any nature or options for any of the
foregoing, or enter into any contract of any nature respecting shares of
its capital stock or otherwise make any changes in its capital structure,
except as contemplated by the Agreement or the Plan of Merger;
6.4.4 make any distribution or payment in respect of its equity or
shares of its capital stock or purchase or redeem any equity interests or
shares of its capital stock;
6.4.5 enter into any contract or commitment extending beyond the
Effective Date of the Merger, except in the ordinary course of business;
6.4.6 terminate, modify or amend any lease, license, permit,
contract or other agreement, except in the ordinary course of business and
not involving an increase in liability or reduction in revenue;
6.4.7 except in the ordinary course of business consistent with
past practice for any employee who is not an officer or director, adjust in
any way, either directly or indirectly, or grant or agree to grant any
increase in the wages, salary, bonus or other compensation, remuneration or
benefit, of any employee, officer, director, consultant,
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shareholder or agent except as required under existing collective
bargaining agreements or in other existing agreements or, arrangements
described in the Schedules hereto, or become a party to any employment
agreement or any consulting arrangement, or become a party to any contract
or arrangement providing for payment of bonuses, profits, shares, stock
benefits, severance payments or retirement benefits, or increase the number
of shares subject to any stock option or stock bonus plan or reduce the
time required for exercisability of any option or vesting of any right
granted under any such plan, except as required by contract or as expressly
contemplated by the Agreement;
6.4.8 except in the ordinary course of business, make any, capital
expenditure in excess of $25,000;
6.4.9 incur any indebtedness, liabilities or obligations of any
nature except current liabilities in the ordinary course of business
consistent with past practice;
6.4.10 sell or transfer any property otherwise than in the ordinary
course of business, or acquire or dispose of any fixed assets in excess of
$25,000.
6.4.11 release, waive, sell or assign any debts, claims, rights or
other intangible obligations, or accept or agree to accept less than the
stated or face amount in settlement, discharge or satisfaction of any
receivable;
6.4.12 discharge or satisfy any lien or encumbrance or pay any
obligation or liability (absolute or contingent), the current liabilities
shown on the Balance Sheet and the current liabilities incurred after the
Balance Sheet Date in the ordinary course of business and in normal
amounts;
6.4.13 mortgage, pledge or subject to any lien, charge or
encumbrance any assets, tangible or intangible;
6.4.14 enter into, any transaction other than in the ordinary
course of business, except as contemplated by the Agreement or the Plan of
Merger;
6.4.15 take any action which would materially adversely affect the
corporate existence, rights and franchises of Denron;
6.4.16 make any bids or proposals or enter into any contracts for
the sale of products or the performance of services by Denron except in the
ordinary course of business;
6.4.17 enter into any material lease, contract or agreement of any
type, except for purchase orders covering inventory or supplies which are
entered into in the ordinary course of business after notice to JPM;
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6.4.18 institute any litigation (other than collection matters);
6.4.19 make any change in any method of accounting or accounting
principle, practice or policy affecting or relating to Denron; or
6.4.20 agree, whether in writing or otherwise, to do any of the
foregoing or do any act or thing which under the terms and conditions of
the Agreement would be in violation of any of the covenants or agreements
of Denron hereunder, or which would make any representation or warranty of
Denron hereunder inaccurate or untrue as of the Closing Date.
6.5 JPM's Affirmative Covenants.
---------------------------
From and after the date of the Agreement to and including the Closing Date
of the Merger, JPM covenants and agrees to:
6.5.1 use its best efforts to satisfy the conditions precedent to
the obligations of Denron specified in Article 9 hereof.
6.5.2 (i) conduct its business of JPM efficiently and consistent
with past business practices and use its best efforts to preserve its
current business organization, (ii) use its best efforts to keep available
the services of JPM's and its subsidiaries' present officers, employees,
consultants and agents, (iii) use its best efforts to maintain its present
business relationships with suppliers, customers, brokers, sales
representatives and such other persons or firms having business
relationships on the date hereof with JPM, and (iv) use its best efforts to
preserve JPM's and its subsidiaries' reputation and goodwill.
6.5.3 use its best efforts to comply with the provisions of all
laws, regulations, judicial decrees and orders applicable to it or, to the
conduct of its business.
6.5.4 maintain its books, records and accounts in its customary and
usual manner, and shall refrain from introducing methods of accounting
inconsistent with those used in prior periods.
6.5.5 use its best efforts to maintain in full force and effect all
policies of insurance in effect on the date of the Agreement.
6.5.6 maintain all of its properties in reasonable repair and
condition.
6.5.7 foreign and other tax returns and reports and amendments
thereto required to be filed.
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6.5.8 prepare and timely and properly prepare and file all federal,
state, local, foreign and other tax returns and reports and amendments
thereto required to be filed.
6.5.9 promptly advise Denron of any known threat or assertion or of
any commencement of any litigation to which JPM or any JPM Subsidiary is,
or may be made, a party, or by which JPM's properties may be affected.
6.5.10 use its best efforts to have the Majority Shareholders
released from any personal guarantees that they may have given with respect
to any Denron obligations as set forth on Schedule 6.5 hereto or, if such
------------
releases cannot be obtained, then Buyer shall indemnify the Majority
Shareholders with respect to such obligations.
6.6 JPM's Negative Covenants.
------------------------
JPM covenants and agrees that from and after the date of the Agreement
until the earlier of the Closing Date or the Termination Date, JPM will not:
6.6.1 increase the rate of compensation paid, or pay any bonus, to
any officer or executive of JPM, except for those increases or bonuses
planned, in the ordinary course of business consistent with past practices;
6.6.2 incur any material fixed or contingent obligation or enter
into any material agreement, commitment or other transaction or arrangement
with any of its officers or directors, or any Related Person, corporation
or other entity that is not in the ordinary course of business consistent
with past practices; or
6.6.3 declare any dividend or make any distribution or payment in
respect of its equity or shares of its capital stock or purchase or redeem
any equity interests or shares of its capital stock.
6.7 Consents.
--------
JPM shall, at its sole cost and expense (except as otherwise provided for
herein), obtain, prior to the Closing, all consents and estoppels necessary or
appropriate on its part for the Merger and the consummation of the transactions
contemplated hereby. All such consents and estoppels will be in writing and in
form and substance reasonably satisfactory to Denron, and executed counterparts
thereof will be delivered to Denron promptly after receipt thereof but in no
event later than the Closing.
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7. POST-CLOSING COVENANTS OF JPM AND THE DENRON SHAREHOLDERS
---------------------------------------------------------
7.1 Registration of Shares.
----------------------
Within ninety (90) days after the Closing, JPM shall file with the
Securities and Exchange Commission a Registration Statement on Form S-3, or
other applicable form, to register all shares of JPM Common Stock received by
the shareholders of Denron in exchange for their Denron Common Stock.
7.2 Disposition of Share Consideration.
----------------------------------
The Denron Shareholders covenant and agree that they will refrain from
disposing of any shares received pursuant to this Agreement for a period up to
publication of combined sales and net income covering a period of at least 30
days of post-Closing operations ("Publication"). Buyer shall notify the Denron
Shareholders, in writing, upon Publication, which includes, but is not limited
to, a Form 10-Q filing, a post-effective amendment, the issuance of a quarterly
earnings report or the issuance of a press release with sales and earnings
information.
For purposes of this Section 7.2 only, notice shall be deemed to be
effectively given upon (i) personal delivery, (ii) delivery by U.S. Express Mail
or other overnight courier service which provides evidence of delivery, (iii)
legible facsimile transmission, or (iv) the expiration of three (3) days
following deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the Denron Shareholders, c/o
Michael Denman, 2135 Ringwood Avenue, San Jose, CA 95131.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
------------------------------------------------
The obligations of Buyer hereunder shall be subject to the following
conditions, any or all of which may be waived in writing by Buyer:
8.1 Accuracy of Representations and Warranties.
------------------------------------------
Each of the representations and warranties of Denron contained herein shall
be true and correct on and as of the Closing Date with the same effect as though
made on and as of such date and Denron shall have performed and complied in all
respects with each of the agreements, covenants, stipulations, terms and
conditions contained herein and required to be performed or complied with by
them on or prior to the Closing Date.
8.2 No Material Adverse Change.
--------------------------
Since the Balance Sheet Date, there shall have been no material adverse
change in the financial condition, assets or liabilities of Denron.
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8.3 No Loss.
-------
Since the Balance Sheet Date, Denron shall not have suffered any loss on
account of fire, flood, accident, strike or other calamity which has a material
adverse effect on the financial condition or any assets of Denron, whether or
not such loss shall have been covered by insurance.
8.4 Sellers' Certificate.
--------------------
The President or Vice President of Denron shall have executed and delivered
to Buyer on the Closing Date a Certificate, dated that date, in form and
substance reasonably satisfactory to Buyer and its legal counsel, to the effect
that each of the provisions of Sections 8.1, 8.2 and 8.3 of this Article 8 is
true and correct in every respect.
8.5 No Injunction: Consents.
------------------------
No action, proceeding or investigation shall have been instituted or
threatened to set aside the transactions provided for herein or to enjoin or
prevent the consummation of the transactions contemplated hereby and all
required consents, authorizations, orders and approvals required to be obtained
by Denron for the consummation of the transactions contemplated hereby shall
have been secured.
8.6 Deliveries by Denron.
--------------------
Denron shall have delivered to JPM the following:
8.6.1 a good standing certificate and certified charter documents
of Denron, each of recent date from the Secretary of the State of
California and a good standing certificate for Denron of recent date from
each jurisdiction in which such entity is qualified to do business;
8.6.2 copies of the resolutions duly adopted by the Board of
Directors of Denron, authorizing the execution, delivery and performance of
the Denron Transaction Documents and the other agreements, instruments and
documents contemplated hereby and to be delivered hereunder, duly certified
by the Secretary or Assistant Secretary of Denron, which resolutions shall
be in full force and effect at the time of delivery on the Closing Date;
8.6.3 a certificate of incumbency executed by the President or any
Executive Vice President of Denron, and by the Secretary or any Assistant
Secretary of Denron, listing the officers of Denron authorized to execute
the Denron Transaction Documents and the other certificates, schedules and
the instruments to be delivered on behalf of Denron, and their respective
officer positions, and containing the genuine signature of each such person
set forth opposite his name;
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8.6.4 the Registration Rights Agreement duly executed by the
Denron Shareholders; and
8.6.5 the Plan of Merger, duly executed by Denron.
8.7 Opinion of Counsel.
------------------
Denron shall have furnished to Buyer and to any of Buyer's lenders
designated by Buyer, on the Closing Date, an opinion of its counsel Ferrari,
Olsen, Ottoboni & Bebb, substantially in the form of Exhibit C hereto. Buyer's
lenders shall be entitled to rely upon said opinion and, upon request of Buyer,
counsel to Denron shall address said opinion to Buyer.
8.8 Denron Shareholder Approval.
---------------------------
Shareholders of Denron owning 100% of Denron's Common Stock shall have
approved the Merger.
8.9 Consents and Proceedings.
------------------------
Denron shall have obtained all of the consents, authorizations, orders or
approvals required in order to execute and deliver the Denron Transaction
Documents and the other documents to be delivered by them hereunder and to
perform their obligations hereunder and thereunder and all actions, proceedings,
instruments and documents deemed necessary or appropriate by Buyer and its
counsel to effectuate the Agreement and the consummation of the transactions
contemplated hereby, or incidental thereto, shall have been obtained and all
other related legal matters shall have been approved by such counsel.
8.10 Resignations.
------------
Denron shall cause to be delivered at the Closing the resignations, to
become effective at the Effective Time of the Merger, of all of the Denron
directors and officers.
8.11 Employment Agreements.
---------------------
John M. Denman shall have executed and delivered to Buyer an Employment and
Noncompetition Agreement, substantially in the form of Exhibit D hereto (the
"Denman Employment Agreement"). Ronald C. Mills shall have executed and
delivered to Buyer an Employment and Noncompetition Agreement, substantially in
the form of Exhibit E hereto (the "R. Mills Employment Agreement"). Donald
Mills shall have executed and delivered to Buyer an Employment Agreement,
substantially in the form of Exhibit F hereto (the "D. Mills Employment
Agreement").
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8.12 Due Diligence.
-------------
Buyer shall be satisfied, in its sole discretion and without regard to
materiality, with the results of its due diligence with respect to the business,
operations, condition (financial or otherwise), assets or property of Denron and
without regard to any knowledge of such facts prior to execution of the
Agreement.
8.13 Uniform Commercial Code Searches.
--------------------------------
JPM shall have received from Denron Uniform Commercial Code searches (which
searches shall be made or caused to be made by Denron) of filings in all
jurisdictions where any assets of Denron are located, in form, scope and
substance reasonably satisfactory to Buyer and its counsel, shall not disclose
any liens, claims, security interests or encumbrances against any of such assets
disclosed thereby except liens, claims, security interests or encumbrances that
are reflected in the Audited Balance Sheet.
8.14 Accounting Matters.
------------------
The transactions contemplated herein by the Agreement shall have been
effectuated using the pooling method of accounting.
8.15 Registration Rights Agreement.
-----------------------------
Buyer shall have received an executed Registration Rights Agreement from
Denron.
8.16 JPM Shareholder Approval.
------------------------
The shareholders of JPM shall have approved the transactions contemplated
herein by the Agreement.
8.17 Tax Matters.
-----------
The transactions contemplated herein shall comply with the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code.
9. CONDITIONS TO THE OBLIGATIONS OF DENRON
---------------------------------------
The obligations of Denron shall be subject to the following conditions, any
or all of which may be waived in writing by Denron:
9.1 Accuracy of Representations and Warranties.
------------------------------------------
Each of the representations and warranties of Buyer set forth herein shall
be true and correct on and as of the Closing Date with the same effect as though
made on and as of such date
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and Buyer shall have in all respects performed and complied with each of the
agreements, covenants, stipulations, terms and conditions contained herein and
required to be performed or complied with by Buyer on or prior to the Closing
Date.
9.2 No Material Adverse Change.
--------------------------
There shall have been no material adverse change in the consolidated
financial condition, assets or liabilities of JPM and its subsidiaries from the
date of the Agreement until the Closing Date.
9.3 Officers' Certificates.
----------------------
An executive officer of each of JPM and JPM Acquisition shall have executed
and delivered to Denron on the Closing Date a Certificate, dated that date, in
form and substance reasonably satisfactory to Denron and its legal counsel, to
the effect that the provisions of Section 9.1 and Section 9.2 hereof are true
and correct in every respect.
9.4 Opinion of Counsel.
------------------
Buyer shall have furnished to Denron on the Closing Date an opinion of its
counsel, Duane, Morris & Heckscher, substantially in the form of Exhibit G
attached hereto.
9.5 No Injunction; Consents.
-----------------------
No action, proceeding or investigation shall have been instituted or
threatened to set aside the transactions provided for herein or to enjoin or
prevent the consummation of the transactions contemplated hereby and all
consents, authorizations, orders and approvals required to be obtained by JPM
for the consummation of the transactions shall have been secured.
9.6 Merger Consideration.
---------------------
The Merger Consideration described in Article 2 hereof shall be available
to the holders of the outstanding capital stock of Denron at the Closing Date of
the Merger.
9.7 Deliveries By Buyer.
-------------------
Buyers shall have delivered to Denron the following:
9.7.1 good standing certificates and certified charter documents
of JPM and JPM Acquisition, each of recent date, from the Commonwealth of
Pennsylvania and the State of California, respectively, and a good standing
certificate from each jurisdiction in which such entity is qualified to do
business; and
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9.7.2 copies of the resolutions duly adopted by the Board of
Directors and shareholders (if required) of JPM and JPM Acquisition
authorizing the execution, delivery and performance of the Agreement and
the other JPM Transaction Documents and the other agreements, instruments
and documents contemplated hereby, duly certified by the Secretary or
Assistant Secretary of JPM or JPM Acquisition, as the case may be, which
shall be in full force and effect at the time of delivery on the Closing
Date; and
9.7.3 a certificate of incumbency for each of JPM and JPM
Acquisition executed by the President or any Executive Vice President of
JPM or JPM Acquisition, as the case may be, and by the Secretary or any
Assistant Secretary of JPM or JPM Acquisition, as the case may be, listing
the officers of JPM or JPM Acquisition, as the case may be authorized to
execute (to the extent a party thereto) the Agreement, the Plan of Merger,
the Articles of Merger and other certificates, schedules and instruments to
be delivered on behalf of such corporation, and their respective officer
positions, and containing the genuine signature of each such person set
forth opposite his name.
9.7.4 the Registration Rights Agreement, Denman Employment
Agreement, the Ronald Mills Employment Agreement and the Donald Mills
Employment Agreement, each duly executed by JPM.
9.8 Since the Balance Sheet Date, Buyer shall not have suffered any loss
on account of fire, flood, accident, strike or other calamity which has a
material adverse effect on the financial condition or any assets of the Buyer,
whether or not such loss shall been covered by insurance.
9.9 Denron shall be satisfied, in its sole discretion and without regard
to materiality, with the results of its due diligence with respect to the
business, operations, condition (financial or otherwise), assets or property of
Buyer and without regard to any knowledge of such facts prior to execution of
the Agreement.
10. MUTUAL COVENANTS
----------------
10.1 Access To and Use of Information.
--------------------------------
From the date hereof to the Closing Date, each of Buyer and Denron and
their respective officers, directors, agents, lenders, employees and
representatives shall have the right at any time during normal business hours
(in a manner that does not unreasonably interfere with such other party's
business operations), with reasonable advance notice, to visit and inspect such
other party's offices, plants and properties and to examine and make excerpts
from its books, contracts, accounts and records, and to request and receive from
such party information concerning its business, operations and financial
conditions. No such visit, inspection, excerpting or receipt of information
shall affect in any manner any of the representations, warranties, covenants,
agreements or stipulations of Denron or Buyer under the Agreement or constitute
any waiver
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thereof by Buyer of Denron. Should the Merger not be consummated for any
reason, all information received from Denron by Buyer or from Buyer by Denron
shall be held in strict confidence by the other party and no such party shall
use any of such information itself nor disclose any such information to others
without the other party's written consent unless (i) the information in question
is, or becomes, public knowledge without fault of the disclosing party, or (ii)
was known to the disclosing party at the time obtained from Denron or Buyer, as
the case may be, or (iii) is rightfully obtained from a third party with no
restriction on disclosure. Even if inadvertent disclosure occurs under
circumstances other than those listed in clauses (i)-(iii) above, the disclosing
party shall not be liable therefore if they had accorded the disclosed
information the same degree of protection as their own information of a similar
nature.
10.2 Further Mutual Covenants.
------------------------
Buyer, on the one hand, and Denron, on the other hand, shall refrain from
taking any action which would render any representations or warranties contained
in Articles 3 or 4 of the Agreement inaccurate as of the Closing Date and shall
promptly notify the other party upon the happening of any event or taking of any
action which renders any such representation or warranty inaccurate. Each party
shall promptly notify the other of any action, suit or proceeding that shall be
instituted or threatened against such party to restrain, prohibit, or otherwise
challenge the legality of any transaction contemplated by the Agreement.
11. EXPENSES
--------
Except as set forth in this Article 11, Denron shall pay all fees and
expenses incurred by Denron and the Denron Shareholders in connection with the
transactions provided for hereunder, including the fees and expenses of Denron's
and the Denron Shareholders' counsel and accountants, any taxes (including
income and transfer taxes) and any tax resulting from the merger of JPM
Acquisition with Denron ("Denron Expenses"); provided, however, any fees and
--------
expenses incurred by Denron and the Denron Shareholders and paid by Denron in
excess of $130,000 shall be subtracted from the Share Consideration as set forth
in Article 2 herein unless the aggregate value of the Share Consideration, only
for purposes of calculating the Denron Expenses, exceeds $23,000,000, in which
case Buyer may, in its sole discretion, permit Denron to pay any Denron Expenses
that are in excess of $130,000. JPM shall pay all expenses incurred by it in
connection with the transactions provided for hereunder, including the fees and
expenses of its counsel and accountants.
12. TERMINATION
-----------
The Agreement and the Plan of Merger may be terminated and the transactions
contemplated hereby abandoned prior to Closing:
(i) by the mutual consent of JPM and the Majority Shareholders;
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(ii) by JPM if any condition in Article 8 (conditions precedent
to Buyer's obligation) becomes impossible of performance or has not been
satisfied in full or previously waived by Buyer in writing at or prior to
the Closing Date;
(iii) by Denron if any condition in Article 9 (conditions precedent
to Denron's obligation) becomes impossible of performance or has not been
satisfied in full or previously waived by Denron in writing at or prior to
the Closing Date; or
(iv) by either Buyer, Seller, or the Majority Shareholders if the
Closing has not occurred (other than through the failure of any party
seeking to terminate to comply fully with its obligations under the Merger
Agreement) on or before May 31, 1997, or such later date as the parties may
agree upon (the "Termination Date");
If the Agreement is terminated pursuant to clause (i) of this Article 12,
all obligations of the parties hereunder shall terminate without any further
liability or obligation of either party to the other, except that Articles 10
(Mutual Covenants), 11 (Expenses), 13 (Absence of Broker or Finder) and 14 (News
Release) of the Agreement shall survive and continue in full force and effect
and notwithstanding such termination, Buyer shall pay a maximum of $55,000 for
the fees and expenses incurred by Denron with respect to the financial audit of
Denron by Price Waterhouse dated December 31, 1996. Except as limited by the
preceding sentence, the exercise by any party of the right to terminate the
Agreement shall not terminate or limit any remedy that such party may have at
law or in equity by reason of another party's breach of any obligation hereunder
prior to such termination.
Compliance with the terms and conditions of the Agreement may be waived at
any time by the party entitled to the benefits thereof, but only by a written
instrument executed by the party waiving compliance. Any waiver by either party
hereto shall be without prejudice to such party's future assertion of such
rights, and any delay in exercising any right shall not operate as a waiver
thereof.
13. ABSENCE OF BROKER OR FINDER
---------------------------
Denron represents and warrants to Buyer that no person is acting or has
acted for them as broker or finder in connection with the transactions provided
for by the Agreement. Buyer represents and warrants to Denron that no person is
acting or has acted for it as broker or finder in connection herewith.
14. NEWS RELEASES
-------------
No notices to third parties or any publicity, including press releases,
concerning any of the transactions provided for herein shall be made unless
planned and coordinated jointly between Buyer and Denron, unless Buyer is
advised by counsel that a news release or disclosure is
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required by applicable law or appropriate and Buyer is unable to comply with the
terms of this Article 14 after making reasonable efforts to do so.
15. NOTICES
-------
Any notice, request, demand or other communication given by any party under
the Agreement (each a "notice") shall be in writing, may be given by a party or
its legal counsel, may be given by JPM Acquisition on behalf of JPM and by JPM
on behalf of JPM Acquisition and shall be deemed to be duly given (i) when
personally delivered, or (ii) upon delivery by United States Express Mail or
similar overnight courier service which provides evidence of delivery, or (iii)
when five (5) days have elapsed after its transmittal by registered or certified
mail, postage prepaid, return receipt requested, addressed to the party to whom
directed at that party's address as it appears below or another address of which
that party has given notice, or (iv) when transmitted by telex (or equivalent
service), the sender having received the answer back of the addressee, or (v)
when delivered by facsimile transmission if a copy thereof is also delivered in
person or by overnight courier. Notices of address change shall be effective
only upon receipt notwithstanding the provisions of the foregoing sentence.
Notice to JPM or JPM Acquisition shall be sufficient if given to:
The JPM Company
Route 15 North
Lewisburg, PA 17837
Telecopy: (717) 524-8187
with copies to: Scott C. Penwell, Esq.
Duane, Morris & Heckscher
305 North Front Street
P.O. Box 1003
Harrisburg, PA 17108-1003
Telecopy: (717) 232-4015
Notice to Denron shall be sufficient if given to:
Denron, Inc.
2135 Ringwood Avenue
San Jose, CA 95131
Telecopy: (408) 435-2661
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with copies to: Richard S. Bebb, Esq.
Ferrari, Olsen, Ottoboni & Bebb
333 West Santa Clara St.
Suite 700
San Jose, CA 95113-1787
Telecopy: (408) 280-0151
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION
------------------------------------------------------------
16.1 Survival of Representations and Warranties.
------------------------------------------
All representations, warranties, covenants, stipulations, certifications,
indemnities and agreements contained herein or in any document delivered
pursuant hereto shall survive the consummation of the transactions provided for
in the Agreement; provided, however, that all representations and warranties
shall expire and be extinguished upon the earlier of one year from the date of
Closing or the issuance of the first audited financial statements reflecting the
combined operations of Buyer and Seller.
16.2 Indemnification.
---------------
16.2.1 Denron and the Majority Shareholders shall jointly and
severally defend, indemnify and hold Buyer and Buyer's affiliates,
successors and assigns harmless from and against any and all claims,
including Third Party Claims as defined hereunder, liabilities, damages,
losses, deficiencies and expenses (including reasonable attorneys' fees and
expenses and costs of suit (including, but not limited to, reasonable
travel expenses and discovery costs for such matters as transcripts,
photocopying, subpoenas and telecopies))(individually a "Loss" and
collectively "Losses") arising out of any and all inaccurate
representations and warranties and out of any and all breaches of
covenants, agreements and certifications made by Denron or the Majority
Shareholders in the Agreement or in any document delivered by Denron or the
Majority Shareholders hereunder. Prior to the Effective Time, Denron shall
not be obligated to defend, indemnify and hold Buyer harmless in respect of
Losses subject to indemnification hereunder. After the Effective Time,
Denron shall be obligated to defend, indemnify and hold Buyer harmless in
respect of Losses.
16.2.2 Buyer shall defend, indemnify and hold Denron, the Denron
Shareholders, and their successors and assigns harmless from and against
any and all Losses arising out of any and all inaccurate representations
and warranties and out of any and all breaches of covenants, agreements and
certifications made by Buyer in the Agreement or in any document delivered
by Buyer hereunder or pursuant to this transaction.
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16.3 Indemnification with Respect to Third Party Claims.
--------------------------------------------------
16.3.1 Definition.
----------
As used herein, "Third Party Claim" means a Loss or potential Loss for
which indemnification is claimed by the Buyer under the provisions of this
Article 16 and which is consequent to a claim against the Buyer by a
person, corporation, association, partnership, or other business
organization or an individual or a government, any political subdivision
thereof or a governmental agency by commencement against Buyer of a legal
action or proceeding or receipt by Buyer of an assertion of a claim for
which indemnification is provided pursuant to this Article 16.
16.3.2 Notice of Claim.
---------------
Buyer will give notice of a Third Party Claim to the Denron
Shareholders in the manner provided herein together with, if such Third
Party Claim is subject to arbitration pursuant to Section 16 hereof, demand
for arbitration, stating the nature thereof and enclosing copies of any
complaint, summons, written assertion of such Third Party Claim or similar
document. No claim for indemnification on account of a Third Party Claim
shall be made and no indemnification therefore shall be available under
this Article 16 until Buyer shall have given initial written notice of its
claim to the Denron Shareholders.
16.3.3 Retention of Counsel by the Denron Shareholders.
-----------------------------------------------
Except as hereinafter provided (including, but not limited to, Section
16.3.4(ii) hereof), the Denron Shareholders shall have the right to engage
counsel and to defend a Third Party Claim, provided, that the Denron
Shareholders shall have provided notice to Buyer not later than thirty (30)
business days following delivery by the Buyer to the Denron Shareholders of
a notice of a Third Party Claim of their election to defend. Buyer will
fully cooperate with such counsel. The Denron Shareholders will cause such
counsel to consult with the Buyer as appropriate, as to the defense of such
claim, and the Buyer may, at its own expense, participate in such defense,
assistance or enforcement, but the Denron Shareholders shall control such
defense, assistance or enforcement. The Denron Shareholders will cause
such counsel engaged by the Denron Shareholders to keep the Buyer, as
appropriate, informed at all times of the status of such defense,
assistance or enforcement.
16.3.4 Employment of Counsel by the Buyer.
----------------------------------
(i) Notwithstanding the provisions of Section 16.3.3, Buyer shall
have the right to engage counsel and to control the defense of a Third
Party claim if the Denron Shareholders shall not have notified Buyer
of their appointment of counsel and control of the defense of a Third
Party Claim pursuant to Section 16.3.3 within the time period therein
provided.
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(ii) Notwithstanding the engagement of counsel by the Denron
Shareholders pursuant to Section 16.3.3, Buyer shall have the right,
at its own expense, to engage counsel to participate jointly with the
Denron Shareholders pursuant to Section 16.3.3 in, and to control
jointly with the Denron Shareholders, the defense of a Third Party
Claim if (x) the Third Party Claim involves remedies other than
monetary damages and such remedies, in Buyer's reasonable judgment,
could have an effect on the conduct of Denron's or Buyer's business or
(y) the Third Party Claim relates to acts, omissions, conditions,
events or other matters occurring after the Closing Date as well as to
acts, omissions, conditions, events or other matters occurring prior
to the Closing Date.
(iii) If Buyer chooses to exercise its right to appoint counsel
under this Section 16.3.4, Buyer shall deliver notice thereof to the
Denron Shareholders setting forth in reasonable detail why it believes
that it has such right and the name of the counsel it proposes to
employ. Buyer may deliver such notice at any time that the conditions
to the exercise of such right appear to be fulfilled, it being
recognized that in the course of litigation, the scope of litigation
and the amount at stake may change. Buyer shall thereupon have the
right to appoint such counsel.
(iv) The reasonable fees and expenses of counsel and any
accountants, experts or consultants engaged by Buyer in accordance
with the provisions of Section 16.3.4(i) in connection with defending
a Third Party Claim shall be paid by Denron in accordance with the
provisions of this Article 16. If Buyer's employment of counsel is
for a Third Party Claim of the type described in subdivision (ii)(y)
of this Section 16.3.4, then subject to the provisions of Section
16.3.4, the amount of fees and expenses so payable by the Denron
Shareholders shall be that fraction of the aggregate of such fees and
expenses, the numerator of which is the portion of the amount of any
judgment on, or settlement of, such Third Party Claim for which the
Buyer is indemnified pursuant to this Article 16 and the denominator
of which is the total amount of such judgment or settlement, but
provided further, if such defense of a Third Party Claim is successful
-----------------
(in the sense that as a consequence thereof, there is no Loss (other
than such fees and expenses) for which Buyer is indemnified pursuant
to this Article 16), Buyer and Denron will attempt in good faith to
reach an agreement on the amount of such fees and expenses so payable
by Denron. Any dispute arising under this Section 16.3.4 shall be
resolved by arbitration.
16.3.5 Settlement of Third Party Claims.
--------------------------------
(i) The Denron Shareholders may settle any Third Party Claim
solely involving monetary damages only if the amount of such
settlement is to be paid entirely by the Denron Shareholders pursuant
to this Article 16.
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<PAGE>
(ii) The Denron Shareholders will not enter into a settlement
of a Third Party Claim which involves a non-monetary remedy or which
will not be paid entirely by the Denron Shareholders pursuant to this
Article 16 without the written consent of Buyer.
(iii) Buyer shall be free to compromise, defend and settle
Third Party Claims without prejudice to any of its rights hereunder or
under applicable law provided, however, that if a claim is settled
without concurrence of the Denron Shareholders, the liability of the
Denron Shareholders to Buyer, if any, shall be resolved by arbitration
in accordance herewith.
(iv) As to any Third Party Claim of the type described in
subsection (ii)(y) of Section 16.3.4, Buyer and the Denron
Shareholders shall consult as to any proposed settlement. If Buyer
notifies the Denron Shareholders that it wishes to accept a proposed
settlement and the Denron Shareholders are unwilling to do so, if the
amount for which the Third Party Claim is ultimately resolved is
greater than the amount for which Buyer desired to settle, then (x)
Buyer shall be liable only for the amount, if any, which it would have
paid had the Third Party Claim been settled as proposed by Buyer, and
(y) all reasonable attorneys' fees and expenses and costs of suit
incurred by Buyer subsequent to the time of the proposed settlement
shall be paid or reimbursed by the Denron Shareholders.
(v) In determining whether to accept or reject any
settlement proposal, each party shall act in good faith and with due
regard for the reasonable commercial and financial interests of the
other.
16.3.6 Claims as to Which Indemnification is Partially Payable.
-------------------------------------------------------
Notwithstanding the foregoing, in the event of any settlement of, or
final judgment with respect to, a Third Party Claim which relates to acts,
omissions, conditions, events or other matters occurring both before and
after the Closing Date, the Buyer and the Denron Shareholders shall
negotiate in good faith as to the portion of such Third Party Claim as to
which such indemnification is payable and any dispute arising therefrom
shall be resolved by arbitration.
16.3.7 Cooperation, etc.
----------------
JPM and the Denron Shareholders shall cooperate with one another in
good faith in connection with the defense, compromise or settlement of any
claim or action. Without limiting the generality of the foregoing, the
party controlling the defense or settlement of any matter shall take steps
reasonably designed to ensure that the other party and its counsel are
informed at all times of the status of such matter. Neither party shall
dispose of, compromise or settle any claim or action in a manner that is
not reasonable under the circumstances and in good faith. The Denron
Shareholders shall enter into such
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<PAGE>
Confidentiality and other non-disclosure agreements as Buyer shall
reasonably request in order to protect trade secrets and other confidential
or proprietary information of Denron and Buyer. Buyer shall make available
to the Denron Shareholders, upon request, all information reasonably
necessary for the Denron Shareholders to evaluate or respond to any claim,
investigation or action relating to the period prior to the Closing or to a
claim for indemnification.
16.4 Limitation on Denron and the Majority Shareholders' Obligation to
-----------------------------------------------------------------
Indemnify.
- ---------
Denron and the Majority Shareholders shall have no indemnification
obligation to Buyer for breaches of the representations and warranties of Denron
and the Majority Shareholders unless and until the total amount of all Third
Party Claims for breaches of representations and warranties exclusive of any
reserves or limitations otherwise provided for herein shall exceed $100,000, and
then only to the extent of the amount of such excess. The aggregate
indemnification liability of Denron and the Majority Shareholders for
misrepresentations and breaches of warranty shall not exceed an amount equal to
ten per cent (10%) of the aggregate value of the Share Consideration as
calculated on the Closing Date. The limits imposed by this section shall not
apply to breaches of any representation and warranty of Denron and the Majority
Shareholders of which Denron or the Majority Shareholders had Knowledge at any
time prior to the Effective Time or any intentional breach by Denron or the
Majority Shareholders of any covenant or obligation. In the event the Denron
Shareholders are required to make any payments to JPM in satisfaction of an
indemnification obligation, such payment may be paid at each Denron
Shareholder's several election, in the form of return of JPM Common Stock valued
at the Closing Price on the date such payment is made.
16.5 Limitation on Buyer's Obligation to Indemnify.
---------------------------------------------
Buyer shall have no indemnification obligation to Denron for breaches of
the representations and warranties of Buyer unless and until the total amount of
all Third Party Claims for breaches of representations and warranties exclusive
of any reserves or limitations otherwise provided for herein shall exceed
$100,000, and then only to the extent of the amount of such excess. The
aggregate indemnification liability of Buyer for misrepresentations and breaches
of warranty shall not exceed an amount equal to ten per cent (10%) of the
aggregate value of the Share Consideration as calculated on the Closing Date.
The limits imposed by this section shall not apply to breaches of any
representation and warranty of Buyer of which Buyer had Knowledge at any time
prior to the Effective Time or any intentional breach by Buyers of any covenant
or obligation.
17. COOPERATION; FURTHER ASSURANCES
-------------------------------
Each party to the Agreement agrees to cooperate fully with the other
parties hereto and their counsel and accountants and other representatives, will
use best efforts to cause satisfaction of the conditions to consummation of the
Merger as promptly as possible, and will refrain from
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<PAGE>
a course of action inconsistent with the Agreement or the Plan of Merger. Each
party shall, upon request of any of the other parties hereto, at any time and
from time to time execute, acknowledge, deliver and perform all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
instruments of further assurances as may be necessary or appropriate to carry
out the provisions and intent of the Agreement or the Plan of Merger.
18. MISCELLANEOUS
-------------
18.1 Dispute Resolution.
------------------
18.1.1 The Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania without regard to any jurisdiction's
conflicts of laws provisions.
18.1.2 (i) Any controversy, dispute or claim arising out of or
relating to the Agreement, or any modification, amendment or extension
thereto, or the breach thereof, including any claim to rescind or set
aside any of the same (individually a "Claim" and collectively
"Claims"), shall be settled by arbitration conducted in Denver,
Colorado, in accordance with the provisions of this Section 18.1 and
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") and each party hereby submits to
jurisdiction in Denver, Colorado and waives all right to challenge the
appropriateness of such venue. To the extent that any of the
Commercial Arbitration Rules of the AAA conflict with the provisions
of the Agreement, the provisions of the Agreement shall take
precedence. The parties retain the right to seek and obtain interim
relief pending receipt of an award in accordance with the terms of
this Section for the purpose of maintaining and preserving the status
quo. Subject only to any right of any party hereto which may exist to
modify or vacate the award as may be provided by the statutes of the
Commonwealth of Pennsylvania, respectively, the award rendered by the
Arbitration Panel (as hereafter defined) shall be final and binding as
between the parties hereto and their heirs, executors, administrators,
successors and assigns, and judgment on the award may be entered by
any court having jurisdiction thereof.
(ii) The parties hereto agree that notwithstanding, and in
addition to, the rights and remedies available hereunder, each of
Buyer, on the one hand, and Denron, on the other hand, reserves the
right to seek and obtain temporary restraining orders or other
emergency temporary or preliminary equitable injunctive relief from
the courts of the Commonwealth of Pennsylvania situated in Dauphin
County or the federal courts situated in the Middle District of
Pennsylvania, to preserve the status quo by enjoining or restraining a
party hereto pending final and binding arbitration hereunder and the
parties hereto acknowledge and agree to the right to seek such relief.
The parties hereto expressly agree and acknowledge that no judicial
proceeding relating to the subject matter of the arbitration shall be
deemed a waiver of any party's right to arbitrate nor shall the
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<PAGE>
existence or exercise of such right be deemed to be an adequate remedy
at law in connection therewith.
(iii) Claims shall be heard and decided, and awards rendered on
such Claims by a panel of three (3) arbitrators (the "Arbitration
Panel") appointed in accordance with the provisions hereof. The
decision of a majority of the arbitrators comprising the Arbitration
Panel shall govern on any matter and be the decision of the
Arbitration Panel. In case of any question arising as to the
interpretation of these arbitration provisions or the AAA Commercial
Rules of Arbitration applicable to any arbitration effected hereunder,
the decision of a majority of the members of the Arbitration Panel
shall be the final award of the Arbitration Panel, except that no
decision or input of or notice to the Arbitration Panel shall be
required in order for Buyer to request and obtain the interim relief
set forth in Section 18.1.2(ii) hereof. In the event of the death or
disability of any arbitrator pending final resolution of the Claim, a
replacement arbitrator shall be chosen by the party who originally
designated such arbitrator, within fifteen (15) days following notice
of such death or disability.
(iv) If any party hereto has a Claim and desires to arbitrate
such Claim, such party (the "Claimant") shall give written notice (the
"Notice") of the Claim and of its intention to arbitrate to the other
party (the "Respondent") and simultaneously with the giving of the
Notice to the Respondent, the Claimant shall file, at the regional
office of the AAA located in Denver, Colorado (or, should such
regional office no longer exist, at the regional office of the AAA
located closest to Denver, Colorado) (a) three (3) copies of the
Notice or demand for arbitration, (b) three (3) copies of this Section
18.1.2 of the Agreement, and (c) the appropriate administrative fee as
provided in the Administrative Fee Schedule of the AAA. The Notice
shall contain a brief statement setting forth the nature of the Claim,
the amounts involved, if any, and the remedy sought and shall
designate one arbitrator chosen by the Claimant who shall be an active
member in good standing of the bar of the State of Colorado.
(v) Within twenty (20) days following delivery of the Notice to
the Respondent, the Respondent may file an answering statement (the
"Answering Statement"), in duplicate, with the AAA. In the event the
Respondent elects to file an Answering Statement with the AAA, the
Respondent shall, at the same time, deliver a copy of the Answering
Statement to the Claimant. If a counterclaim is asserted, the
Answering Statement shall contain a statement setting forth the nature
of the counterclaim, the amount involved, if any, and the remedy
sought, and the appropriate fee as provided in the Administrative Fee
Schedule of the AAA shall be delivered to the AAA when the Answering
Statement is filed. If no Answering Statement is filed within the
twenty- (20-) day period following receipt of the Notice by the
Respondent, it shall be deemed as a denial by Respondent of the Claim
and further shall be deemed a complete waiver of any
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<PAGE>
counterclaim, including the right to set-off. Failure to file an
Answering Statement shall not operate to delay the arbitration.
(vi) Within twenty (20) days following delivery of the Notice
to the Respondent, the Respondent shall choose one (1) arbitrator who
shall be an active member in good standing of the bar of the State of
Colorado. If the Respondent shall fail to choose an arbitrator within
such twenty (20) day period, then the AAA shall, within twenty (20)
days following receipt of notice of such fact by the Claimant, select
one (1) arbitrator on behalf of Respondent from its National Panel of
Commercial Arbitrators to serve on the arbitration Panel and further
shall choose the third arbitrator to serve on the Arbitration Panel
from its National Panel of Commercial Arbitrators. If the Respondent
names an arbitrator in compliance with this Subsection (vi) within
such twenty- (20-) day period, then the AAA shall, within twenty (20)
days following receipt of notice of such appointment from either
Claimant or Respondent, select one arbitrator from its National Panel
of Commercial Arbitrators to serve as the third arbitrator on the
Arbitration Panel. In the event the AAA shall fail to select one or
more of the arbitrators required by this Section to be selected by it,
then either party, upon three (3) days' notice to the other party, may
request the Presiding Judge of the Denver County Court or the Denver
District Court as required by governing rules of civil procedure
regarding the amount in controversy to choose and appoint one or two
arbitrators, as the case may be, to fill the vacancy(ies) on the
Arbitration Panel. Any such arbitrator shall be an active member in
good standing of the Bar of the State of Colorado.
(vii) The Arbitration Panel, when duly appointed, shall
investigate the facts and shall hold a hearing within sixty (60) days
following such appointment, and, at such hearing, shall permit the
parties to the Agreement to present evidence and arguments. In
connection therewith, the parties agree that each may conduct
discovery to the extent and in the manner allowed by the Federal Rules
of Civil Procedure within the confines of the expedited procedures
provided for herein and further that any discovery conducted during
the emergency or temporary equitable relief or injunctive proceedings
permitted hereby may be utilized by the parties in the arbitration
proceeding. The arbitrators selected shall, as a condition of
appointment, agree to hear the case within sixty (60) days of
appointment and on consecutive days until concluded. The award shall
be rendered by the Arbitration Panel not later than fifteen (15) days
from the date of the closing of the hearing.
(viii) Except as otherwise provided herein, the fees and
expenses of the AAA and the Arbitration Panel shall be borne equally
by the parties in accordance with the applicable provisions of the
Commercial Arbitration Rules of the AAA. Except as may be otherwise
provided in Section 16 (Indemnification) hereof, each party shall bear
its own attorneys' fees and expenses and the fees and expenses of
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<PAGE>
other experts or professionals utilized by such party in connection
with the arbitration provided for herein.
18.2 Counterparts/Use of Facsimiles.
------------------------------
The Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute a single
agreement. The reproduction of signatures by means of a telecopying device
shall be treated as though such reproductions are executed originals and each
party hereto covenants and agrees to provide the other parties with a copy of
the Agreement bearing original signatures within five (5) days following
transmittal by facsimile.
18.3 Entire Agreement.
----------------
The Agreement constitutes the entire agreement of the parties hereto
respecting its subject matter and supersedes all negotiations, preliminary
agreements and prior or contemporaneous discussions and understandings of the
parties hereto in connection with the subject matter hereof. The Agreement may
be amended, modified, or supplemented only by a writing signed by all parties by
their duly authorized representatives. Any party may waive the benefit of a
term or condition of the Agreement and such waiver will not be deemed to
constitute the waiver of another breach of the same, or any other, term or
condition. The headings in the Agreement are for reference purposes only and
shall not affect the meaning or interpretation of any provision of the
Agreement.
18.4 No Presumption Against Draftsman.
--------------------------------
There shall be no presumption against any party on the ground that such
party or its counsel was responsible for preparing the Agreement or any part
hereof.
19. SUCCESSORS AND ASSIGNS
----------------------
The Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and assigns of the parties hereto but,
except as provided for in this Article 19 hereof, shall not be assigned by any
party hereto without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may collaterally assign any or all of its
rights, including, but not limited to, its rights to be indemnified under the
Agreement, to one or more persons or entities who provide funds to Buyer in
connection with the transactions contemplated by the Agreement.
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<PAGE>
20. EFFECT OF INVESTIGATION
-----------------------
Any inspection, preparation, or compilation of information or schedules, or
audit of the inventories, properties, financial condition, or other matters
relating to Denron or Buyer conducted by or on behalf of Buyer or Denron, as the
case may be, pursuant to the Agreement shall in no way limit, affect, or impair
the ability of Buyer, on the one hand, or Denron and the Denron Shareholders on
the other hand to rely upon the representations, warranties, covenants, and
agreements of Denron and the Denron Shareholders or Buyer set forth herein. All
statements contained in any certificate, exhibit or schedule delivered by or on
behalf of Buyer or Denron pursuant to the Agreement shall be deemed
representations and warranties hereunder by Buyer or Denron, as the case may be.
Any disclosure made on one schedule shall be deemed made on all schedules,
provided an appropriate cross-reference is made.
IN WITNESS WHEREOF, each of the parties has executed or caused the
Agreement to be executed by its duly authorized officer and has caused its
corporate seal or stamp to be affixed hereto and attested by its Secretary or
Assistant Secretary or other authorized person, as of the date first above
written.
ATTEST: THE JPM COMPANY
- -------------------- By:
Authorized Officer --------------------------------
Its:
-------------------------------
ATTEST: JPM ACQUISITION COMPANY
- -------------------- By:
Authorized Officer --------------------------------
Its:
-------------------------------
ATTEST: DENRON, INC.
- -------------------- By:
Authorized Officer --------------------------------
Its:
-------------------------------
DENRON SHAREHOLDERS
-----------------------------------
RONALD C. MILLS
-----------------------------------
JOHN M. DENMAN
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<PAGE>
------------------------------
LINDA DENMAN
------------------------------
MARITA MILLS
------------------------------
HERBERT RENZ
------------------------------
IRMA RENZ
------------------------------
VIVA DENMAN
------------------------------
HAROLD RENZ
------------------------------
JOSEPH HAROLD, JR.
------------------------------
PAMELA KAY WARD
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<PAGE>
EXHIBIT A
PLAN OF MERGER
THIS PLAN OF MERGER, dated ___________, 1997, between DENRON, a California
corporation (hereinafter sometimes called "Company"), THE JPM COMPANY, a
Pennsylvania corporation (hereinafter sometimes called "JPM" or "Parent"),and
JPM ACQUISITION, INC., a California corporation, (hereinafter sometimes called
"Acquisition"; Company, JPM and Acquisition being hereinafter sometimes called
the "Constituent Corporations").
WITNESSETH:
WHEREAS, Company is a corporation organized and existing under the laws of
the State of California, with its registered office at 2135 Ringwood Avenue, San
Jose, California 95131; and
WHEREAS, JPM is a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania with its registered office at Route 15 North,
Lewisburg, Pennsylvania 17837; and
WHEREAS, Acquisition is a corporation organized and existing under the laws
of the State of California, with its principal executive office located at Route
15 North, Lewisburg, Pennsylvania 17837; and
WHEREAS, the authorized capital stock of Company consists of 5 million
shares of common stock, without par value (the "Company Common Stock"), 750,000
shares of which are issued and outstanding and no shares of which are held in
the treasury of Company; and
WHEREAS, the authorized capital stock of Acquisition consists of 100 shares
of common stock, no par value per share (the "Acquisition Common Stock"), 1
share of which is issued and outstanding on the date hereof and no shares of
which are held in the treasury of Acquisition; and
WHEREAS, the Constituent Corporations have entered into a Merger Agreement
dated February 21, 1997, (the "Agreement"), providing for, among other things,
the execution and acknowledgment of this Plan of Merger and for the merger of
Acquisition with and into Company, with Company as the surviving corporation
(the "Merger"), upon the terms set forth in the Agreement and this Plan of
Merger; and
WHEREAS, the respective Boards of Directors of the Constituent Corporations
deem the Merger to be desirable and in the best interests of each of the
Constituent Corporations and their respective shareholders and have approved the
Agreement, the Merger and this Plan of Merger by resolutions duly adopted and
have directed that the Plan of Merger be submitted to a vote of their respective
shareholders entitled to vote thereon for consideration and action with respect
thereto;
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and of the mutual
promises, stipulations, agreements, covenants and conditions herein contained,
and for the purpose of stating the terms and conditions of the Merger, the mode
of carrying the same into effect, the manner of converting the shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time (as
hereinafter defined) of the Merger into JPM Common Stock (as hereinafter
defined), subject to the fulfillment of certain conditions as described in the
Agreement, and the manner of converting the shares of Acquisition Common Stock
issued and outstanding immediately prior to the Effective Time into shares of
Company Common Stock, and such other details and provisions as are deemed
desirable and in accordance with the applicable provisions of the California
Corporations Code of the State of California and the Business Corporation Law of
the Commonwealth of Pennsylvania, the parties hereto agree as follows, intending
to be legally bound hereby:
1. Merger
------
At the Effective Time on the Effective Date of the Merger (each as
hereinafter defined), Acquisition shall be merged with and into Company, with
Company (hereinafter sometimes called the "Surviving Corporation") as the
surviving corporation of the Merger. Subject to and consistent with the terms
and conditions herein provided, Articles of Merger prepared in accordance with
this Plan of Merger and in accordance with the provisions of the California
Corporations Code shall be executed and filed with the Secretary of State of the
State of California on the Effective Date. Following the Effective Time of the
Merger, the corporate existence of Company shall continue unaffected and
unimpaired, and as the Surviving Corporation of the Merger, Company shall
continue to be a corporation governed by the laws of the State of California.
The Merger shall become effective at the time (the "Effective Time") and on
the date (the "Effective Date") that the Articles of Merger shall have been
filed with the Secretary of State of the State of California.
2. Articles of Incorporation
-------------------------
At the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated in their entirety so that the same
shall read in full as set forth in the Amended and Restated Articles of
Incorporation of the Company attached hereto as Exhibit I. Said Articles, as so
amended and restated, shall be and remain the Articles of Incorporation of the
Surviving Corporation until amended in accordance with applicable law.
3. Bylaws
------
At the Effective Time, the bylaws of Company shall be amended and restated
in their entirety so that the same shall read in full as set forth in the
Amended and Restated Bylaws of the Company attached hereto as Exhibit II. Said
Bylaws, as so amended and restated, shall be
-2-
<PAGE>
and remain the Bylaws of the Surviving Corporation until amended in accordance
with applicable law.
4. Board of Directors and Officers
-------------------------------
The directors of the Surviving Corporation from and after the Effective
Time shall be John H. Mathias, James P. Mathias and Janet B. Mathias. The
officers of the Surviving Corporation from and after the Executive Time shall
be:
John H. Mathias - President and Secretary
William D. Baker - Chief Financial Officer
5. Manner of Converting and Exchanging Shares
------------------------------------------
5.1 The manner of converting and exchanging the Company Common Stock shall
be as follows:
Each share of Company Common Stock issued and outstanding on the Effective
Date shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted as follows:
5.1.1 Stock Exchange. At the Effective Time, all of the
shareholders of the Company (the "Company Shareholders") shall exchange
their shares of Company common stock, no par value, ("Company Common
Stock") for shares of common stock, par value $ .000067 per share, of JPM
("JPM Common Stock"). Each Company Shareholder shall receive that pro rata
portion of JPM Common Stock issued in the transaction, that the amount of
Company Common Stock he or she currently holds bears to all of the
outstanding Company Common Stock. After the exchange of Company Common
Stock for JPM Common Stock, all outstanding shares of Company Common Stock
formerly held by the Company Shareholders shall be cancelled.
5.1.2 Consideration. The aggregate number of shares of JPM Common
Stock which the Company Shareholders will receive ("Share Consideration")
shall be determined in accordance with the terms of the Agreement.
5.1.3 The Share Consideration shall be payable at the Closing and
upon surrender of the certificates therefore.
5.2 The manner of converting and exchanging the shares of Acquisition
Common Stock shall be as follows:
-3-
<PAGE>
5.2.1 At the Effective Time, each share of common stock, no par
value per share, of Acquisition ("Acquisition Common Stock") issued and
outstanding immediately prior thereto shall be converted into one share of
Company Common Stock.
6. Rights and Obligations
----------------------
At the Effective Time of the Merger, the separate existence of Acquisition
shall cease and in accordance with the terms of the Agreement and this Plan of
Merger, Company shall possess and be vested with all of the rights, privileges,
franchises, immunities and powers and all property (real, personal or mixed) of
Acquisition, debts due to Acquisition, choses in action and all other things
belonging to Acquisition, and Company shall be subject to all of the
restrictions, liabilities, disabilities and duties of Acquisition.
The identity, existence, purposes, powers, objects, franchises, privileges,
rights and immunities of Company shall continue unaffected and unimpaired by the
Merger.
7. Multiple Counterparts; Titles
-----------------------------
For the convenience of the parties hereto and to facilitate the required
filing of documents, any number of counterparts of this Plan of Merger may be
executed, and each such counterpart shall be deemed to be an original
instrument.
The titles of the Articles of this Plan of Merger are inserted for
convenience of reference and shall note affect the meaning of the terms hereof.
8. Abandonment of Merger
---------------------
Notwithstanding the approval of this Plan of Merger by the shareholders of
either or both of the Constituent Corporations, this Plan of Merger may be
terminated and the Merger abandoned at any time prior to the Effective Date of
the Merger in the manner and upon the conditions set forth in the Agreement.
9. Termination of Merger by Expiration of Time
-------------------------------------------
In the event that the Effective Date of the Merger does not occur on or
before May 31, 1997, this Plan of Merger shall terminate without any action on
the part of either of the parties hereto.
10. Amendments
----------
Prior to the Effective Time, the Boards of Directors of the Constituent
Corporations may amend this Plan of Merger, except that any amendment made
subsequent to the adoption of the Plan by the shareholders of any Constituent
Corporation shall not change:
-4-
<PAGE>
10.0.1 the amount or kind of shares, obligations, cash, property or
rights to be received in exchange for or on conversion of all or any of the
shares of the Constituent Corporation;
10.0.2 any term of the Articles of Incorporation of the Surviving
Corporation to be effective by the Merger; or
10.0.3 any of the terms and conditions of this Plan of Merger if the
change would adversely affect the holders of any shares of the Constituent
Corporations.
IN WITNESS WHEREOF, each of the Constituent Corporations has caused this
Plan of Merger to be signed by a duly authorized officer in accordance with the
California Corporations Code of the State of California and the Business
Corporation Law of the Commonwealth of Pennsylvania and attested by the
signature of its Secretary or an Assistant Secretary, all as of the day and year
first above written.
ATTEST: DENRON, INC.
By:
- ----------------------------- --------------------------
Authorized Officer
Its:
-------------------------
[CORPORATE SEAL]
ATTEST: THE JPM COMPANY
By:
- ----------------------------- --------------------------
Authorized Officer
Its:
-------------------------
[CORPORATE SEAL]
-5-
<PAGE>
ATTEST: JPM ACQUISITION COMPANY
By:
- ----------------------------- --------------------------
Authorized Officer
Its:
-------------------------
[CORPORATE SEAL]
-6-
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT, made this ______th day of ________, 1997, among and between
JOHN M. DENMAN, LINDA E. DENMAN, RONALD C. MILLS, MARITA MILLS, HERBERT RENZ,
IRMA RENZ, VIVA DENMAN, HAROLD RENZ, JOSEPH HAROLD, JR., AND PAMELA KAY WARD
(individually, each a "Holder" and collectively, the "Holders") and THE JPM
COMPANY, a Pennsylvania corporation (the "Company").
WITNESSETH:
WHEREAS, Holders, at the Effective Time as defined in the Agreement and
Plan of Merger by and among the Company, JPM Acquisition Company, and Denron,
Inc. (the "Merger Agreement"), shall be the record and beneficial holders of a
certain number of shares (the "Shares") of the Company's shares of common stock,
par value $.000067 per share ("Common Stock") as calculated pursuant to the
Merger Agreement and issued at the Effective Time; and
WHEREAS, Holders desire to have the Shares subject to the rights described
herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same are in effect from time to time;
(b) The terms "Commission" means the Securities and Exchange
Commission or any other federal agency at the time primarily responsible for
administering the Securities Act;
(c) The term "Registrable Securities" means (1) the Shares, and
(2) any capital stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
Shares, in each case, which are held by a Holder.
2. Registration Under the Act. Within ninety (90) days following
--------------------------
the closing as defined in the Merger Agreement, the Company shall file a
registration statement on Form S-3, or other applicable form, under the Act
(subject to obtaining all necessary consents from independent public accountants
required to file such registration statement and assuming that there are no
other circumstances not within the control of the Company that would prohibit
such
<PAGE>
registration), covering the registration of all of the Registrable Securities
then outstanding, and the Company shall use its best efforts to cause such
registration statement to be declared effective under the Act.
3. Holders shall promptly notify the Company of sales made pursuant
to any registration statement filed pursuant to this Agreement.
4. Registration Procedures. Whenever required under Paragraph 2 to
-----------------------
use its efforts to effect the registration of any Registrable Securities, the
Company shall:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective; provided,
however, that in connection with any proposed registration under Paragraph
2, the Company shall in no event be obligated to cause any such
registration to remain effective for more than twenty-four (24) months,
excluding any suspension of such effectiveness occurring as a result of an
event described in the next succeeding sentence of this Section 4(a). In
connection therewith, the Company shall use its best efforts to notify
Holders of the happening of any event during the period a registration
statement is effective which makes any statement made in such registration
statement or the related prospectus untrue in any material respect or which
requires the making of any changes in such registration statement or
prospectus so that, as of such date, the statements therein are not
misleading and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (which
advice shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made) and use best
efforts, consistent with Company's past practices, to prepare a supplement
or post-effective amendment to a registration statement or the related
prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, such prospectus will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
--------
that the Company shall not be required to update, pursuant to this Section
4, any such document during a period where the Company shall, in good faith
and using reasonable business judgment, believe that the premature
disclosure of any event or information would have a material effect on the
Company.
Each Holder agrees that, upon receipt of any such notice from the
Company of the happening of any event of the kind described herein, such
Holder will forthwith discontinue disposition of Registrable Securities
pursuant to such registration statement until such Holder's receipt of the
copies of the supplemented or amended prospectus, and, if so directed by
the Company, such Holder will deliver to the Company (at its expense) all
copies in its possession, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
-2-
<PAGE>
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such United States jurisdictions as shall be reasonably
requested by Holders for the distribution of the securities covered by the
registration statement, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and further provided that (anything in this Agreement to the
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by selling shareholders, then such expenses
shall be payable by the Holders pro rata based upon the number of shares
registered, to the extent required by such jurisdiction.
5. Piggyback Registration.
----------------------
(a) Whenever the Company proposes to register any of its
securities under the Act in an underwritten public offering and the registration
form to be used may be used for the registration of the Registrable Securities
(a "Piggyback Registration"), the Company will give prompt written notice to all
Holders of Registrable Securities of its intention to effect such a registration
and will include in such registration that amount of Registrable Securities as
set forth below with respect to which the Company has received written requests
for inclusion therein within fifteen (15) days after the receipt of the
Company's notice.
(b) The registration expenses of the Holders of the Registrable
Securities will be paid by the Company in all Piggyback Registrations.
(c) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the
managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will use
its best efforts to include in such registration (i) first Registrable
Securities requested to be included therein by the holders requesting such
registration in an aggregate amount which is equal to 40% of the total
amount of shares allocated by the
-3-
<PAGE>
Company's underwriters to be sold by selling shareholders and (ii) second,
other securities requested to be included in such registration which are
not the Registrable Securities.
(d) If any Piggyback Registration is an underwritten offering,
the underwriter's commissions and discounts shall be paid out of the
proceeds from the sale of such securities, and shall not be paid by the
Company with respect to the sale of such securities.
(e) Each Holder who elects to register his or her Registrable
Securities or a portion thereof pursuant to the terms of this Section 5
also agrees not to effect any public sale and/or distribution of any equity
security of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, during a certain period of time prior
to and subsequent to the underwritten secondary registration of the
Company's securities as is determined in the sole discretion of the
Company's underwriters and which shall be applicable to all shareholders of
the Company, who participate as selling shareholders in the underwritten
secondary registration of the Company's securities
6. Obligation to Furnish Information. It shall be a condition
---------------------------------
precedent to the obligations of the Company to take any action pursuant to this
Agreement that each Holder shall furnish to the Company such information
regarding such Holder or, the Registrable Securities held by them, and the
intended method of disposition of such securities, as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company hereunder.
7. Expenses of Registration. All expenses incurred in connection
------------------------
with a registration effected pursuant to Paragraph 2 (excluding underwriters'
discounts and commissions, if any, and counsel, advisory or consultant fees of
any selling Holder), including without limitation all registration and
qualification fees, printers' and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. Any expenses of a
registered offering under Paragraph 2 not required to be borne by the Company
shall be borne pro rata by the selling Holders.
8. Delay of Registration. Holders shall not have any right to take
---------------------
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder joining in a registration, against any
losses, claims, damages, or liabilities, joint or several, to which they
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect
-4-
<PAGE>
thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus, or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arise out of any violation by the Company of any rule or regulation
promulgated under the Act applicable to the Company and relating to action
or inaction required of the Company in connection with any registration;
and will reimburse such Holder for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
expenses or action if such settlement is effected without the consent of
the Company nor shall the Company be liable in any such case for any such
loss, claim damage, liability, expenses, or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers
who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, and each agent and any
underwriter for the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint or several, to which the
Company and/or any such director, officer, controlling person, agent, or
underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus, or any amendments
or supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with
such registration; and Holder will reimburse any legal or other expenses
reasonably incurred by the Company and/or any such director, officer,
controlling person, agent, or underwriter in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 8(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, expense or action if such settlement is effected without the
consent of such Holder, which consent shall not be unreasonably withheld.
-5-
<PAGE>
(c) Promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the
parties. The failure to notify an indemnifying party promptly of the
commencement of any such action, if prejudicial to his or her ability to
defend such action, shall relieve such indemnifying party of any liability
to the indemnified party under this Section, but the omission so to notify
the indemnifying party will not relieve him or her of any liability that he
or she may have to any indemnified party otherwise than under this Section.
10. Limitations on Transfer. This Agreement shall be binding upon
-----------------------
and shall inure to the benefit of the parties hereto and their successors and
assigns; provided, that the registration rights granted to the Holders in
--------
Section 2 hereof may not be assigned or transferred in whole or in part by any
of the Holders.
11. Termination. Unless sooner terminated pursuant to the terms of
-----------
this Agreement, the obligations of the Company pursuant to section 2 hereof
shall expire upon the earlier of: (i) the sale or other disposition of the
Registrable Securities by the Holders, (ii) twenty-four (24) months following
the effectiveness of the registration statement filed pursuant to Paragraph 2
hereof (subject to extension as set forth in Paragraph 4(a) hereof), or (iii)
the date when the Registrable Securities then outstanding may be resold during
the succeeding three-month period without the Holders being required to deliver
a prospectus with respect thereto under the Act or the rules and regulations
promulgated thereunder. In addition to the foregoing, the obligations of the
Company pursuant to this Agreement shall terminate as to any Holder which
notifies the Company in writing that it does not wish to have its shares
registered hereunder.
12. Entire Agreement. This Agreement and the documents referred to
-----------------
herein constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and negotiations
relating thereto.
13. Governing Law. This Agreement, together with the rights and
-------------
obligations of the parties hereunder shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania without
regard to any jurisdiction's conflicts of laws provisions.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
15. Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting this Agreement.
-6-
<PAGE>
16. Notices. Any notice, request or other communication required or
-------
permitted under this Agreement shall be given in writing and shall be deemed to
be effectively given upon (i) personal delivery, (ii) delivery by U.S. Express
Mail or other overnight courier service which provides evidence of delivery,
(iii) legible facsimile transmission, or (iv) the expiration of three (3) days
following deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed, in each case, to the Company at
Route 15 North, Lewisburg, PA 17837, Attention: John H. Mathias, and to any of
the Holders, c/o Ronald Mills, 2135 Ringwood Avenue, San Jose, CA 95131, or at
such other address as any party may designate by ten (10) days advance written
notice to the other party in accordance with the provisions of this Section.
17. Amendments. This Agreement may not be amended without the
----------
written consent of the holders of at least a majority of the outstanding
Registrable Securities.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by a duly authorized officer or partner as of the day first above
written.
WITNESS: HOLDERS:
- ----------------------------- -----------------------------
JOHN M. DENMAN
WITNESS:
- ----------------------------- -----------------------------
LINDA E. DENMAN
WITNESS:
- ----------------------------- -----------------------------
RONALD C. MILLS
-7-
<PAGE>
WITNESS:
- ---------------------------- -----------------------------
MARITA MILLS
WITNESS:
- ---------------------------- -----------------------------
HERBERT RENZ
WITNESS:
- ---------------------------- -----------------------------
IRMA RENZ
WITNESS:
- ---------------------------- -----------------------------
VIVA DENMAN
WITNESS:
- ---------------------------- -----------------------------
HAROLD RENZ
WITNESS:
- ---------------------------- -----------------------------
JOSEPH HAROLD, JR.
WITNESS:
- ---------------------------- -----------------------------
PAMELA KAY WARD
-8-
<PAGE>
WITNESS: THE JPM COMPANY
By:
- ---------------------------- --------------------------
Title:
-----------------------
-9-
<PAGE>
ANNEX B
JANNEY MONTGOMERY SCOTT
INVESTMENT BANKING
Established 1832
February 26, 1997
Board of Directors
The JPM Company
Route 15 North
Lewisburg, PA 17837
Dear Members of the Board:
You have requested our opinion with respect to the fairness, from a financial
point of view, to the shareholders of The JPM Company of the consideration to
be paid to the shareholders of Denron, Inc. under the Agreement and Plan of
Merger to be dated February 28, 1997 by and among The JPM Company, JPM
Acquisition Company (together, the "Company"), and Denron, Inc. ("Denron").
Under the terms of the Agreement and Plan of Merger, the business and related
assets and liabilities of JPM Acquisition Company will be merged with and into
Denron, with Denron surviving the merger (the "Merger"). Upon the consummation
of the Merger with JPM Acquisition Company, each outstanding share of Denron's
common stock will be converted into common stock of JPM.
In arriving at our opinion, we undertook the following activities:
1. Analyzed and reviewed the terms and conditions in a draft of the
proposed Agreement and Plan of Merger;
2. Investigated the business, financial condition, results of operations
and prospects of Denron;
3. Investigated the financial terms of similar mergers, acquisitions and
business combinations;
4. Reviewed selected financial and stock market data for certain other
publicly traded companies comparable to Denron;
5. Reviewed memoranda regarding Denron prepared by employees of Denron;
6. Prepared pro forma analyses and reviewed the financial implication of
the proposed Agreement and Plan of Merger.
1801 Market Street
Philadelphia, Pa 19108-1675
Tel 215.665.6180
Fax 215.665.6197
Members New York Stock Exchange, Inc.
Other Principal Exchanges
<PAGE>
Janney Montgomery Scott
INVESTMENT BANKING
The Board of Directors
February 26, 1997
Page 2
In addition, we held discussions with the management of JPM and Denron regarding
their respective businesses, operating results, financial condition and
prospects, and undertook other analyses, studies and investigations as we
considered appropriate.
In connection with our review, we have relied upon the accuracy and completeness
of all information provided to us by the Company, Denron and their
representatives, and we have not attempted to independently verify any such
information. We have also relied upon the assessment of the management of Denron
regarding Denron's business and prospects, and also assumed that the budgets and
financial projections of Denron were reasonably prepared by management on bases
reflecting the best currently available estimates and good faith judgments of
the future financial performance of Denron. We have not made an independent
evaluation or appraisal of Denron's assets or liabilities. Our opinion is
necessarily based on market, economic and other conditions as they exist and can
be evaluated as of the date of this letter.
Janney Montgomery Scott is acting as the financial advisor to the Company in
connection with the proposed acquisition of Denron and will receive customary
fees upon the completion of the acquisition. In addition, the Company has agreed
to indemnify Janney against certain liabilities arising out of the rendering of
this opinion. Janney is a nationally recognized investment banking firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate and other purposes. Janney co-managed
the Company's initial public offering in April 1996 and in the ordinary course
of its trading and brokerage activities, Janney makes a market in the stock of
the Company.
It is understood that this letter is for the information of the Board of
Directors of The JPM Company is evaluating the proposed Merger and does not
constitute a recommendation to any shareholders of the Company as to how such
shareholders should vote on the proposed Merger. This opinion is not to be
quoted or referred to, in whole or in part, without our prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion in
the Company's Proxy Statement used in connection with the Merger, so long as the
opinion is quoted in full in such Proxy Statement.
We are of the opinion, as of the date hereof and subject to the foregoing, that
the consideration to be paid under the Agreement and Plan of Merger is fair to
the shareholders of JPM from a financial point of view.
Very truly yours,
/s/ Janney Montgomery Scott Inc.
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
THE JPM COMPANY
SPECIAL MEETING OF SHAREHOLDERS
JUNE 4, 1997
The undersigned shareholder of The JPM Company (the "Company") hereby
appoints John H. Mathias and James P. Mathias, with full powers of substitution,
to act as attorneys-in-fact and proxies for the undersigned to vote all shares
of capital stock of the Company that the undersigned is entitled to vote at the
Special Meeting of Shareholders (the "Meeting") to be held at the offices of
the Company, Route 15 North, Lewisburg, PA 17837 on June 4, 1997 at 10:00
a.m. and at any and all adjournments and postponements thereof.
I. Approval of the issuance of shares of Company Common Stock, $.000067 par
value, pursuant to an Agreement and Plan of Merger, dated as of February
28, 1997 among the Company, JPM Acquisition Company and Denron, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE. IF ANY OTHER BUSINESS
IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
The Board of Directors recommends a vote "FOR" the proposal.
(Continued and to be SIGNED on Reverse Side)
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Should the undersigned be present and choose to vote at the Meeting or at
any adjournments or postponements thereof, and after notification to the
Secretary of the Company at the Meeting of the shareholder's decision to
terminate this proxy, then the power of such attorneys-in-fact or proxies shall
be deemed terminated and of no further force or effect. This proxy may also be
revoked by filing a written notice of revocation with the Secretary of the
Company or by duly executing a proxy bearing a later date.
The undersigned acknowledges receipt from the Company, prior to the
execution of this proxy, of notice of the Meeting, a Proxy Statement, an annual
report of the Company on Form 10-K for the fiscal year ending September 30, 1996
and a quarterly report of the Company on Form 10-Q for the quarter ended
December 31, 1996.
Dated:_____________________________, 1997
(Please date this Proxy)
-----------------------------------------
Signature of Shareholder
-----------------------------------------
Signature of Shareholder
Please sign exactly as your name(s)
appear(s) to the left. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If shares are held jointly,
each holder should sign. If a
corporation, please sign in full
corporate name by the President or other
authorized officer. If a partnership,
please sign in partnership name by an
authorized person.
<PAGE>
Annex C
-------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Denron, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Denron, Inc. at December 31, 1996,
and the results of its operations and its cash flows for the nine month period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Philadelphia, PA
February 24, 1997
<PAGE>
DENRON, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------
1995 1996 1996
----------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 181 $ 11,029 $ 166
Accounts receivable (net of
allowance for sales returns
and doubtful accounts of $20,000,
$35,000 and $40,000) 1,993,775 1,854,821 2,249,434
Inventories, net.................... 1,154,154 2,296,109 2,648,000
Prepaid expenses and other current
assets............................. 36,766 75,530 8,130
Deferred income taxes............... 144,130 159,485 152,683
---------- ---------- ----------
Total current assets............ 3,329,006 4,396,974 5,058,413
Property and equipment, net.......... 495,284 581,370 599,114
Other assets......................... 17,600 40,333 29,283
---------- ---------- ----------
$3,841,890 $5,018,677 $5,686,810
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............... $1,042,000 $1,158,255 $1,340,303
Current maturities of long-term debt 7,118 6,018 6,018
Accounts payable.................... 1,401,863 2,005,514 1,929,691
Accrued expenses.................... 324,545 475,862 509,491
Current portion of deferred rent.... 36,629 36,629 18,314
Income taxes payable................ 3,257 41,249 118,512
Deferred income taxes............... 104,592 202,430 210,499
---------- ---------- ----------
Total current liabilities....... 2,920,004 3,925,957 4,132,828
Deferred rent........................ 45,786 9,157 -
Long-term debt....................... 17,926 19,067 13,589
---------- ---------- ----------
2,983,716 3,954,181 4,146,417
---------- ---------- ----------
Commitments (Note 8)
Shareholders' equity:
Common Stock, no par value,
5,000,000 shares authorized,
750,000 shares issued and
outstanding....................... 50,000 50,000 50,000
Retained earnings................... 808,174 1,014,496 1,490,393
---------- ---------- ----------
Total shareholders' equity...... 858,174 1,064,496 1,540,393
---------- ---------- ----------
$3,841,890 $5,018,677 $5,686,810
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DENRON, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
1995 1996 1996
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net sales.......................... $17,474,553 $25,310,148 $18,788,825
Cost of sales...................... 14,988,084 22,151,859 15,649,005
----------- ----------- -----------
2,486,469 3,158,289 3,139,820
Selling, general and
administrative expenses........... 2,221,351 2,747,257 2,360,516
----------- ----------- -----------
265,118 411,032 779,304
----------- ----------- -----------
Other income (expense):
Interest expense.................. (104,599) (108,476) (97,860)
Interest income................... 744 6,772 379
Other, net........................ (5,490) (9,593) 16,402
----------- ----------- -----------
(109,345) (111,297) (81,079)
----------- ----------- -----------
Income before income taxes......... 155,773 299,735 698,225
Provision for income taxes......... 24,088 93,413 222,328
----------- ----------- -----------
Net income......................... $ 131,685 $ 206,322 $ 475,897
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DENRON, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Total
Number of Retained Shareholders'
Shares Amount Earnings Equity
------------ -------- ------------- ----------
<S> <C> <C> <C> <C>
Balance at March 31, 1994
(unaudited)................. 750,000 $50,000 $ 676,489 $ 726,489
Net income (unaudited)....... - - 131,685 131,685
------------ -------- ---------- ----------
Balance at March 31, 1995
(unaudited)................. 750,000 50,000 808,174 858,174
Net income (unaudited)....... - - 206,322 206,322
------------ -------- ---------- ----------
Balance at March 31, 1996.... 750,000 50,000 1,014,496 1,064,496
Net income for the nine
months ended
December 31, 1996........... - - 475,897 475,897
------------ -------- ---------- ----------
Balance at December 31, 1996. 750,000 $50,000 $1,490,393 $1,540,393
============ ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DENRON, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
1995 1996 1996
---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 131,685 $ 206,322 $ 475,897
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation.................... 160,714 198,820 139,235
Provision for sales returns and
doubtful accounts.............. 20,000 15,000 5,000
Loss on sale of property and
equipment...................... 6,598 11,329 14,112
Deferred taxes.................. 15,369 82,483 14,871
Deferred rent................... (18,585) (36,629) (27,472)
Change in assets and liabilities:
(Increase) decrease in
accounts receivable........... (530,347) 123,954 (399,613)
(Increase) decrease in
inventories................... (308,200) (1,141,955) (351,891)
(Increase) decrease in prepaid
expenses and other assets..... (21,704) (61,497) 78,450
Increase (decrease) in
accounts payable.............. 298,356 603,651 (75,823)
Increase (decrease) in accrued
expenses...................... 14,240 151,317 33,629
Increase (decrease) in income
taxes payable................. 549 37,992 77,263
--------- ----------- ---------
Net cash provided by (used
in) operating activities.. (231,325) 190,787 (16,342)
--------- ----------- ---------
Cash flows from investing activities:
Payments for property and equipment. (200,385) (300,315) (171,130)
Proceeds from sale of property and
equipment.......................... 16,541 4,080 39
--------- ----------- ---------
Net cash used in investing
activities..................... (183,844) (296,235) (171,091)
--------- ----------- ---------
Cash flows from financing activities:
Net borrowings under credit
facilities.......................... 384,000 116,255 182,048
Net proceeds from issuance
(repayments) of long-term debt...... (16,729) 41 (5,478)
--------- ----------- ---------
Net cash provided by financing
activities..................... 367,271 116,296 176,570
--------- ----------- ---------
Increase (decrease) in cash and cash
equivalents.......................... (47,898) 10,848 (10,863)
Cash and cash equivalents at
beginning of period.................. 48,079 181 11,029
--------- ----------- ---------
Cash and cash equivalents at end of
period............................... $ 181 $ 11,029 $ 166
========= =========== =========
Supplemental cash flow information:
Cash paid for:
Interest....................... $ 113,286 $ 107,720 $ 96,261
Income taxes................... $ 20,072 $ 5,050 $ 128,944
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
DENRON, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
Denron, Inc. (Denron or the "Company") was incorporated in California in March
1980. The Company is an independent manufacturer of cable assemblies and wire
harnesses for original equipment manufacturers in the computer and electronic
industries.
A substantial portion of the Company's products are sold to a limited number
of customers. Accordingly, a significant decrease in business from, or the loss
of, any of its major customers would have a material adverse effect on the
Company. The Company continuously seeks to expand the number of products it
supplies to existing customers, as well as to develop similar relationships with
new customers. Because of the complexity of these relationships, sales cycles
can be extremely long, sometimes taking up to 18 months to develop. As the
Company becomes a qualified supplier for new products and its customers'
products progress through their life cycles, the Company's operating results can
fluctuate significantly.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
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 usage.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-
line basis over the estimated useful lives of the assets. The estimated useful
lives of the assets range from three to ten years.
Revenue recognition
Revenue from sale of cable assembly and wire harness products is recognized
upon shipment to customers. Reserves are provided upon shipment for estimated
returns, discounts and warranty costs, which to date have been immaterial.
Income taxes
The Company accounts for income taxes using an asset and liability approach
that recognizes deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than future enactments of
changes in the tax law or rates.
Unaudited periods
The financial data as of and for the years ended March 31, 1995 and 1996 is
unaudited; however, in the opinion of the Company, the data includes all
adjustments, consisting only of normal, recurring adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
unaudited periods.
<PAGE>
DENRON, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable. The Company performs ongoing credit evaluations
of its customers and generally requires no collateral.
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 revenues and expenses during that period.
Actual results could differ from those estimates.
NOTE 3 - INVENTORIES:
<TABLE>
<CAPTION>
March 31,
---------------------------- December 31,
1995 1996 1996
------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Finished goods..................... $ 150,863 $ 637,754 $ 174,104
Work-in-process.................... 419,340 534,281 1,052,504
Raw materials and supplies......... 593,951 1,144,074 1,461,392
Valuation reserve.................. (10,000) (20,000) (40,000)
---------- ----------- -----------
$1,154,154 $ 2,296,109 $ 2,648,000
========== =========== ===========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
March 31,
------------------------- December 31,
1995 1996 1996
---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Machinery and equipment............ $1,218,650 $ 1,498,784 $ 1,607,104
Furniture and fixtures............. 73,214 74,353 74,353
Vehicles........................... 100,596 85,561 53,380
Less: accumulated depreciation.... (897,176) (1,077,328) (1,135,723)
---------- ----------- -----------
$ 495,284 $ 581,370 $ 599,114
========== =========== ===========
</TABLE>
NOTE 5 - BORROWINGS:
On September 30, 1996, the Company entered into a $2,000,000 revolving line
of credit with a bank. Borrowings under the line of credit bear interest at the
bank's prime rate plus 0.75% (9.0% at December 31, 1996), are secured by the
Company's accounts receivable, inventory and equipment and shall not at any time
exceed 80% of the Company's accounts receivable. At December 31, 1996,
$1,340,303 was outstanding, and $459,244 was available under the line. The line
of credit expires on July 31, 1997.
The line of credit is subject to certain financial covenants including the
maintenance of various financial ratios. The Company was in compliance with all
covenants at December 31, 1996.
<PAGE>
DENRON, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
At March 31, 1995 and 1996, the Company had revolving lines of credit of
$1,300,000 and $1,600,000, respectively, with the same bank. The lines had
interest rates of 10.50% and 9.75%, respectively, and were secured by the
Company's accounts receivable, inventory and equipment. $1,042,000 and $408,255
was outstanding under the lines at March 31, 1995 and 1996, respectively.
At March 31, 1996, the Company also had a $750,000 note outstanding with the
same bank at an interest rate of 9.2%.
<TABLE>
<CAPTION>
NOTE 6 - LONG TERM DEBT:
March 31,
------------------------ December 31,
1995 1996 1996
----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Term loan payable to bank; interest
rate of 10% per annum;
payable in equal monthly
installments through April 1999;
secured by motor vehicle........... $ $ 9,835 $ 7,712
Term loan payable to bank; interest
rate of 8.45% per annum;
payable in equal monthly
installments through May 1998;
secured by motor vehicle........... 19,407 15,250 11,895
Term loan payable to bank; interest
rate of 9.75% per annum;
payable in equal monthly
installments through July 1995..... 5,637 - -
----------- ----------- -------------
25,044 25,085 19,607
Less: Current Maturities............ (7,118) (6,018) (6,018)
----------- ----------- -------------
$ 17,926 $19,067 $ 13,589
=========== =========== =============
</TABLE>
NOTE 7 - INCOME TAXES:
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
Nine Months
Year Ended March 31, Ended
---------------------- December 31,
1995 1996 1996
---------- ---------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Current tax expense:
Federal.............................. $ 5,648 $ 5,889 $203,019
State................................ $ 3,070 5,042 4,438
----------- ----------- ------------
8,718 10,931 207,457
----------- ----------- ------------
Deferred tax expense:
Federal.............................. 13,752 73,800 13,306
State................................ 1,618 8,682 1,565
----------- ----------- ------------
$ 15,370 82,482 14,871
----------- ----------- ------------
$ 24,088 $ 93,413 $222,328
=========== =========== =============
</TABLE>
<PAGE>
DENRON, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Reconciliation between the Company's actual income tax expense and income tax
expense derived by use of statutory rates (including graduated tax rates as
applicable) follows:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
1995 1996 1996
-------- ------- --------
(unaudited) (unaudited)
<S> <C> <C> <C>
Income tax expense at statutory rates.... $ 41,751 $97,897 $235,147
Research tax credits..................... (24,186) (5,826) (6,000)
Other.................................... 6,523 1,342 (6,819)
-------- ------- --------
Actual tax expense....................... $ 24,088 $93,413 $222,328
======== ======= ========
</TABLE>
Deferred tax balances comprise the following:
<TABLE>
<CAPTION>
March 31,
----------------------- December 31,
1995 1996 1996
----------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses........................ $ 110,941 $ 140,903 $ 137,483
Assets reserves......................... 7,600 15,200 15,200
Tax credits carryforwards............... 25,589 3,382 -
---------- --------- ---------
144,130 159,485 152,683
---------- --------- ---------
Deferred tax liabilities:
Inventory and fixed assets.............. (104,592) (202,430) (210,499)
--------- --------- ---------
Deferred tax asset (liability).......... $ 39,538 $ (42,945) $ (57,816)
========= ========= =========
</TABLE>
-
NOTE 8 - COMMITMENTS:
The Company leases its facilities under a noncancelable operating lease which
expires on June 30, 2002. Under the terms of the lease agreement the Company is
required to pay a portion of operating expenses.
The Company also leases certain equipment under noncancelable operating
leases.
Future minimum payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1997....................................................... $ 88,977
1998....................................................... 401,889
1999....................................................... 401,889
2000....................................................... 420,346
2001 and after............................................. 735,377
----------
$2,048,478
==========
</TABLE>
<PAGE>
DENRON, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The Company also leases certain equipment under noncancelable operating leases
which have a lease term of less than one year.
Rent expense under noncancelable operating leases totaled $555,317 and
$625,606 for the years ended March 31, 1995 and 1996, respectively, and $473,594
for the period ended December 31, 1996.
NOTE 9 - MAJOR CUSTOMERS AND SUPPLIERS:
Aggregate sales to major customers each of which exceeded 10% of total sales
in 1995, 1996, and in the nine month period ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
1995 1996 1996
----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Customer
A ........... * * 33%
B ........... 14% 16% 17%
C ........... 22% 24% 14%
D ........... * 11% *
E ........... 16% * *
</TABLE>
(*) Aggregate sales less than 10% of total sales.
At March 31, 1995 and 1996, and at December 31, 1996, aggregate accounts
receivable from 3, 4 and 2 customers, respectively, represented 59%, 59% and 53%
of total accounts receivable, also respectively.
Export sales made to Singapore approximated 29% of total net sales in the
period ended December 31, 1996.
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.
