AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-04249
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PENN ENGINEERING & MANUFACTURING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 23-0951065
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
P.O. Box 1000
Danboro, Pennsylvania 18916-1000
(215) 766-8853
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
Kenneth A. Swanstrom
Chairman of the Board
Penn Engineering & Manufacturing Corp.
P.O. Box 1000
Danboro, Pennsylvania 18916-1000
(215) 766-8853
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies To:
Frederick W. Dreher, Esquire Stanley H. Meadows, P.C.
Duane, Morris & Heckscher McDermott, Will & Emery
4200 One Liberty Place 227 West Monroe Street
Philadelphia, PA 19103-7396 Chicago, IL 60606-5096
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the registrant elects to deliver its latest annual report to
securityholders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 4, 1996
(LOGO) 2,850,000 SHARES
PENN ENGINEERING & MANUFACTURING CORP.
COMMON STOCK
------------------------
Of the 2,850,000 shares of Common Stock of the Company offered hereby,
1,750,000 shares are being issued and sold by the Company and 1,100,000 shares
are being sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of shares offered by the Selling Stockholders. See
'Principal and Selling Stockholders' and 'Underwriting.'
The Company's authorized capital stock, par value $.01 per share, consists
of Common Stock and Class A Common Stock. The voting power of the Company is
vested in the Class A Common Stock, and the Common Stock has no voting rights,
except as required by Delaware law. The Common Stock and the Class A Common
Stock have the same economic rights. See 'Description of Capital Stock.'
The Common Stock is traded on the American Stock Exchange under the symbol
'PNN.' On June 3, 1996, the last reported sale price of the Common Stock on the
American Stock Exchange was $24.625 per share. See 'Price Range of Capital Stock
and Dividends.' The Company has applied to list the Common Stock and the Class A
Common Stock on the New York Stock Exchange.
FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THIS OFFERING, SEE
'RISK FACTORS' ON PAGE 8 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total.................................. $ $ $ $
- --------------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3).................. $ $ $ $
==============================================================================================================
</TABLE>
(1) See 'Underwriting.'
(2) Before deducting expenses estimated at $370,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 285,000 shares, solely to cover
over-allotments. See 'Underwriting.'
------------------------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their right
to reject orders in whole or in part. It is expected that delivery of the Common
Stock will be made in New York City on or about , 1996.
------------------------
PAINEWEBBER INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
In the printed version graphic appear here.
Graphic -- Photo showing Pittman DC Motors
Graphic -- Photo showing self-clinching fasteners
Graphic -- Photo showing PEM(R) fasteners used automative
Graphic -- Photo showing PEM(R) fasteners used to mount electronic connectors
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, THE AMERICAN STOCK EXCHANGE, OR OTHERWISE. SUCH
STABILIZIING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto set forth
elsewhere in this Prospectus or incorporated by reference in this Prospectus.
Unless otherwise indicated, all share amounts and financial information
presented in this Prospectus, other than the Consolidated Financial Statements
and Notes thereto, have been adjusted to reflect the reclassification of the
Company's capital stock outstanding prior to May 23, 1996 (the 'Prior Common
Stock') into Class A Common Stock, the authorization of the new Common Stock,
and the issuance of a dividend on May 23, 1996 of three shares of Common Stock
for each outstanding share of Prior Common Stock (the 'Stock Dividend'). See
'Reclassification' and 'Description of Capital Stock.' The Stock Dividend had
the same effect on the total number of shares of Prior Common Stock outstanding
as a four-for-one stock split. The Common Stock and the Class A Common Stock are
sometimes referred to collectively in this Prospectus as the 'Capital Stock.'
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
Penn Engineering & Manufacturing Corp. (the 'Company') is the world's
leading manufacturer of self-clinching fasteners used by the computer,
datacommunications, telecommunications, general electronics, automotive, and
avionics industries. PEM(Registered) self-clinching fasteners, which accounted
for 80% of the Company's sales in 1995, were first developed by the Company's
founder in 1942. Self-clinching fasteners become an integral part of the
material in which they are installed and provide a reliable means of attaching
components to sheet metal or plastic. Typical applications for the Company's
fastener products include personal computers, computer cabinetry, power
supplies, instrumentation, telecommunications equipment, and certain automobile
parts, such as air bags and windshield wipers. The Company's Pittman(Registered)
division manufactures high-performance, permanent magnet, direct current (dc)
motors used in factory and office automation and instrumentation applications.
The Company's fasteners are primarily used by sheet metal fabricators to
produce sub-assemblies for original equipment manufacturers ('OEMs'). Both OEMs
and their subcontractors seek fastening solutions which provide lower total
installed cost and are highly reliable, thereby lowering production and service
costs. The Company's applications engineers and independent distributors
continually work in close collaboration with OEMs and their subcontractors to
determine appropriate fastener applications, which often results in OEMs
specifying the Company's fasteners. Self-clinching fasteners generally compete
against loose hardware, such as nuts and bolts. The Company's fasteners
typically sell at a premium to loose hardware. However, the Company's fasteners
generally result in lower overall manufacturing costs.
The Company has built a strong track record of growth and profitability.
From 1991 to 1995, sales have doubled and operating profits have increased from
$5.7 million to $21.0 million. The Company believes its success has been
primarily driven by the following strengths:
Strong Market Share. The Company has significantly increased its market
share over the past five years and estimates that it holds approximately 50% of
the worldwide market for self-clinching fasteners. The Company believes its
domestic market share is approximately 70%. In Europe and in the Asia Pacific
market, the Company's market share for self-clinching fasteners is approximately
38% and 14%, respectively. The Company believes it has an advantage over its
competitors based on its: (i) manufacturing capabilities, (ii) quality raw
material sourcing, (iii) high standards of internal manufacturing controls, (iv)
inventories maintained at Company warehouses in North America, Europe, and Asia,
and (v) breadth of product line.
Long-standing Customer Relationships. The Company's strong relationships
with a diverse base of customers continually allow for the identification of
new business opportunities. The Company has been a long-term supplier of
fasteners to many of its customers. For example, the Company has supplied IBM,
3
<PAGE>
Hewlett-Packard, Pitney Bowes, and Xerox for more than 25 years. The Company
believes that it has earned its position with such customers by virtue of its
design engineering capabilities, timely delivery, excellent quality, and
customer service.
Well-Positioned in Rapidly Growing Computer/Electronics Markets. The
Company's fasteners are on the preferred or designated vendor list of computer
manufacturers which currently comprise approximately 33% of the worldwide
personal computer market. The Company's fasteners are used by many of the
world's largest electronics and telecommunications OEMs, including Alcatel, AMP,
AT&T, Ericsson, Philips, and Siemens. As a result, the Company expects to
increase its sales as these markets continue to grow domestically and
internationally.
Broad Product Application Across a Diverse Group of Industries. The
Company believes it benefits from the diversity of applications for its
self-clinching fasteners across a broad range of industries. The Company shipped
fasteners to over 12,000 customers in 1995, and no single market segment
accounted for more than 15% of the Company's total sales in 1995.
Recognized Leader in Fastening Solutions. The Company believes its
commitment to working with OEMs early in the design process places it at the
forefront in providing fastening solutions. The Company's success and reputation
for consistently developing such solutions often results in customers specifying
PEM fasteners for their products.
Successful Management Team. The Company believes an important element of
its success is its highly experienced senior management team. Kenneth A.
Swanstrom, the Company's Chief Executive Officer, has been with the Company
since 1960. The Company's Chief Financial Officer has been with the Company for
nearly 20 years. Since 1990, the Company has added management with significant
industry experience in key marketing, manufacturing, and engineering positions.
BUSINESS STRATEGY
The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. The Company estimates that the current
total market for all forms of fasteners which potentially could be replaced by
PEM fasteners is approximately $600 million. The Company believes it is well
positioned to achieve continued growth and intends to continue to build upon its
success by relying on a strategy which emphasizes the following key elements:
(i) focus on new customer applications and product development, (ii) expand
production capacity, (iii) continue to improve productivity, (iv) implement cost
reduction initiatives, and (v) increase sales to foreign markets.
Focus on New Customer Applications and Product Development. The Company is
committed to growing with its customers both domestically and abroad. By working
with OEMs early in the design process, the Company's fasteners are often
selected for use when new products or new markets are addressed. The Company
believes considerable opportunities are available in Europe and the Asia Pacific
market given the growth of the computer and electronics markets in these
regions. With over 3,000 readily available proprietary catalog products, the
Company is well positioned to meet the needs of its customers. In addition, the
Company engages in the continuous development of new products and product
extensions.
Expand Production Capacity. From 1991 to 1995, demand for the Company's
fasteners has increased more rapidly than the Company's capacity. In spite of
the Company's capacity constraints, fastener units shipped have more than
doubled over this period from 896 million to 1.8 billion annually. In 1995, the
Company spent $17.2 million for capital expenditures in response to the
continuing demand for the Company's products. These expenditures included
construction of a 43,000 square foot addition to the Company's Danboro,
Pennsylvania facility, which was substantially completed in May 1996. The
Company intends to utilize its credit lines and the proceeds of this Offering to
supplement cash flow from operations to finance capital expenditures of
approximately $25 million in 1996, including a new 120,000 square foot facility
to replace the Company's 58,000 square foot facility in Winston-Salem, North
Carolina. These capital expenditures are expected to increase fastener
production capacity by 27%, allowing the Company to ship 2.3 billion fastener
units annually by early 1997. The Company's five-year plan includes
approximately $100 million in capital expenditures, and an increase in capacity
to 3.0 billion fasteners annually by 2000.
4
<PAGE>
Continue to Improve Productivity. To increase efficient utilization of its
manufacturing facilities, the Company will continue to implement programs which
include cell manufacturing and focused work centers, demand flow production, new
tooling, and new heat treating methods and washing procedures. The Company has
realized a decrease in the cost of fastener products sold as a percentage of
sales from 72.1% in 1991 to 68.1% in 1995. The Company targets 5% annual
increases in productivity. The Company intends to continue to attract and retain
highly-qualified employees by providing an environment which promotes
creativity.
Implement Cost Reduction Initiatives. Gross margins have increased from
27.9% in 1991 to 31.9% in 1995 despite a doubling of sales over this period. In
addition, the Company has improved operating margins from 8.1% in 1991 to 14.9%
in 1995 by controlling SG&A expenses. The Company intends to continue to reduce
costs through initiatives which monitor raw material sourcing, encourage
manufacturing innovations, and preserve a stable and productive work force.
Increase Sales to Foreign Markets. Since 1991, foreign sales have
increased approximately 119% from $16.2 million to $35.4 million in 1995 and
currently represent 25.1% of total sales. The Company has recently acquired its
previously independent distributor in Singapore, which affords the Company a hub
from which to enhance service to customers in the Asia Pacific market. The
Company is also establishing an applications engineering center at its facility
in Doncaster, England and plans to establish a similar center in Singapore.
------------------------
The Company's stock became publicly traded in 1966. Since then, the Company
has reported net income in every year and has paid cash dividends in each
quarter.
On May 23, 1996, the Company reclassified its outstanding capital stock
into Class A Common Stock and issued a dividend of three shares of Common Stock
for each outstanding share of Prior Common Stock. This dividend had the same
effect on the total number of shares outstanding as a four-for-one stock split.
In this Prospectus, the terms 'Penn Engineering' and the 'Company' include
Penn Engineering & Manufacturing Corp. and its subsidiaries. The Company was
incorporated in Delaware in 1942. The Company's corporate headquarters are
located at P.O. Box 1000, Old Easton Road, Danboro, Pennsylvania 18916-1000, and
its telephone number is (215) 766-8853. PEM(Registered), SI(Registered),
PEMSERTER(Registered), PITTMAN(Registered), LO-COG(Registered), and
ELCOM(Registered) are registered trademarks of Penn Engineering. The Company's
Internet address is http://www.pemnet.com.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock Offered by:
The Company....................................... 1,750,000 shares
The Selling Stockholders.......................... 1,100,000 shares
-----------
Total..................................... 2,850,000 shares
-----------
-----------
Capital Stock to be Outstanding
After the Offering(1):
Class A Common Stock.............................. 1,707,082 shares
Common Stock...................................... 6,871,246 shares
-----------
Total Capital Stock....................... 8,578,328 shares
-----------
-----------
Voting Rights..................................... Holders of Common Stock have no voting rights, except as
required by Delaware law. Holders of Class A Common Stock have
one vote per share. See 'Description of Capital Stock.'
Use of Proceeds................................... The net proceeds of the Offering will be used to repay certain
indebtedness of the Company incurred as part of the Company's
capital investment program, to expand the Company's production
capacity, and for working capital and general corporate
purposes. See 'Use of Proceeds.'
American Stock Exchange Symbol
for the Common Stock............................ PNN(2)
</TABLE>
- ------------------
(1) Based on 5,121,246 shares of Common Stock outstanding as of March 31, 1996
after giving effect to the Reclassification and the Stock Dividend, and the
issuance of the Common Stock offered hereby by the Company, but excluding
650,000 shares of Common Stock available for issuance under the Company's
Equity Incentive and Employee Stock Purchase Plans. See 'Description of
Capital Stock.'
(2) The Company has applied to list its Common Stock and Class A Common Stock
on the New York Stock Exchange.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain summary consolidated financial data
of the Company and its subsidiaries. This data should be read in conjunction
with the Consolidated Financial Statements of the Company and Notes thereto, the
Selected Consolidated Financial Data and the information contained in
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales......................... $ 70,845 $ 88,328 $ 100,665 $ 121,470 $ 141,268 $ 35,298 $ 39,029
Income before income taxes and
cumulative effect of 1992 and
1993 accounting changes......... 6,306 10,546 11,477 17,127 22,121 5,000 4,574
Net income........................ $ 3,912 $ 8,127(1) $ 7,352(2) $ 10,441 $ 13,798 $ 3,023 $ 2,869
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share(3)........... $ 0.57 $ 1.19 $ 1.08 $ 1.53 $ 2.02 $ 0.44 $ 0.42
--------- --------- --------- --------- --------- --------- ---------
Average number of common shares
outstanding(3).................. 6,828 6,828 6,828 6,828 6,828 6,828 6,828
OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in
millions)....................... 896 1,259 1,276 1,560 1,836 429 513
Average price per thousand........ $ 52.55 $ 52.59 $ 56.01 $ 58.04 $ 57.86 $ 60.00 $ 56.81
--------- --------- --------- --------- --------- --------- ---------
Number of motors shipped (in
thousands)...................... 565 579 664 673 680 167 188
Average price per motor........... $ 31.80 $ 32.46 $ 35.47 $ 37.76 $ 41.12 $ 42.01 $ 40.12
--------- --------- --------- ---------
Gross margin...................... 27.9% 30.8% 29.5% 31.6% 31.9% 30.2% 29.6%
Capital expenditures (in
thousands)...................... $ 2,435 $ 3,395 $ 8,354 $ 3,833 $ 17,213 $ 2,932 $ 6,518
Depreciation (in thousands)....... $ 2,819 $ 2,855 $ 3,180 $ 3,425 $ 4,165 $ 1,030 $ 1,181
EBITDA (in thousands)(4).......... $ 9,158 $ 13,412 $ 14,849 $ 20,629 $ 26,307 $ 6,041 $ 5,779
Number of employees
(at period end)................. 806 978 1,008 1,088 1,211 1,111 1,291
Sales per employee (average) (in
thousands)...................... $ 85 $ 90 $ 101 $ 116 $ 123 $ 128 $ 125
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
(IN THOUSANDS)
Working capital.................................................................... $ 35,952 $ 76,306
Property, plant, and equipment, net................................................ 47,228 47,228
Total assets....................................................................... 109,945 139,300
Total debt......................................................................... 11,000
Stockholders' equity............................................................... 78,367 118,721
</TABLE>
- ------------------
(1) In 1992, the Company changed its method of accounting to include production
tooling not consumed in production during the year in inventory at year end,
resulting in an increase in that year's net income of $1.8 million.
(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes,' resulting in an increase in that year's
net income of $423,000.
(3) The per share data and the average number of common shares outstanding have
been adjusted to give pro forma effect to the Reclassification and the Stock
Dividend. See 'Reclassification.'
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, and amortization. EBITDA represents supplemental information
only and should not be construed as an alternative to operating income or to
cash flow from operating activities as defined by U.S. generally accepted
accounting principles.
(5) Adjusted to give effect to the sale of 1,750,000 shares of Common Stock
offered by the Company in this Offering and the application of the net
proceeds therefrom, after deducting estimated underwriting discounts and
commissions and estimated offering expenses. See 'Capitalization' and 'Use
of Proceeds.'
7
<PAGE>
RISK FACTORS
In addition to other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the Common Stock.
LIMITED TRADING HISTORY AND MARKET FOR COMMON STOCK
The first date on which the Common Stock traded on the American Stock
Exchange was May 23, 1996. Prior to that date, there was no public market for
the Common Stock. The public offering price for the Common Stock offered hereby
has been determined by negotiations between the Underwriters, the Company and
the Selling Stockholders in light of recent sale prices of the Common Stock as
reported on the American Stock Exchange. There can be no assurance that an
active public market for the Common Stock will develop or be sustained after the
Offering or that the public offering price corresponds to the price at which the
Common Stock will trade in the public market subsequent to the Offering.
While the Company's Prior Common Stock has been traded on the American
Stock Exchange since 1966, the average volume of such trading in the 12 months
ended April 30, 1996 was approximately 500 shares per day. Accordingly, the
prices at which such trades have been made may not reflect the prices that would
have prevailed had there been a more active market. Furthermore, there can be no
assurance that the trading price for the Common Stock will approximate either
the price of the Class A Common Stock or the historical prices of the Prior
Common Stock as adjusted for the Reclassification. See 'Price Range of Capital
Stock and Dividends.'
CONTROLLING STOCKHOLDERS; IMPEDIMENTS TO CHANGE OF CONTROL
Voting control of the Company is vested in the holders of the Class A
Common Stock. The Swanstrom Family (as defined in 'Principal and Selling
Stockholders') beneficially owns, and after consummation of the Offering will
continue to own, approximately 52.9% of the Class A Common Stock. In addition,
one member of the Swanstrom Family serves as Chairman of the Board of Directors
and as Chief Executive Officer of the Company and another member of the
Swanstrom Family serves on the Company's Board of Directors and owns one of the
Company's independent distributors that was responsible for 5.6% of the
Company's sales in 1995. As long as the Swanstrom Family holds a majority of the
Class A Common Stock, they will be able to elect or remove all of the Company's
Board of Directors and, except as otherwise required by Delaware law, will be
able to determine the outcome of substantially any matter submitted for
consideration by the Company's stockholders. Moreover, control by the Swanstrom
Family may have the effect of discouraging certain types of transactions
involving an actual or potential change of control of the Company, including
transactions in which the holders of Common Stock might otherwise receive a
premium for their shares over then-current market prices. See 'Principal and
Selling Stockholders' and 'Description of Capital Stock.'
TECHNOLOGICAL CHANGES
The Company's principal end-user customers are engaged in the computer,
datacommunications, telecommunications, and electronics industries, all of which
industries are rapidly changing. Although the Company seeks to remain abreast of
the latest developments and available technologies in these industries, the
Company could be adversely affected by such developments and technological
advances and the introduction of new products in these industries. The Company
could also be adversely affected in the future by the development of alternative
fastener technologies.
RISK OF FOREIGN OPERATIONS
Foreign sales accounted for approximately 25% of the Company's 1995 net
sales. Because not all of the Company's sales and expenses are incurred in U.S.
dollars, the Company's operations have been and may continue to be affected by
fluctuations in currency exchange rates. Currency fluctuations may result in
variations in the Company's other income and consequently its results of
operations, but do not affect the Company's gross margins from sales.
Furthermore, currency fluctuations may cause
8
<PAGE>
reported sales to fluctuate from period to period regardless of the fluctuation
in the volume of such sales in foreign currencies. The Company purchases forward
foreign currency exchange contracts to attempt to insulate the Company from the
impact of foreign currency exchange rate fluctuations.
Foreign sales are subject to numerous other risks, including political and
economic instability in foreign markets, restrictive trade policies of foreign
governments, economic conditions in local markets, the imposition of product
tariffs, and the burdens of complying with a wide variety of international and
U.S. export laws.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
All statements contained herein that are not historical facts, including
but not limited to, the Company's plans for future expansion, are based on
current expectations. These statements are forward looking in nature and involve
a number of risks and uncertainties. Actual results may vary materially. The
factors that could cause actual results to vary materially include: the
availability of sufficient capital to finance the Company's expansion plans on
terms satisfactory to the Company; technological changes in the industries
served by the Company which could affect the demand for the Company's products;
increases in raw material costs; general business and economic conditions; and
other risks described from time to time in the Company's reports filed with the
Securities and Exchange Commission (the 'Commission'). The Company cautions
potential investors not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995, and as such, speak only as of the date made.
RECLASSIFICATION
On May 22, 1996, the Company filed an amendment to its Certificate of
Incorporation with the Delaware Secretary of State, which (i) increased the
number of authorized shares of Capital Stock of the Company from 3,000,000
shares to 23,000,000 shares, consisting of 20,000,000 shares of Common Stock and
3,000,000 shares of Class A Common Stock, (ii) reclassified the Prior Common
Stock as Class A Common Stock, (iii) authorized a new class of non-voting
capital stock designated as Common Stock, and (iv) established the rights,
powers, and limitations of the Common Stock and the Class A Common Stock. On May
23, 1996, the Company issued the Stock Dividend. The Stock Dividend had the same
effect on the total number of shares of Capital Stock outstanding as a four-for-
one stock split. The reclassification of the Prior Common Stock and the issuance
of the Stock Dividend are collectively referred to herein as the
'Reclassification.'
The Class A Common Stock has the same rights, powers, and limitations as
that of the Prior Common Stock. The Common Stock is non-voting, except as
required by Delaware law. The other rights of the Common Stock and the Class A
Common Stock, including rights with respect to stock splits, the consideration
payable in a merger or consolidation and distributions upon liquidation, are the
same. See 'Description of Capital Stock.'
The first date on which the Common Stock traded separately on the American
Stock Exchange was May 23, 1996. There can be no assurance that the trading
price of the Common Stock will approximate either the offering price of the
Class A Common Stock or the historical prices of the Prior Common Stock as
adjusted to reflect the Reclassification. See 'Risk Factors' and 'Price Range of
Capital Stock and Dividends.'
9
<PAGE>
PRICE RANGE OF CAPITAL STOCK AND DIVIDENDS
The Company's Prior Common Stock has traded publicly on the American Stock
Exchange under the trading symbol PNN since 1966. The first date on which the
Common Stock and the Class A Common Stock traded separately on the American
Stock Exchange under the symbols PNN and PNNA, respectively, was May 23, 1996.
Prior to that date, there had been no public market for the Common Stock. See
'Risk Factors' and 'Reclassification.'
The following table sets forth, for the periods indicated, (i) the actual
high and low sales prices per share of the Prior Common Stock as reported by the
American Stock Exchange divided by four to give pro forma effect to the
Reclassification (which will have the same effect on the total number of shares
of Prior Common Stock outstanding as a four-for-one stock split) based on the
assumption that the Reclassification would have resulted in a proportionate
reduction in historical sales prices and (ii) the actual dividends paid per
share of Prior Common Stock divided by four to reflect the Reclassification
based on the assumption that dividends would have been paid at the same rate per
share on the Common Stock and the Class A Common Stock.
<TABLE>
<CAPTION>
PRIOR COMMON STOCK
---------------------------------
ADJUSTED
STOCK PRICE
-------------------- ADJUSTED
HIGH LOW DIVIDEND
--------- --------- -----------
<S> <C> <C> <C>
Year ended December 31, 1994
First Quarter.............................................................. $ 13.13 $ 11.75 $ .0625
Second Quarter............................................................. 13.03 11.78 .0625
Third Quarter.............................................................. 11.75 10.63 .0625
Fourth Quarter............................................................. 10.75 10.16 .1938(1)
Year ended December 31, 1995
First Quarter.............................................................. $ 14.75 $ 10.63 $ .0688
Second Quarter............................................................. 18.88 13.50 .0688
Third Quarter.............................................................. 25.13 18.38 .0688
Fourth Quarter............................................................. 24.25 19.25 .2938(2)
Year ending December 31, 1996
First Quarter.............................................................. $ 24.00 $ 21.25 $ .0688
Second Quarter (through May 22, 1996)...................................... 22.75 18.13 .1000(3)
</TABLE>
- ------------------
(1) Includes a regular quarterly dividend of $.0688 per share and an extra
dividend of $.125 per share. The regular quarterly dividend per share was
increased from $.0625 to $.0688 in the fourth quarter of 1994.
(2) Includes a regular dividend of $.0688 per share and an extra dividend of
$.225 per share.
(3) Payable on July 9, 1996 to stockholders of record on June 14, 1996.
The Common Stock and the Class A Common Stock began trading separately on
the American Stock Exchange on May 23, 1996. For the period May 23, 1996 through
June 3, 1996, the actual high and low sales prices per share of the Common Stock
as reported on the American Stock Exchange were $27.125 and $22.875,
respectively. On June 3, 1996, the last reported sale prices for the Common
Stock and the Class A Common Stock, as reported on the American Stock Exchange,
were $24.625 and $25.375 per share, respectively. As of June 3, 1996, there were
approximately 524 and 527 holders of record of each of the Common Stock and the
Class A Common Stock, respectively.
10
<PAGE>
DIVIDEND POLICY
The Company has paid quarterly cash dividends on the Prior Common Stock
since 1966. Any future determination as to the payment of dividends will be made
at the discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, financial condition, capital requirements,
general business conditions, and such other factors as the Board of Directors
deems relevant. It is the current intention of the Board of Directors that,
following the Reclassification, the Company will pay quarterly cash dividends of
$.10 per share on the Common Stock and the Class A Common Stock and that the
Company will not pay additional year-end dividends in the future.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock by the
Company are estimated at approximately $40.4 million (or approximately $47.0
million if the over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company intends to use such net proceeds to repay all
borrowings outstanding under the Company's short-term lines of credit and
accrued interest thereon, to expand the Company's production capacity, and for
working capital and general corporate purposes.
The Company's indebtedness under its short-term lines of credit (the
'Credit Facilities') was incurred for the purchase of capital equipment. At
March 31, 1996, the Company had approximately $26.5 million available under the
Credit Facilities. Interest on outstanding borrowings under the Credit
Facilities is payable based on money market rates of interest as offered from
time to time by the lenders. At March 31, 1996, $11.0 million was outstanding
under the Credit Facilities at a weighted average interest rate of 6.44%. At
April 30, 1996, the Company's line of credit with one bank in the amount of
$10.0 million expired and was not renewed by the Company.
The Company will not receive any of the proceeds from the sale of 1,100,000
shares of Common Stock by the Selling Stockholders. The Company will pay all
expenses incurred in the Offering other than the underwriting discounts and
commissions applicable to the shares being sold by the Selling Stockholders.
11
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
investments, and the actual capitalization of the Company as of March 31, 1996,
after giving effect to the Reclassification and as adjusted to give effect to
the receipt and application by the Company of the estimated proceeds from the
sale of 1,750,000 shares of Common Stock by the Company in this Offering after
deducting underwriting discounts and commissions and estimated Offering
expenses. See 'Use of Proceeds.'
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 3,402 $ 32,756
Short-term investments.............................................................. 5,606 5,606
Short-term debt..................................................................... 11,000
Stockholders' equity:
Common Stock, $.01 par value,
20,000,000 shares authorized, 5,316,075 shares issued and 5,121,246 shares
outstanding, and 7,066,075 shares issued and 6,871,246 shares outstanding as
adjusted (1)................................................................... 53 71
Class A Common Stock, $.01 par value,
3,000,000 shares authorized, 1,772,025 shares issued, and 1,707,082
outstanding.................................................................... 18 18
Additional paid-in capital.......................................................... 2,686 43,022
Retained earnings................................................................... 77,251 77,251
Unrealized (loss) on investments (net of tax)....................................... (64) (64)
Cumulative foreign currency translation adjustment.................................. (625) (625)
----------- -----------
79,319 119,673
Less cost of treasury stock......................................................... 952 952
----------- -----------
Total stockholders' equity........................................................ 78,367 118,721
----------- -----------
Total capitalization.............................................................. $ 89,367 $ 118,721
----------- -----------
----------- -----------
</TABLE>
- ------------------
(1) Based upon 5,121,246 shares of Common Stock outstanding as of March 31, 1996
after giving pro forma effect to the Reclassification and the issuance of
the Common Stock offered hereby by the Company, but excluding 650,000 shares
of Common Stock available for issuance under the Company's Equity Incentive
and Employee Stock Purchase Plans.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth in the following table
are derived from the Consolidated Financial Statements of the Company. The
Company's Consolidated Financial Statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 are included
elsewhere in this Prospectus and have been audited by Deloitte & Touche LLP,
independent auditors, whose report thereon is also included elsewhere in this
Prospectus. The Company's unaudited consolidated financial statements as of
March 31, 1995 and 1996 are also included elsewhere in this Prospectus. The
selected consolidated financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus and the information contained in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales................................................ $ 70,845 $ 88,328 $ 100,665 $ 121,470 $ 141,268 $ 35,298
Cost of goods sold....................................... 51,045 61,127 70,979 83,128 96,190 24,630
--------- --------- --------- --------- --------- ---------
Gross profit............................................. 19,800 27,201 29,686 38,342 45,078 10,668
Selling, general, and administrative expenses............ 14,077 16,765 18,596 21,842 24,056 6,017
--------- --------- --------- --------- --------- ---------
Operating profit......................................... 5,723 10,436 11,090 16,500 21,022 4,651
Other income............................................. 583 110 387 627 1,099 349
--------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative effect of 1992
and 1993 accounting changes............................ 6,306 10,546 11,477 17,127 22,121 5,000
Cumulative effect of 1992 and 1993 accounting changes.... 1,800 423
Provision for income taxes............................... 2,394 4,219 4,548 6,686 8,323 1,977
--------- --------- --------- --------- --------- ---------
Net income............................................... $ 3,912 $ 8,127(1) $ 7,352(2) $ 10,441 $ 13,798 $ 3,023
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Per share information:
Income before cumulative effect of 1992 and 1993
accounting changes................................... $ 0.57 $ 0.93 $ 1.01 $ 1.53 $ 2.02 $ 0.44
Net income (3)......................................... 0.57 1.19 1.08 1.53 2.02 0.44
Average number of common shares outstanding (3)........ 6,828 6,828 6,828 6,828 6,828 6,828
OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in millions)................ 896 1,259 1,276 1,560 1,836 429
Average price per thousand............................... $ 52.55 $ 52.59 $ 56.01 $ 58.04 $ 57.86 $ 60.00
Number of motors shipped (in thousands).................. 565 579 664 673 680 167
Average price per motor.................................. $ 31.80 $ 32.46 $ 35.47 $ 37.76 $ 41.12 $ 42.01
Gross margin............................................. 27.9% 30.8% 29.5% 31.6% 31.9% 30.2%
Capital expenditures (in thousands)...................... $ 2,435 $ 3,395 $ 8,354 $ 3,833 $ 17,213 $ 2,932
Depreciation (in thousands).............................. $ 2,819 $ 2,855 $ 3,180 $ 3,425 $ 4,165 $ 1,030
EBITDA (in thousands) (4)................................ $ 9,158 $ 13,412 $ 14,849 $ 20,629 $ 26,307 $ 6,041
Number of employees (at period end)...................... 806 978 1,008 1,088 1,211 1,111
Sales per employee (average) (in thousands).............. $ 85 $ 90 $ 101 $ 116 $ 123 $ 128
BALANCE SHEET DATA (AT PERIOD END):
(IN THOUSANDS)
Working capital.......................................... $ 29,665 $ 35,112 $ 34,953 $ 41,612 $ 38,881 $ 44,101
Property, plant, and equipment, net...................... 23,078 23,341 28,495 28,920 41,941 30,838
Total assets............................................. 57,486 67,132 73,542 82,127 96,074 88,855
Total debt............................................... 1,152 1,500
Stockholders' equity..................................... 46,939 52,498 57,819 65,910 76,091 68,726
<CAPTION>
1996
---------
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales................................................ $ 39,029
Cost of goods sold....................................... 27,477
---------
Gross profit............................................. 11,552
Selling, general and administrative expenses............. 7,113
---------
Operating profit......................................... 4,439
Other income............................................. 135
---------
Income before income taxes and cumulative effect of 1992
and 1993 accounting changes............................ 4,574
Cumulative effect of 1992 and 1993 accounting changes....
Provision for income taxes............................... 1,705
---------
Net income............................................... $ 2,869
---------
---------
Per share information:
Income before cumulative effect of 1992 and 1993
accounting changes................................... $ 0.42
Net income (3)......................................... 0.42
Average number of common shares outstanding (3)........ 6,828
OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in millions)................ 513
Average price per thousand............................... $ 56.81
Number of motors shipped (in thousands).................. 188
Average price per motor.................................. $ 40.12
Gross margin............................................. 29.6%
Capital expenditures (in thousands)...................... $ 6,518
Depreciation (in thousands).............................. $ 1,181
EBITDA (in thousands) (4)................................ $ 5,779
Number of employees (at period end)...................... 1,291
Sales per employee (average) (in thousands).............. $ 125
BALANCE SHEET DATA (AT PERIOD END):
(IN THOUSANDS)
Working capital.......................................... $ 35,952
Property, plant, and equipment, net...................... 47,228
Total assets............................................. 109,945
Total debt............................................... 11,000
Stockholders' equity..................................... 78,367
</TABLE>
- ------------------
(1) In 1992, the Company changed its method of accounting to include production
tooling not consumed in production during the year in inventory at year end,
resulting in an increase in that year's net income of $1.8 million.
(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes,' resulting in an increase in that year's
net income of $423,000.
(3) The per share data and the average number of common shares outstanding have
been adjusted to give pro forma effect to the Reclassification. See
'Reclassification.'
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, and amortization. EBITDA represents supplemental information
only and should not be construed as an alternative to operating income or to
cash flow from operating activities as defined by U.S. generally accepted
accounting principles.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 'Selected
Consolidated Financial Data' and the Consolidated Financial Statements of the
Company and the Notes thereto and other financial information included elsewhere
in this Prospectus.
Overview
The Company's operations consist of two business segments: PEM brand
self-clinching fasteners, including fastener insertion machines, and Pittman
permanent magnet, dc motors. Self-clinching fasteners, which accounted for
approximately 80% of the Company's consolidated sales in 1995 compared to 75% in
1991, are marketed through a worldwide network of distributors. In 1995, sales
to the computer/electronics and automotive industries accounted for
approximately 88% and 5% of fastener sales, respectively, with the balance
distributed among other industries, such as recreational equipment, commercial
appliances, and gaming machines.
Motors accounted for approximately 20% of the Company's consolidated sales
in 1995 compared to 25% in 1991, and are marketed in the United States and
Europe through regional sales representatives. The Company primarily designs and
manufactures its motors on a custom basis. End users of the Company's motors
include manufacturers of factory/office automation equipment and
instrumentation.
The Company's consolidated net sales increased from $70.8 million in 1991
to $141.3 million in 1995 and were $39.0 million for the first three months of
1996. Fastener unit sales increased 100.9% from 896 million in 1991 to 1.8
billion in 1995. Motor unit sales increased 20.4% from 565,000 in 1991 to
680,000 in 1995. In the first three months of 1996, the Company sold 513 million
fastener units and 188,000 motor units. This sales increase reflects the growth
of the personal computer and electronics markets, combined with increased
applications for the Company's products in other industries.
Historically, the Company has been able to achieve steady improvements in
profitability largely as a result of (i) increased customer demand for its
products, (ii) its focus on cost containment and improved productivity, and
(iii) the general ability to provide the right product at the right time and at
the right location to support customer applications. The Company's gross margins
increased from 27.9% in 1991 to 31.9% in 1995 primarily due to the ability to
increase the production and shipment of fasteners without a proportionate
increase in fixed costs and overhead. As an example, the fixed manufacturing
cost of fasteners (i.e., depreciation and supervisory expenses) as a percentage
of sales declined from 11.6% in 1991 to 7.6% in 1995. In addition, process
improvement techniques, including focused work centers and product cells in
which fasteners are essentially completed before they leave the work center,
have led to manufacturing cost reductions. The Company is not always able to
pass raw material price increases along to its customers. However, through cost
reduction programs and by controlling the indirect and fixed costs of
operations, the Company increased the operating profit margins of its fastener
operations from 7.6% in 1991 to 16.2% in 1995. Annual price increases on the
Company's fastener products since 1991 have ranged from 2.0% to 2.5%.
The Company's brushless motors have an average price of approximately $220
per unit, reflecting more expensive materials and higher labor content, and are
used in equipment requiring a high degree of reliability. Brush-commutated
motors have an average price of $33 per unit and are typically used in less
expensive volume-related equipment. The percentage of total motor sales
represented by brushless motors was 8.1% in 1991 compared to 21.7% in 1995.
The motor operation's gross margins were 30.4% in 1991 compared to 28.0% in
1995. Continued emphasis on demand-flow technology has allowed Pittman to shift
from batch size manufacturing to lot size manufacturing, and reduce
work-in-process inventory as a percentage of sales by approximately 57% since
August 1992. Several of Pittman's key productivity and cycle time reduction
projects have also helped to increase some component assembly productivity.
14
<PAGE>
The Company's export sales increased 119% from $16.2 million in 1991 to
$35.4 million in 1995. Foreign customers accounted for 20.4% of the Company's
sales in 1991 compared to 25.1% in 1995 and 25.0% in the first quarter of 1996.
The Company's export sales have benefitted from the ability to serve large
multi-national computer and electronics manufacturers which have shifted product
fabrication to offshore labor markets. The Company has maintained distribution
channels and inventories in Europe and the Asia Pacific market for more than 25
years and 10 years, respectively. Between 1991 and 1995, the Company's
distributors increased their inventories of the Company's fasteners nearly 300%
in Europe and more than 200% in the Asia Pacific market. In addition, the
Company currently maintains an inventory of more than 100 million fasteners at
its Danboro, Pennsylvania facility. By increasing product availability, the
Company has better positioned itself to meet the needs of its customers in the
North American, European and Asia Pacific markets, thereby supporting the
significant sales growth.
The Company has continued to improve its ability to provide products in
regions strategic to the world's major electronics and computer manufacturers.
As part of increasing the worldwide availability of its products, the Company
recently established a subsidiary in Singapore through the acquisition of the
assets of the Company's previously independent distributor in Singapore. To
better meet the Asia Pacific market demand for its fasteners, the Company
created a master warehouse in Singapore that will serve the same function as the
Company's warehouse in England. The maintenance of significant warehouse
facilities in England and Singapore allows the Company to ship product in bulk
via ocean freight rather than more costly air shipments directly to the end
user. In addition, the Company plans to establish applications engineering
capabilities in England and Singapore. While the Company's international pricing
is consistent with its domestic pricing, the Company's profits from export sales
may be affected to some extent by freight costs, currency fluctuations, duties,
and local administrative costs. The Company has not experienced any material
impact from these factors to date.
Currently, the Company's fastener operation is working at near full
capacity to meet strong demand. Overtime and higher than planned outside
supplemental screw machine support have impacted negatively the costs of the
Company's fastener operation recently. The Company has invested approximately
$21 million in aggregate capital expenditures over the past two years primarily
to increase production capacity and efficiency. The Company's objective is to
reduce current overtime levels and delivery lead times and enhance its ability
to respond to new growth opportunities. The Company typically experiences a
period of six to nine months between the purchase of equipment and its full
inclusion into the manufacturing process because of equipment manufacturers'
lead times. The Company's capital expenditure program is expected to affect
negatively the Company's margins in 1996 and part of 1997. However, by mid-year
1997 the Company's production capacity is expected to increase by 27% over its
1995 production capacity.
In the past, the Company has experienced a surge in order volume during the
first two months of the calendar year as distributors built inventory to meet
customer demand. In addition, the first quarter of the year is often impacted
negatively by relatively higher payroll costs which precede the effect of price
increases. The Company's profits in the fourth quarter are typically affected
negatively by holiday-related labor inefficiencies. Contracts with major
customers are generally negotiated on an annual basis and as a result there is
no guarantee that the Company's product pricing will support historical profit
margins. As a result, the Company targets 5% annual gains in productivity and
also targets, at a minimum, a 15% return on equity. In 1994 and 1995, the
Company achieved a return on equity of 16.9% and 19.4%, respectively.
Results of Operations
The following table sets forth for the periods indicated net sales by
segment, domestic and foreign sales and their percentage of total net sales,
gross margin by segment and as a percentage of segment sales, and other data
derived from the Company's consolidated statements of income. There can be no
assurance that the trends in operating results will continue in the future.
15
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
-------------------- -------------------- -------------------- -------------------- ---------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
Fasteners............. $ 77,192 76.7% $ 96,067 79.1% $ 113,323 80.2% $ 28,302 80.2% $ 31,475
Motors................ 23,473 23.3 25,403 20.9 27,945 19.8 6,996 19.8 7,554
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............... $ 100,665 100.0% $ 121,470 100.0% $ 141,268 100.0% $ 35,298 100.0% $ 39,029
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Domestic.............. $ 80,106 79.6% $ 93,979 77.4% $ 105,831 74.9% $ 25,705 72.8% $ 29,262
Foreign............... 20,559 20.4 27,491 22.6 35,437 25.1 9,593 27.2 9,767
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............... $ 100,665 100.0% $ 121,470 100.0% $ 141,268 100.0% $ 35,298 100.0% $ 39,029
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
GROSS MARGIN:
Fasteners............. $ 23,350 30.3% $ 31,428 32.7% $ 37,258 32.9% $ 8,818 31.2% $ 9,553
Motors................ 6,336 27.0 6,914 27.2 7,820 28.0 1,850 26.5 1,999
TOTAL COMPANY:
Gross margin.......... $ 29,686 29.5% $ 38,342 31.6% $ 45,078 31.9% $ 10,668 30.2% $ 11,552
Selling, general, and
administrative
('SG&A') expenses... 18,596 18.5 21,842 18.0 24,056 17.0 6,017 17.0 7,113
Operating profit...... 11,090 11.0 16,500 13.6 21,022 14.9 4,651 13.2 4,439
Net income............ 7,352 7.3 10,441 8.6 13,798 9.8 3,023 8.6 2,869
<CAPTION>
%
---------
NET SALES:
Fasteners............. 80.6%
Motors................ 19.4
---------
Total............... 100.0%
---------
---------
Domestic.............. 75.0%
Foreign............... 25.0
---------
Total............... 100.0%
---------
---------
GROSS MARGIN:
Fasteners............. 30.4%
Motors................ 26.5
TOTAL COMPANY:
Gross margin.......... 29.6%
Selling, general, and
administrative
('SG&A') expenses... 18.2
Operating profit...... 11.4
Net income............ 7.4
</TABLE>
Three Months ended March 31, 1996 compared to Three Months ended March 31,
1995
Consolidated net sales for the quarter ended March 31, 1996 were $39.0
million, versus $35.3 million for the three months ended March 31, 1995, a 10.5%
increase. Sales to customers outside the United States for the three months
ended March 31, 1996 were $9.8 million, versus $9.6 million for the three months
ended March 31, 1995, a 2.1% increase.
Net sales of the fastener operation for the three months ended March 31,
1996 were $31.5 million, versus $28.3 million for the three months ended March
31, 1995, an 11.3% increase. The number of fastener units shipped within North
America increased 19.6% from the first three months of 1995 to the first three
months of 1996, and represented 70.9% of total fasteners shipped in the first
three months of 1996. The number of fastener units shipped to Europe increased
approximately 22.3% from the first three months of 1995 to the first three
months of 1996, while the number of fastener units shipped to the Asia Pacific
market decreased 18.9% from the first three months of 1995 to the first three
months of 1996. The continued strong demand for personal computers as well as
other electronic equipment, which accounted for 84.0% of fastener sales in the
first three months of 1995 and 1996, were the main cause of the increased
shipment volume in North America and Europe. However, this increase was offset
by the decline in the Asia Pacific market which was caused by high retail
personal computer inventory levels resulting from a sales surge after the
release of 'Windows 95'. Unsold computer and peripherals inventory at the end of
1995 resulted in a slowdown in personal computer orders which impacted
negatively fastener sales in the Asia Pacific market in the first three months
of 1996. Average selling prices for fasteners shipped in the first three months
of 1996 decreased 5.3% compared to the first three months of 1995 because of a
change in product mix.
Net sales of the motor operation for the first three months of 1996 were
$7.6 million, versus $7.0 million for the first three months of 1995, an 8.6%
increase. The number of motors sold increased 12.6% from the first three months
of 1995 to the first three months of 1996, while the average selling price
declined 3.6% from the first three months of 1995 as a result of a change in
product mix toward lower margin motors.
Consolidated gross margins for the first three months of 1996 was $11.6
million, versus $10.7 million for the first three months of 1995, an 8.3%
increase. Fastener gross margins increased 8.3% from the first three months of
1995 to the first three months of 1996 as a result of the increased number of
units sold without a proportionate increase in cost. As a percentage of sales,
however, fastener gross
16
<PAGE>
margins decreased from 31.2% in the first three months of 1995 to 30.4% in the
first three months of 1996 because costs increases incurred for raw material,
outside screw machine services, and tooling were not offset by price increases,
production efficiencies, and cost containment. The Company's price increase of
approximately 2.8% announced on January 1, 1996, which became effective April 1,
1996, will partially offset these cost increases for the remainder of 1996.
Motor gross margins increased approximately 8.0% from the first three months of
1995 to the first three months of 1996 and remained constant at 26.5% of sales
for both periods.
SG&A expenses for the first three months of 1996 were $7.1 million, versus
$6.0 million for the first three months of 1995, an 18.2% increase. SG&A
expenses, as a percentage of sales, increased from 17.0% in the first three
months of 1995 to 18.2% in the first three months of 1996. Additional SG&A
staff, wage increases for current staff, and the establishment of a Singapore
distribution center all contributed to the increased SG&A expense.
Consolidated net income for the first three months of 1996 was $2.9
million, versus $3.0 million for the first three months of 1995, a 3.3%
decrease. Other income decreased 61.1% as a result of decreased investment
income. This decrease as well as the increased cost of sales and SG&A expenses
were partially offset by a Pennsylvania income tax rate reduction that lowered
the Company's overall effective tax rate from 39.5% in 1995 to 37.3% in 1996.
Year ended December 31, 1995 compared to Year ended December 31, 1994
Consolidated net sales for 1995 were $141.3 million, versus $121.5 million
for 1994, a 16.3% increase. Sales to customers outside the United States for
1995 were $35.4 million, versus $27.5 million for 1994, a 28.9% increase.
Net sales of the fastener operation for 1995 were $113.3 million, versus
$96.1 million for 1994, a 17.9% increase. The number of fasteners sold increased
17.7% from 1994 to 1995. The number of fastener units shipped within North
America increased 12.2% from 1994 to 1995, and represented 72.1% of total
fasteners shipped in 1995. The number of fastener units shipped to Europe and
the Asia Pacific market increased 37.2% and 26.4%, respectively, from 1994 to
1995, and represented 21.9% and 6.0%, respectively, of total fastener units
shipped in 1995. The continued strong demand for personal computers as well as
other electronic equipment, which accounted for 90.0% of fastener sales in 1994
and 1995, has been the main cause of the increased shipment volume. Average
selling prices for fasteners shipped in 1995 increased less than 1% from 1994 to
1995 as a result of selective price increases effective in the second quarter of
1995.
Net sales of the motor operation for 1995 were $27.9 million, versus $25.4
million for 1994, a 10.0% increase. The number of motors sold increased 1.0%
from 1994 to 1995, while the average selling price increased 8.9% due to a shift
in product mix toward higher-priced brushless motors and motors with additional
features and options. During 1995, brushless motor sales, which carry higher
margins, comprised 21.8% of total motor sales compared to 16.9% in 1994.
Consolidated gross margins for 1995 were $45.1 million, versus $38.3
million for 1994, a 17.8% increase. Fastener gross margins increased 18.6% from
1994 to 1995 as a result of the increased number of units sold without a
proportionate increase in costs. As a result of the continuing increase in
demand for the Company's fasteners, manufacturing operations were nearly at full
capacity, allowing the Company to realize economies of scale with regard to its
fixed expenses. In addition, increases in raw material costs were offset by cost
reductions within the manufacturing departments.
SG&A expenses for 1995 were $24.1 million, versus $21.8 million for 1994, a
10.1% increase. However, as a percentage of sales, SG&A expenses improved from
18.0% in 1994 to 17.0% in 1995. Selling expenses, as a percentage of sales,
declined because sales on which the Company does not pay commissions increased
in 1995 compared to 1994. The Company's sales to Europe and to the Asia Pacific
market are made through subsidiaries and distributors and consequently carry no
commission-related expenses. These sales increased 28.9% in 1995 compared to
1994. In addition, the increase in
17
<PAGE>
the Company's general and administrative expenses was also less than the
increase in the Company's sales.
Consolidated net income for 1995 was $13.8 million, versus $10.4 million
for 1994, a 32.7% increase. Increased investment income and favorable exchange
rates in 1995 contributed $.5 million to other income in 1995. The Company's
effective tax rate decreased from 39.0% in 1994 to 37.6% in 1995. This reduction
was caused primarily by a Pennsylvania state income tax rate reduction that was
retroactive to the beginning of 1995. These factors, combined with the operating
efficiencies associated with increased capacity utilization, and the increased
sales volume, all contributed to the increase in net income in 1995.
Year ended December 31, 1994 compared to Year ended December 31, 1993
Consolidated net sales for 1994 were $121.5 million, versus $100.7 million
for 1993, a 20.7% increase. Sales to customers outside the United States were
$27.5 million for 1994, versus $20.6 million for 1993, a 33.7% increase.
Net sales of the fastener operation for 1994 were $96.1 million, versus
$77.2 million for 1993, a 24.5% increase. The number of fasteners sold increased
22.3% from 1993 to 1994. The number of fastener units shipped within North
America increased 17.7% from 1993 to 1994, while the number of fastener units
shipped to Europe and the Asia Pacific market increased 37.5% and 43.5%,
respectively, from 1993 to 1994. This volume increase resulted from the
continuing demand for telecommunications and data communications equipment and
personal computers. The remainder of the fastener revenue increase was due to an
effective selling price increase of approximately 3% implemented during the
second quarter of 1994.
Net sales of the motor operation for 1994 were $25.4 million, versus $23.5
million for 1993, an 8.2% increase. The number of motors sold increased 1.4%
from 1993 to 1994, while the average selling price increased 6.8% from 1993 to
1994 due to a shift in product mix towards higher-priced brushless motors.
Domestic motor sales increased 12.1% from 1993 to 1994, while foreign sales
decreased 17.5% due to a product phase-out by an overseas customer. During 1994,
brushless motor sales, which carry higher margins, comprised 16.9% of total
motor net sales compared to 14.3% in 1993.
Consolidated gross margins for 1994 were $38.3 million, versus $29.7
million for 1993, a 29.3% increase. Fastener gross margins increased 34.6% from
1993 to 1994 as a result of the increased number of units sold without a
proportionate increase in costs. As a result of the continuing increase in
demand for the Company's fasteners, manufacturing operations were nearly at full
capacity, allowing the Company to realize economies of scale with regard to its
fixed expenses. In addition, increases in raw material costs were offset by cost
reductions within the manufacturing departments.
SG&A expenses for 1994 were $21.8 million, versus $18.6 million for 1993, a
17.5% increase. However, as a percentage of sales, SG&A expenses declined from
18.5% in 1993 to 18.0% in 1994 as sales volume increases more than offset the
labor and benefit increases included in SG&A. Cost of products sold, as a
percentage of sales, also decreased from 70.5% in 1993 to 68.4% in 1994 due to
economies of scale resulting from increased production volume, better factory
utilization, and continued emphasis on cost containment.
Consolidated net income for 1994 was $10.4 million, versus $7.4 million for
1993, a 40.5% increase. Adoption of Statement of Financial Accounting Standards
No. 109, 'Accounting for Income Taxes' resulted in an increase in net income of
$.4 million in 1993. Other income totaled $.6 million in 1994, an increase of
62.2% over 1993. This increase was primarily caused by favorable currency
exchange rates as well as an increase in investment income.
18
<PAGE>
Liquidity and Capital Resources
The Company's liquidity needs are primarily for capital expenditures and
working capital. Cash flow from operations continues to be the primary source of
financing for the Company's growth. The Company generated cash from operations
of $14.7 million in 1995 compared to $12.3 million in 1994 and $9.0 million in
1993. Working capital decreased in 1995 to $38.9 million from $41.6 million in
1994 primarily due to the increase in notes and accounts payable needed to
finance capital expenditures and raw material inventory. Working capital
increased to $41.6 million in 1994 from $35.0 million in 1993 primarily due to
increased receivables resulting from increased sales volume.
The Company annually invests in capital assets primarily to increase
production capacity and efficiency. In 1995, the Company spent $17.2 million for
capital expenditures in response to the continuing demand for the Company's
products. These expenditures included construction of a 43,000 square foot
addition to the Company's Danboro, Pennsylvania facility, which was
substantially completed in May 1996. Capital expenditures in 1993 and 1994 were
$8.4 million and $3.8 million, respectively. In addition to the working capital
described above, the Company had available credit under the Credit Facilities
totaling $36.0 million as of December 31, 1995. The Company expects to utilize
these credit lines, together with the proceeds of the Offering, to supplement
cash flow from operations to finance capital expenditures of approximately $25
million in 1996, including a new 120,000 square foot facility to replace the
Company's 58,000 square foot facility in Winston-Salem, North Carolina. The
Company's five-year plan includes approximately $100 million in capital
expenditures, and an increase in capacity to 3.0 billion fasteners annually by
2000. The Company expects to use internally generated earnings and external
financing to fund these expenditures.
The Company's total dividends paid increased 31.1% from $2.6 million in
1994 to $3.4 million in 1995 after having increased 32.6% from $2.0 million in
1993 to $2.6 million in 1994. On April 17, 1996, the Company declared a
quarterly cash dividend of $.10 per share, on total shares outstanding after the
Stock Dividend, payable on July 9, 1996, to stockholders of record on June 14,
1996.
19
<PAGE>
BUSINESS
THE COMPANY
The Company is the world's leading manufacturer of self-clinching fasteners
used by the computer, datacommunications, telecommunications, general
electronics, automotive, and avionics industries. PEM self-clinching fasteners,
which accounted for 80% of the Company's sales in 1995, were first developed by
the Company's founder in 1942. Self-clinching fasteners become an integral part
of the material in which they are installed and provide a reliable means of
attaching components to sheet metal or plastic. Typical applications for the
Company's fastener products include personal computers, computer cabinetry,
power supplies, instrumentation, telecommunications equipment, and certain
automobile parts, such as air bags and windshield wipers. The Company's Pittman
division manufactures high performance permanent magnet dc motors used in
electronics, medical, and manufacturing applications.
The Company's fasteners are primarily used by sheet metal fabricators which
utilize the Company's fasteners to produce sub-assemblies for OEMs. Both OEMs
and their subcontractors seek fastening solutions which provide lower total
installed cost and are highly reliable, thereby lowering production and service
costs. The Company's applications engineers and independent distributors
continually work in close collaboration with OEMs and their subcontractors to
determine appropriate fastener applications, which often results in OEMs
specifying the Company's fasteners. Self-clinching fasteners generally compete
against loose hardware, such as nuts and bolts. The Company's fasteners
typically sell at a premium to loose hardware. However, the Company's fasteners
generally result in lower overall manufacturing costs.
The Company also manufactures and sells manual and automated presses for
fastener installation under the PEMSERTER trademark. The rapid and accurate
installation provided by PEMSERTER presses, together with the Company's broad
range of fastener products, provides the Company's customers with a complete
fastening system.
The Company's Pittman division produces high-quality, high-performance,
permanent magnet dc motors used in light-weight precision applications such as
mass information data storage, tape drives, archival storage, printing, copying,
robotics, and medical diagnostic equipment and centrifuges. Pittman's broad
range of products are typically adapted to the specific requirements of
individual customers.
The Company has built a strong track record of growth and profitability.
From 1991 to 1995, sales have doubled and operating profits have increased from
$5.7 million to $21.0 million. The Company believes its success has been
primarily driven by the following strengths:
Strong Market Share. The Company has significantly increased its market
share over the past five years and estimates that it holds approximately 50% of
the worldwide market for self-clinching fasteners. The Company believes its
domestic market share is approximately 70%. In Europe and in the Asia Pacific
market, the Company's market share for self-clinching fasteners is approximately
38% and 14%, respectively. The Company believes it has an advantage over its
competitors based on its: (i) manufacturing capabilities, (ii) quality raw
material sourcing, (iii) high standards of internal manufacturing controls, (iv)
inventories maintained at Company warehouses in North America, Europe, and Asia,
and (v) breadth of product line.
Long-standing Customer Relationships. The Company's strong relationships
with a diverse base of customers continually allows for the identification of
new business opportunities. The Company has been a long-term supplier of
fasteners to many of its customers. For example, the Company has supplied IBM,
Hewlett-Packard, Pitney-Bowes, and Xerox for more than 25 years. The Company
believes that it has earned its position with such customers by virtue of its
design engineering capabilities, timely delivery, excellent quality, and
customer service.
Well-Positioned in Rapidly Growing Computer/Electronics Markets. The
Company's fasteners are on the preferred or designated vendor list of computer
manufacturers which currently comprise
20
<PAGE>
approximately 33% of the worldwide personal computer market. The Company's
fasteners are used by many of the world's largest electronics and
telecommunications OEMs, including Alcatel, AMP, AT&T, Ericsson, Philips, and
Siemens. As a result, the Company expects to increase its sales as these markets
continue to grow domestically and internationally.
Broad Product Application Across a Diverse Group of Industries. The
Company believes it benefits from the diversity of applications for its
self-clinching fasteners across a broad range of industries. The Company shipped
fasteners to over 12,000 customers in 1995, and no single market segment
accounted for more than 15% of the Company's total sales in 1995.
Recognized Leader in Fastening Solutions. The Company believes its
commitment to working with OEMs early in the design process places it at the
forefront in providing fastening solutions. The Company's success and reputation
for consistently developing such solutions often results in customers specifying
PEM fasteners for their products.
Successful Management Team. The Company believes an important element of
its success is its highly experienced senior management team. Kenneth A.
Swanstrom, the Company's Chief Executive Officer, has been with the Company
since 1960. The Company's Chief Financial Officer has been with the Company for
nearly 20 years. Since 1990, the Company has added management with significant
industry experience in key marketing, manufacturing, and engineering positions.
BUSINESS STRATEGY
The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. The Company estimates that the current
total market for all forms of fasteners which potentially could be replaced by
PEM fasteners is approximately $600 million. The Company believes it is well
positioned to achieve continued growth and intends to build upon its success by
relying on a strategy which emphasizes the following key elements: (i) focus on
new customer applications and product development, (ii) expand production
capacity, (iii) continue to improve productivity, (iv) implement cost reduction
initiatives, and (v) increase sales to foreign markets.
Focus on New Customer Applications and Product Development. The Company is
committed to growing with its customers both domestically and abroad. By working
with OEMs early in the design process, the Company's fasteners are often
selected for use when new products or new markets are addressed. The Company
believes considerable opportunities are available in Europe and the Asia Pacific
market given the growth of the computer and electronics markets in these
regions. With over 3,000 readily available proprietary catalog products, the
Company is well positioned to meet the needs of its customers. In addition, the
Company engages in the continuous development of new products and product
extensions.
Expand Production Capacity. From 1991 to 1995, demand for the Company's
fasteners has increased more rapidly than the Company's capacity. In spite of
the Company's capacity constraints, fastener units shipped have more than
doubled over this period from 896 million to 1.8 billion annually. In 1995, the
Company spent $17.2 million for capital expenditures in response to the
continuing demand for the Company's products. These expenditures included
construction of a 43,000 square foot addition to the Company's Danboro,
Pennsylvania facility, which was substantially completed in May 1996. The
Company intends to utilize its credit lines and the proceeds of this Offering to
supplement cash flow from operations to finance capital expenditures of
approximately $25 million in 1996 including a new 120,000 square foot facility
to replace the Company's 58,000 square foot facility in Winston-Salem, North
Carolina. These capital expenditures are expected to increase fastener
production capacity by approximately 27%, allowing the Company to ship 2.3
billion fastener units annually by early 1997. The Company's five-year plan
includes approximately $100 million in capital expenditures, and an increase in
capacity to 3.0 billion fasteners annually by 2000.
Continue to Improve Productivity. To increase efficient utilization of its
manufacturing facilities, the Company will continue to implement programs which
include cell manufacturing and
21
<PAGE>
focused work centers, demand flow production, new tooling, and new heat treating
methods and washing equipment. The Company has realized a decrease in the cost
of fastener products sold as a percentage of sales from 72.1% by 1991 to 68.1%
in 1995. The Company targets 5% annual increases in productivity. The Company
will continue to attract and retain highly-qualified employees by providing an
environment which promotes creativity.
Implement Cost Reduction Initiatives. Gross margins have increased from
27.9% in 1991 to 31.9% in 1995 despite a doubling of sales during this period.
In addition, the Company has improved operating margins from 8.1% in 1991 to
14.9% in 1995 by controlling SG&A expenses. The Company intends to continue to
reduce costs through initiatives which monitor raw material sourcing, encourage
manufacturing innovations, and preserve a stable and productive work force.
Increase Sales to Foreign Markets. Since 1991, the Company's foreign sales
have increased approximately 119% from $16.2 million to $35.4 million in 1995
and currently represent 25.1% of total sales. The Company has recently acquired
its previously independent distributor in Singapore, which affords the Company a
hub from which to enhance service to customers in the Asia Pacific market. The
Company is also establishing an applications engineering center at its facility
in Doncaster, England and plans to establish a similar center in Singapore.
PEM FASTENER PRODUCTS
PRODUCTS AND MARKETS
The Company's fastener products include self-clinching studs, nuts,
standoffs, panel fasteners, inserts, and other specialty fastener and insert
products. The Company believes that it has an advantage over other manufacturers
of self-clinching fasteners based on the reputation it enjoys for its
manufacturing capabilities, quality raw material sourcing, high standards of
internal manufacturing controls, inventories maintained at Company warehouses in
North America, Europe, and Asia, and breadth of product line. The Company is
continuously pursuing the creation of new markets for its products by developing
new applications, products, and product extensions for the industries the
Company serves. However, by providing a general methodology for the assembly of
products using sheet metal or plastic, the Company's fastener business is not
dependent upon the continued existence of any particular product application and
is highly adaptable to technological changes.
The Company believes that one of its primary strengths is the use of its
fasteners in an extremely diverse group of products and across a wide range of
industries. Although the computer industry is the largest single market sector
which uses the Company's fasteners, computer manufacturers accounted for less
than 15% of the Company's total fastener shipments in 1995. The Company shipped
fasteners to over 12,000 customers in 1995, and no single end-user of the
Company's products accounted for more than 10% of the Company's total sales.
PRODUCT SEGMENTS
The table below highlights some of the major markets and products which use
the Company's fasteners.
<TABLE>
<CAPTION>
ELECTRONICS MARKETS (88%) AUTOMOTIVE MARKETS (5%) OTHER MARKETS (7%)
- ------------------------- ----------------------- ------------------
<S> <C> <C>
Personal computers Air bags Test equipment
Computer peripherals Wiper blades Garage door openers
Telecommunications equipment Engine brackets Vending machines
Datacommunications equipment Muffler hangers Gas meters
TV set-top boxes Bumper fasteners Snowmobiles
ATM machines After-market trim Gaming machines
</TABLE>
22
<PAGE>
Electronics Markets
The Company's marketing and engineering efforts are closely aligned with
one another. As a result, the Company is able to identify potential new
applications and markets for fasteners on a continuous basis and provide
innovative solutions to a wide variety of customers' fastening problems. This
approach has led the Company to focus on many of the rapidly growing companies
within the computer, electronics, and telecommunications industries. Fleck
Research Institute estimates that the computer, telecommunications, and
datacommunications sectors will grow annually by 8.3%, 5.8%, and 15.2%,
respectively, through the year 2000. The Company tracks computer chip shipments,
a barometer for growth of the electronics industry, which have increased by 30%
to 40% annually over the last five years and are expected to grow at a rate of
20% annually through 2000. Continued strong demand for telecommunications and
information technology worldwide and specifically in emerging market countries
should fuel growth of these sectors well into the next century.
Use of the Company's fasteners has also increased in telecommunications
equipment applications, including telephone switching equipment, cellular
transmission equipment, and base equipment. The increasing need for high quality
fasteners in datacommunications equipment, such as net servers and data storage
equipment, has also expanded the markets for the Company's products.
The electronics markets have historically accounted for a significant
portion of the Company's fastener sales. Self-clinching fasteners provide a
strong and reliable means of attachment of components in materials, such as
sheet metal or plastic, that are too thin to support load-bearing threads. Once
a fastener has been installed in such sheet material, an ordinary bolt or
machine screw can be inserted into the threaded hole of the fastener, thereby
permitting attachment to the sheet material of an item which would otherwise
have to be permanently riveted or welded to the sheet. Computer and electronics
manufacturers have increasingly shifted to the Company's self-clinching
fasteners to provide an improved product at a lower overall manufacturing cost.
The Company's fasteners, primarily because of an extremely low parts per million
defect rate, are currently on the preferred or designated supplier list for
computer manufacturers which currently comprise 33% of the worldwide personal
computer market. Such designation provides significant opportunities for the
Company while it increases capacity domestically and distribution on a global
scale.
The Company has established its position within the computer and
electronics markets by successfully identifying and meeting the needs of the
fastest growing OEMs. The Company believes its ability to provide effective
fastener solutions in a variety of electronics applications differentiates it
from many of its competitors. Since 1991, the Company has met the high volume
demand for self-clinching fasteners of Compaq, one of the world's largest
computer manufacturers, and has increased shipments to Compaq's subcontractors
from approximately six million units in 1991 to approximately 100 million units
in 1995.
The Company believes its designation as a lowest cost supplier by AMP, a
major international electronics manufacturer, positions the Company to benefit
from continued demand for existing products, and affords a significant advantage
for new product introductions by that manufacturer. Internationally, the Company
has benefited also from increasing its distribution capacity to serve growing
demand from its facilities in England and Singapore.
In addition to gaining new business through its preferred supplier status
with certain customers, the Company constantly strives to provide manufacturers
with fastening solutions for both new products and new applications and with
replacements to less effective fastening systems, such as loose
23
<PAGE>
hardware, in existing products. Below is a list of recent new applications for
the Company's fasteners and the advantages provided thereby.
<TABLE>
<CAPTION>
PRODUCT PEM FASTENER ADVANTAGES
------- -----------------------
<S> <C>
Supercomputers The Company's double sided pin replaces two more costly pins that require
hand attachment
Home computers Larger body size of the Company's standoff resolves critical grounding
issues
Connector housing for high speed The Company's nut replaces four pieces of loose hardware
data exchange equipment
Global positioning systems The Company's standoffs meet stringent durability tests and replace loose
hardware
Cover plate for compact cellular The Company's stud eliminates costs and steps involved with tapping and
transmitter combiner soldering, and provides more consistent torque-out and push-out values
Printed circuit boards for mobile The Company's panel fastener eliminates loose hardware, speeds assembly,
telephone terminals and allows quicker access to boards for field service
</TABLE>
Automotive Markets
The Company has a long history of supplying major automotive OEM and
aftermarket suppliers, and sales to the automotive industry constituted
approximately 5% of the Company's sales in 1995. The Company has built its
position in the automotive industry by supplying customers' needs for
highly-engineered fastening solutions. The Company's fasteners are used in the
manufacture of windshield wiper systems, exterior and interior trim systems such
as door handles, instrument panels, and bumpers, and automotive electronic
systems for sunroofs, global positioning systems, and vehicle security systems.
The Company's engineers work in close collaboration with automotive
suppliers to identify trends and future opportunities. For example, the
Company's fasteners were among the first used in air bags in 1980. Today, the
Company's fasteners are used by the five suppliers which hold over 90% of the
worldwide automotive air bag market. The Company has been able to consistently
meet the stringent quality, delivery, and service requirements of the world's
leading automotive air bag suppliers. Accordingly, the Company expects to
continue to benefit from increasing air bag demand as regulatory and consumer
pressures make multiple air bags standard for most vehicles.
COMPETITIVE ADVANTAGES
The Company's applications engineers work in collaboration with OEMs to
develop innovative solutions to fastening needs, which often results in the OEM
including the Company's fasteners in production specifications. The Company's
engineering representatives and its independent distributors work with
subassembly fabricators and OEMs to develop fastening solutions which will
reduce overall manufacturing costs.
The Company's fastener products compete on the basis of product quality,
breadth of product line and reliability of delivery, and to a lesser extent, on
price. Just-in-time manufacturing and designed-for-assembly or
designed-for-manufacturing methodologies adopted by many electronics
manufacturers place increased demands on subcontractors and assemblers to
produce high volumes of products within short lead times. The Company believes
that its manufacturing capabilities, quality raw material sourcing, maintenance
of inventories in Danboro, Pennsylvania, England, and Singapore, and breadth of
product line provide a competitive advantage. The Company's products typically
sell at a
24
<PAGE>
premium compared to loose hardware; however, the speed and cost of installation
and low rejection rate of the Company's fasteners usually result in lower
overall assembly costs. The Company maintains a catalog of more than 3,000
readily available proprietary fastener products.
FUTURE GROWTH OPPORTUNITIES
The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. If all other forms of fasteners are
included that could potentially be replaced with PEM brand self-clinching
fasteners, the Company estimates a current total market of approximately $600
million. For example, self-clinching fasteners are finding increasing
applications as replacements for weld nuts and weld studs that have historically
been used in large volumes in the appliance and automotive industries due in
part to the increased use of electronic components in automobiles and
appliances.
The Company originated the market for self-clinching fasteners and believes
it manufactures more self-clinching fasteners than any other company. The
Company further believes that it offers a broader range of self-clinching,
broaching, and insert fasteners than any of its competitors. Both the Company's
fastener and motor divisions have been awarded IS0 9001 certification. This
recognition of the Company's compliance and adherence to international quality
standards also provides the Company with a competitive advantage.
Sales of fasteners to customers in the United States and Canada accounted
for 72% of total fastener sales in 1995. Export shipments in terms of units
increased from 19.5% of total fastener shipments in 1991 to 28% of total
fastener shipments in 1995. The Company's sales of fasteners to customers in
Europe, where the Company has maintained a presence for over 25 years, have
increased 294% since 1991. The Company owns and maintains warehouse facilities
in England and Singapore to ensure that adequate supplies of the Company's
products are available to its customers. In addition to the inventory of
fasteners located in those facilities, the Company's Danboro, Pennsylvania
facility maintains significant supplies of inventory for its domestic
distributors that can also be used for export sales. While the design and
process engineering activities have historically been concentrated in the United
States, the Company has experienced a shift toward increased design activities
overseas. To address this change and to strategically position itself in these
growing markets, the Company is developing an applications engineering center at
its facility in England to serve the European market and plans to establish a
similar center in Singapore to serve the Asia Pacific market.
MANUFACTURING
All fastener products produced by the Company are fabricated from metal bar
stock of various shapes and sizes, and coiled (wire) stock of various diameters.
The materials used include brass, low carbon steels, free machining steels,
aluminum, and various stainless steel alloys. The Company purchases
approximately 70% of its fastener raw material from domestic sources.
The fastener manufacturing process involves machining, including single and
multiple-spindle screw machines, multi-station cold forming machines, and cold
heading equipment to produce both internally and externally threaded fasteners.
Secondary equipment (such as thread rolling, tapping, and assembly) and other
finishing processes are involved in producing the completed fastener. Heat
treating is required on approximately 50% of the Company's fastener products to
produce a hardness greater than the sheet in which the part is installed, and
approximately 60% of the Company's products also require some type of plating,
primarily zinc, for surface protection. The Company performs substantially all
of its heat treating requirements, but all of its plating requirements are
provided by subcontractors.
The Company has an advantage over its competitors due to its raw material
purchasing power, its substantial capital expenditure program, its extensive
installed machine base, and its over 50 years of manufacturing experience. The
Company designs and manufactures much of its own production tooling because
equivalent tools are not available in the marketplace. All manufacturing
equipment purchased by the Company is first analyzed in depth to evaluate its
potential for increased speed,
25
<PAGE>
improved quality, compatibility with existing tooling and product flow, and
operator friendliness. Typically, an equipment purchase is expected to produce a
full return on investment within two years.
The Company has realized a decrease in the cost of fastener products sold
as a percentage of sales from 72.1% in 1991 to 68.1% in 1995. This improvement
has resulted from economies of scale due to increased production volume, more
efficient factory utilization, and process improvements such as cell
manufacturing and focused work centers.
The Company's fastener production capacity increased by approximately 24%
during 1995 through the expansion of facilities, addition of equipment, and
refinements in production processes. The Company is currently involved in
efforts to expand its fastener production capacity which the Company anticipates
will increase such capacity by approximately 27% by early 1997. Several other
projects are underway to improve labor-intensive operations such as labor
reporting, inventory control, production reporting, job tracking, and raw
material management. The Company's continuing objective is to increase efficient
utilization of its human resources as well as its physical resources. The
Company targets annual productivity increases of 5%.
PITTMAN DIVISION MOTOR PRODUCTS
PRODUCTS AND MARKETS
The Company's Pittman division develops, manufactures, and sells permanent
magnet dc motors including LO-COG brush-commutated 'servo' motors, which provide
precise control of speed and torque, and ELCOM brushless servo motors, which
feature slotless stator construction and dramatically increased life span due to
the elimination of brush commutation and its associated dust, mechanical noise,
and electrical noise problems. Pittman's applications engineers and technical
sales representatives work closely with its over 2,800 active customers to
develop the exact motor configuration to meet the customers' needs. Pittman was
among the first motor manufacturers to develop motor components which could be
used in assembling a multitude of motor products. By combining shaft lengths,
motor housing lengths, winding characteristics, brush chemistry, lubricant
chemistry, gear combinations, and other customized features, thousands of motor
combinations are readily available to solve a particular customer's needs.
Founded in 1934, Pittman rapidly gained recognition as one of the
pioneering motor manufacturers in the hobby field. After its acquisition by the
Company in 1970, and an infusion of new capital, Pittman began to expand its
product line substantially to address office automation and instrumentation.
The total electric motor market in North America in 1995 had revenues in
excess of $8.7 billion with over 758 million units shipped by over 100
manufacturers. Pittman currently competes in a segment of this market which is
comprised of approximately 20 motor manufacturers in the factory/office
automation, and instrumentation markets. These markets, which currently have
approximately $330 million in revenues and shipments of approximately 4.9
million units, are expected to grow to $460 million in revenues, and shipments
of 7.0 million units by the year 2000.
PRODUCT SEGMENTS
The following table sets forth some of the applications that use Pittman
motors.
<TABLE>
<CAPTION>
FACTORY/OFFICE AUTOMATION (80%) INSTRUMENTATION (11%) OTHER (9%)
- ------------------------------- --------------------- ----------
<S> <C> <C>
Robotics Centrifuges Photographic equipment
Archival storage equipment Lab micropositioners Hobby
Printers Analog recorders Vending machines
Packaging equipment Medical diagnostics Gaming machines
Blood analyzers Test equipment
</TABLE>
Customers range from multi-national computer companies to semiconductor
processing equipment manufacturers. While Pittman's top 25 customers represent
approximately 50% of its sales,
26
<PAGE>
no single customer accounts for more than 10% of sales. The Company believes
that Pittman's long history of quality products and engineering expertise will
enable it to compete effectively and to expand its market share and markets.
Pittman's brush-commutated motors are often found in factory/office
automation applications and have an average price of $33. Pittman's brushless
motors, having an average price of $220, are favored where a significantly
increased life span is required, such as semiconductor manufacturers' processing
equipment and medical equipment. Pittman has more than 5,000 documented design
permutations of its seven modular product families.
The following table presents the amount and percentage of Pittman sales of
brush-commutated and brushless motors for 1993, 1994, and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brush-commutated.................................. $ 18,087 82.5% $ 20,923 83.1% $ 21,671 78.2%
Brushless......................................... 3,839 17.5 4,254 16.9 6,055 21.8
--------- ----- --------- ----- --------- -----
$ 21,926 100.0% $ 25,177 100.0% $ 27,726 100.0%
========= ===== ========= ===== ========= =====
</TABLE>
MANUFACTURING
All Pittman motors are manufactured to customer order. As a result,
finished goods inventories are minimal. The primary manufacturing operation
performed at Pittman is the assembly of brush commutated and brushless motors.
Pittman maintains basic manufacturing capabilities such as turning, milling,
drilling, and tapping operations, but these processes are primarily used to
facilitate the modification of sub-level components. Four main sub-assembly
components and seven modular product families are involved in the basic brush
and brushless products. This manufacturing strategy supports the value-added
marketing strategy employed by Pittman over the past six years. The strengths of
Pittman's manufacturing operations are a highly dedicated and motivated work
force and a flexible, modular manufacturing methodology.
Pittman utilizes just-in-time and demand-flow manufacturing technology
whereby quantities of motors are assembled in lots of one, thus reducing
work-in-process and lead times and increasing manufacturing flexibility to
customers' changes and quality. As a result of the implementation of these
processes beginning in 1990, manufacturing lead time has been reduced from
twelve weeks to four weeks. Work-in-process inventory as a percentage of sales
has been reduced by 57% and component inventory as a percentage of sales has
been reduced by approximately 21% since August 1992. The implementation of these
strategies aided in the award of ISO 9001 certification to Pittman. Pittman has
focused its manufacturing efforts toward value-added assembly, and currently
more than 55% of all products receive at least one value-added assembly
operation.
Pittman has several key productivity and cycle time reduction projects
currently in various stages of completion for 1996. The first project will allow
the production rate of one of Pittman's key sub-assembly components (magnet and
housing) to increase by 50%. The second project utilizes a state-of-the-art
custom manufactured computer numerically controlled (CNC) lathe that allows the
reduction of final assembly rework by as much as 90% in most cases. The third
project is the development of a proprietary process that has the potential to
improve the productivity of the final assembly and test operations by up to 25%.
Pittman has established a goal of reducing its manufacturing lead time to
one week by the year 2000. Pittman has committed to achieving continuous cycle
time reduction, continuous product improvement, and continuous quality
improvement through the utilization of advanced manufacturing strategies and
technologies.
27
<PAGE>
SALES AND MARKETING
Fasteners. The Company's fastener products are sold through a worldwide
network of 40 authorized distributors located in 30 countries and the Company's
subsidiaries in Singapore and England. Many of the distributors and engineering
representative organizations have been affiliated with the Company for more than
20 years. The Company's independent distributors, which maintain their own
inventories of the Company's products, may sell other industrial components, but
are not allowed to carry fasteners which compete with the Company's products.
The Company's return allowances, which are made through the exchange of
inventory, have generally averaged less than 1% of sales. Customers receive
technical support from the Company's worldwide network of independent
engineering representatives. The Company's engineers work in collaboration with
individual manufacturers early in the design process to engineer fastening
solutions that often result in the specification of PEM fasteners in new
products. The Company supplies its customers and distributors through warehouses
in Doncaster, England and Singapore, in addition to maintaining a significant
inventory at its Danboro, Pennsylvania facility.
Motors. Domestic sales of Pittman motors are handled by technical sales
representatives who have the expertise to combine Pittman's motor products with
available motion system components and deliver a complete motion control system
to the customer. European sales are conducted through an exclusive agreement
with a Swiss manufacturer of precision motors that utilize a different
technology from and are complementary to Pittman's motors.
EMPLOYEES
At December 31, 1995, the Company had 1,211 full time employees. Of this
total, 1,018 persons were employed in the Company's fastener operations, of whom
11% were salaried and 89% were paid hourly, and 193 persons were engaged in the
manufacture of Pittman motor products, of whom 17% were salaried and 83% were
paid hourly. None of the Company's personnel are governed by collective
bargaining agreements, and the Company has never experienced a strike. The
Company believes that its labor rates are comparable to those of its competitors
and that the Company's relations with its employees are good.
TRADEMARKS
The Company owns all of the rights to the principal trademarks used by it
in the domestic and international markets in which it operates. The Company's
principal trademarks are registered in the U.S. and in many other countries, and
the Company considers protection of such trademarks to be important to its
business.
28
<PAGE>
PROPERTIES
As of December 31, 1995, the Company's principal plants and offices, all of
which were owned by it, were as follows:
<TABLE>
<CAPTION>
LOCATION SIZE OF FACILITY USE OF FACILITY
-------- ---------------- ---------------
<S> <C> <C>
Danboro, 183,442 square feet Executive offices and manufacture of
Pennsylvania fasteners
Winston-Salem, 58,280 square feet Manufacture of components for fasteners
North Carolina
Harleysville, 54,000 square feet Manufacture of electric motors
Pennsylvania
Suffolk, 50,000 square feet Manufacture of components for fasteners
Virginia
Doncaster, 10,500 square feet Office and warehouse for the
South Yorkshire, distribution of fasteners
England
</TABLE>
The Company considers all of its plants and equipment to be modern and well
maintained. The Company substantially completed a 43,000 square foot addition to
its Danboro, Pennsylvania facility for increased manufacturing capacity and
office space in May 1996. The Company purchased 16.3 acres in Winston-Salem,
North Carolina where it is building a 120,000 square foot building. Upon the
completion of this new facility, which is scheduled for October 1996, the
Company intends to sell its existing North Carolina facility.
Since March 1, 1996, the Company has leased approximately 3,700 square feet
in Singapore which is used by the Company as a warehouse for the distribution of
fasteners in the Asia Pacific market.
The Company carries fire, casualty, business interruption, and public
liability insurance for all of its facilities in amounts which are deemed
adequate.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth A. Swanstrom................. 56 Chairman of the Board, President, Chief
Executive Officer, and Director
Mark W. Simon........................ 57 Vice President - Finance, Chief Financial Officer, Corporate
Secretary, and Director
Martin Bidart........................ 59 Vice President - Manufacturing
Raymond L. Bievenour................. 53 Vice President - Sales/Marketing
Richard B. Ernest.................... 61 Vice President - Quality
Joseph F. Lopes...................... 62 Vice President - Engineering
Kent R. Fretz........................ 58 Vice President and General Manager - Pittman
Willard S. Boothby, Jr............... 74 Director
Frank S. Hermance.................... 47 Director
Lewis W. Hull........................ 79 Director
Thomas M. Hyndman, Jr................ 71 Director
Maurice D. Oaks...................... 62 Director
Daryl L. Swanstrom................... 49 Director
</TABLE>
Kenneth A. Swanstrom has been associated with the Company, which was
founded by his parents, since 1960. Mr. Swanstrom has served as Chairman of the
Board and Chief Executive Officer since August 1993, as President and Chief
Operating Officer since 1979, and as a director since 1970.
Mark W. Simon has served as Vice President - Finance and Chief Financial
Officer since 1981, as a director since 1983, and has been an employee of the
Company since 1977.
Martin Bidart has served as Vice President - Manufacturing since 1990.
Prior to 1990, Mr. Bidart was employed by SPS Technologies, Inc. for 32 years
holding various positions, including Vice President - Operations.
Raymond L. Bievenour has served as Vice President - Sales/Marketing since
1990. Prior to 1990, Mr. Bievenour was employed by AMP, Inc. for 18 years
holding various positions, including National Field Sales Manager.
Richard B. Ernest has served as Vice President - Quality since 1993, was
Vice President - Engineering from 1970 to 1993, and has been an employee of the
Company since 1961.
Joseph F. Lopes has served as Vice President - Engineering since 1993.
Prior to 1993, Mr. Lopes was employed by SPS Technologies, Inc. for 30 years
holding various positions, including Manager of Aerospace Operations.
Kent R. Fretz has served as Vice President and General Manager of the
Company's Pittman division since 1991. Prior to 1991, Mr. Fretz held various
positions at Pittman, and has been an employee of the Company since 1975.
30
<PAGE>
Willard S. Boothby, Jr., a director since 1984, served as Chairman and
Chief Executive Officer of the investment banking firm of Blyth Eastman Dillon.
Upon its merger with PaineWebber Incorporated, the Representative of the
Underwriters, Mr. Boothby served as a Managing Director until his retirement in
1988. Mr. Boothby serves as a director of Glenmede Fund, and previously served
as a director of The Georgia-Pacific Corporation, Burlington Industries, Inc.,
Getty Oil, The Insurance Company of North America, and Sperry-Rand Corporation.
Frank S. Hermance, a director since January 1996, is Executive Vice
President and Chief Operating Officer of Ametek, Inc., and President of its
Precision Instrument Group.
Lewis W. Hull, a director since 1974, has been Chairman of Hull Corporation
since 1952, a manufacturer of freeze-drying and injection molding equipment. Mr.
Hull is also a director of Willow Grove Bank.
Thomas M. Hyndman, Jr., a director since 1974, has been Of Counsel to
Duane, Morris & Heckscher, counsel to the Company, since 1993 and was a senior
partner of that firm for many years prior thereto. Mr. Hyndman is also a
director of Rochester & Pittsburgh Coal Company.
Maurice D. Oaks, a director since 1994, was Vice President of Worldwide
Operations Planning of Bristol-Myers Squibb from October 1990 until his
retirement in October 1992 and, from July 1989 to September 1990, was Executive
Vice President of Squibb Pharmaceutical Group, U.S.
Daryl L. Swanstrom, a director since 1987, is President of Engineered
Components, Inc., a distributor of electronic components and of the Company's
fastener products. Mrs. Swanstrom is the widow of Kenneth A. Swanstrom's
brother.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of April 17, 1996, as
adjusted to reflect the Reclassification and the completion of the Offering,
with respect to (i) each person who is known by the Company to own beneficially
5% or more of each class of Capital Stock, and (ii) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT
NUMBER OF SHARES OF SHARES OF
CLASS OF SHARES PERCENT COMMON BENEFICIALLY CLASS
NAME OF INDIVIDUAL CAPITAL BENEFICIALLY OF STOCK TO OWNED AFTER AFTER
OR IDENTITY OF GROUP STOCK OWNED (1) CLASS BE SOLD OFFERING (1) OFFERING
- -------------------- ----- --------- ----- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Kenneth A. Swanstrom
P.O. Box 1000
Danboro, PA 18916
Individually (2) Common 733,923 14.3% 100,000 633,923 9.2%
Class A 244,641 14.3% -- 244,641 14.3%
Trust under the Will of Common 188,926 3.7% 97,500 91,426 1.3%
Gladys Swanstrom (3) Class A 62,975 3.7% -- 62,975 3.7%
Trusts under the Will of Common 295,416 5.8% 97,500 197,916 2.9%
Klas A. Swanstrom (3) Class A 98,472 5.8% -- 98,472 5.8%
Daryl L. Swanstrom
P.O. Box 2249
Peachtree City, GA 30269
Individually (4) Common 547,077 10.2% 350,000 197,077 2.9%
Class A 182,359 10.2% -- 182,359 10.2%
Trust under Item Fourth Common 162,720 3.2% 100,000 62,720 *
of the Will of Lawrence Class A 54,240 3.2% -- 54,240 3.2%
W. Swanstrom (5)
Trust under Item Fifth Common 416,649 8.1% 200,000 216,649 3.2%
of the Will of Lawrence Class A 138,883 8.1% -- 138,883 8.1%
W. Swanstrom (5)
Thomas M. Hyndman, Jr. (6)
c/o Duane, Morris & Heckscher
4200 One Liberty Place
Philadelphia, PA 19103-7396
Individually Common 1,710 * -- 1,710 *
Class A 570 * -- 570 *
Trust under the Will of Common 188,926 3.67% 97,500 91,426 1.3%
Gladys Swanstrom (3) Class A 62,975 3.67% -- 62,975 3.7%
Trusts under the Will of Common 295,416 5.8% 97,500 197,916 2.9%
Klas A. Swanstrom (3) Class A 98,472 5.8% -- 98,472 5.8%
Trust under Item Fourth Common 162,720 3.2% 100,000 62,720 *
of the Will of Lawrence Class A 54,240 3.2% -- 54,240 3.2%
W. Swanstrom (5)
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT
NUMBER OF SHARES OF SHARES OF
CLASS OF SHARES PERCENT COMMON BENEFICIALLY CLASS
NAME OF INDIVIDUAL CAPITAL BENEFICIALLY OF STOCK TO OWNED AFTER AFTER
OR IDENTITY OF GROUP STOCK OWNED (1) CLASS BE SOLD OFFERING (1) OFFERING
- -------------------- ----- --------- ----- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Trust under Item Fifth Common 416,649 8.1% 200,000 216,649 3.2%
of the Will of Lawrence Class A 138,883 8.1% -- 138,883 8.1%
W. Swanstrom (5)
Trust under Deed of Common 173,250 3.4% 77,500 95,750 1.4%
Klas A. Swanstrom Class A 57,750 3.4% -- 57,750 3.4%
dated 6/12/73 (7)
First Union Corporation Common 343,366 6.7% 155,000 188,366 2.7%
of New Jersey (8) Class A 114,455 6.7% -- 114,455 6.7%
550 Broad Street
Newark, NJ 07102
Quest Advisory Corp. (9) Common 524,550 10.2% -- 524,550 7.6%
Quest Management Company Class A 174,850 10.2% -- 174,850 10.2%
1414 Avenue of the Americas
New York, NY 10019
Lazard Freres & Co. (10) Common 348,000 6.8% -- 348,000 5.1%
30 Rockefeller Plaza Class A 116,000 6.8% -- 116,000 6.8%
New York, NY 10020
Dimensional Fund Common 258,900 5.1% -- 258,900 3.8%
Advisors Inc. (11) Class A 86,300 5.1% -- 86,300 5.1%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
All Executive Officers and Common 2,705,760 52.9% 1,100,000 1,605,760 23.4%
Directors as a group Class A 901,920 52.9% -- 901,920 52.9%
(13 persons)
</TABLE>
- ------------------
* Less than 1%.
(1) Under the rules of the Commission, a person is deemed to be the beneficial
owner of securities if such person has, or shares, 'voting power' which
includes the power to vote, or to direct the voting of, such securities or
'investment power' which includes the power to dispose, or to direct the
disposition, of such securities. Under these rules, more than one person may
be deemed the beneficial owner of the same securities. The information set
forth in the above table includes all shares of Common Stock and Class A
Common Stock of the Company over which the above-named persons individually
or together share voting power or investment power.
(2) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Kenneth A. Swanstrom could be
deemed to have is 23.8%. Of these shares, Mr. Swanstrom has sole voting and
dispositive power with respect to 733,923 shares of Common Stock and 244,641
shares of Class A Common Stock of which totals 11,301 shares of Common Stock
and 3,767 shares of Class A Common Stock are owned by Mr. Swanstrom's wife
and 2,100 shares of Common Stock and 700 shares of Class A Common Stock are
owned by their daughters. Mr. Swanstrom disclaims beneficial ownership of
the shares held by his wife and daughters. Mr. Swanstrom has shared voting
and dispositive power with respect to 188,926 shares of Common Stock and
62,975 shares of Class A Common Stock held by the Trust under the Will of
Gladys Swanstrom and 295,416 shares of Common Stock and 98,472 shares of
Class A Common Stock held by the Trusts under the Will of Klas A. Swanstrom.
33
<PAGE>
(3) The Trustees are Kenneth A. Swanstrom, Thomas M. Hyndman, Jr., and PNC Bank.
(4) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Daryl L. Swanstrom could be deemed
to have is 22.0%. Of this total, Mrs. Swanstrom has sole voting and
dispositive power with respect to 547,077 shares of Common Stock and 182,359
shares of Class A Common Stock and shared voting and dispositive power with
respect to 162,720 shares of Common Stock and 54,240 shares of Class A
Common Stock held by the Trust under Item Fourth of the Will of Lawrence W.
Swanstrom and 416,649 shares of Common Stock and 138,883 shares of Class A
Common Stock held by the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom. Pursuant to an agreement between Mrs. Swanstrom and the Company,
which expires December 31, 2006, Mrs. Swanstrom has agreed not to sell or
otherwise transfer or dispose of any shares of the Company's Class A Common
Stock owned by her or that she may acquire without first offering to sell
such shares to the Company. The purchase price upon exercise of the
Company's option to purchase such shares is the higher of the market price
of such shares on the day prior to the day such shares are offered to the
Company or the price offered by a third party for such shares.
(5) The Trustees are Daryl L. Swanstrom, Thomas M. Hyndman, Jr., and NationsBank
of Georgia, N.A.
(6) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Thomas M. Hyndman, Jr. could be
deemed to have is 24.2%. Of these shares, Mr. Hyndman has sole voting and
dispositive power with respect to 1,710 shares of Common Stock and 570
shares of Class A Common Stock and shared voting and dispositive power with
respect to the 162,720 shares of Common Stock and 54,240 shares of Class A
Common Stock held by the Trust under Item Fourth of the Will of Lawrence W.
Swanstrom, 416,649 shares of Common Stock and 138,883 shares of Class A
Common Stock held by the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom, 188,926 shares of Common Stock and 62,975 shares of Class A
Common Stock held by the Trust under the Will of Gladys Swanstrom, 173,250
shares of Common Stock and 57,750 shares of Class A Common Stock held by the
Trust under the Deed of Klas A. Swanstrom dated 6/12/73, and 295,416 shares
of Common Stock and 98,472 shares of Class A Common Stock held by the Trusts
under the Will of Klas A. Swanstrom.
(7) The Trustees are Thomas M. Hyndman, Jr. and First Union Corporation of New
Jersey.
(8) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which First Union Corporation of New
Jersey could be deemed to have is 6.7%, of which 173,250 shares of Common
Stock and 57,750 shares of Class A Common Stock are held by the Trust under
the Deed of Klas A. Swanstrom dated 6/12/73 with voting power shared with
Mr. Hyndman, 115,500 shares of Common Stock and 38,500 shares of Class A
Common Stock are held by the Trust under Deed of Klas A. Swanstrom dated
9/26/66 and 49,500 shares of Common Stock and 16,500 shares of Class A
Common Stock are held by the Trust under Deed of Gladys Swanstrom dated
9/26/66.
(9) According to Amendment No. 7 to a Schedule 13G dated February 4, 1996, filed
by Quest Advisory Corp., a New York corporation ('Quest'), Quest Management
Company ('QMC') and Charles M. Royce, Quest, QMC, and Mr. Royce reported as
a 'group' pursuant to Rule 13d-1(b)(ii)(H) of the Securities Exchange Act of
1934 (the 'Exchange Act') with respect to these shares. According to such
Amendment, and after giving effect to the Reclassification, Quest has sole
voting and dispositive power with respect to 496,950 shares of Common Stock
and 165,650 shares of Class A Common Stock, and QMC has sole voting and
dispositive power with respect to 27,600 shares of Common Stock and 9,200
shares of Class A Common Stock. Mr. Royce may be deemed to be a controlling
person of Quest and QMC and as such may be deemed to beneficially own the
shares of Capital Stock beneficially owned by Quest and QMC. Mr. Royce does
not own any shares outside of Quest and QMC and disclaims beneficial
ownership of the shares held by Quest and QMC.
(10) According to Amendment No. 1 to a Schedule 13G dated February 14, 1996, and
after giving effect to the Reclassification, Lazard Freres & Co., a
registered investment advisor, is deemed to
34
<PAGE>
have beneficial ownership of 348,000 shares of Common Stock and 116,000
shares of Class A Common Stock as of December 31, 1994.
(11) According to Amendment No. 2 to a Schedule 13G dated January 31, 1995, and
after giving effect to the Reclassification, Dimensional Fund Advisors Inc.
('Dimensional'), a registered investment advisor, is deemed to have
beneficial ownership of 258,900 shares of Common Stock and 86,300 shares of
Class A Common Stock as of December 31, 1994, all of which shares are held
in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of DFA Investment Trust Company,
a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, for
all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
As of May 22, 1996, members of the Swanstrom Family owned approximately
3,579,560 shares of Capital Stock as adjusted to reflect the Reclassification,
or approximately 52.4% of the Capital Stock outstanding prior to the Offering.
Upon completion of the Offering, the Swanstrom Family will still have sole or
shared voting power with respect to approximately 52.4% of the Class A Common
Stock and consequently will continue to have effective control of the election
of the Company's Board of Directors and any other vote of the holders of the
Class A Common Stock that does not require super majority approval. Members of
the Swanstrom Family will be able to sell shares of Common Stock in the future
without adversely affecting their voting percentage. See 'Risk Factors' and
'Description of Capital Stock.'
The Company and its directors, certain officers and the Swanstrom Family
have agreed that, for a period of 120 days after the date of this Prospectus,
they will not, directly or indirectly, assign, transfer, offer, sell,
hypothecate or otherwise dispose of any shares of Capital Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Capital Stock, except pursuant to the Underwriting Agreement or the
granting of stock options or the issuance of shares pursuant to the Company's
stock option and stock purchase plans and bona fide gifts of shares by
directors, officers or members of the Swanstrom Family to family members or to
charities, without the prior written consent of the Representative. See
'Underwriting.'
The term 'Swanstrom Family' as used herein means Kenneth A. Swanstrom,
Daryl L. Swanstrom, the Trust under the Will of Gladys Swanstrom, the Trusts
under the Will of Klas A. Swanstrom, the Trust under Item Fourth of the Will of
Lawrence W. Swanstrom, the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom, the Trust under Deed of Klas A. Swanstrom, and the Trust under Deed
of Gladys Swanstrom.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description is subject to the detailed provisions of
the Company's Certificate of Incorporation, as amended, and the Company's
By-laws, as amended, and does not purport to be complete and is qualified in its
entirety by reference thereto.
The authorized Capital Stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 3,000,000 shares of Class A
Common Stock, par value $.01 per share. See 'Capitalization' for information on
the number of shares of Capital Stock outstanding prior to and after the
completion of the Offering.
VOTING
The holders of shares of Class A Common Stock are entitled to one vote per
share on any matter to be voted on by the stockholders of the Company. There is
no provision in the Company's Certificate of Incorporation permitting cumulative
voting. The holders of shares of Common Stock are not entitled to vote on any
matter to be voted on by the stockholders of the Company, except as required
under the Delaware General Corporation Law (the 'DGCL').
Under the Certificate of Incorporation of the Company and the DGCL, only
the affirmative vote of the holders of a majority of the outstanding shares of
Class A Common Stock entitled to vote is required to amend the Certificate of
Incorporation or to authorize additional shares of Common Stock or Class A
Common Stock; and the affirmative vote of the holders of a majority of the Class
A Common Stock is required to approve any merger or consolidation of the Company
with or into any other corporation or sale of substantially all of its assets or
to approve the dissolution of the Company, subject to certain existing
anti-takeover provisions of the Company's Certificate of Incorporation that
require the vote of the holders of at least 80% of the outstanding Class A
Common Stock if such transaction is with a related person and is not approved by
the requisite vote of the Company's Board of Directors.
The holders of the Class A Common Stock will elect the entire Board of
Directors. In addition, as permitted under the DGCL, the Certificate of
Incorporation provides that the number of authorized shares of either class may
be increased or decreased, but not below the number of shares then outstanding,
by the affirmative vote of the holders of a majority of the Class A Common
Stock.
Under the DGCL, the holders of Common Stock are entitled to vote on
proposals to change the par value of the Common Stock or to alter or change the
powers, preferences or special rights of the shares of Common Stock, which may
affect them adversely.
DIVIDENDS AND DISTRIBUTIONS
Each share of Common Stock and Class A Common Stock is equal in respect to
dividends and other distributions in cash, stock or property, including
distributions in connection with any reclassification and upon liquidation,
dissolution, or winding up of the Company, except that (i) a dividend or
distribution in cash or property on a share of Common Stock may be greater than
any dividend or distribution in cash or property on a share of Class A Common
Stock, and (ii) dividends or other distributions payable on the Common Stock and
Class A Common Stock in shares of capital stock shall be made to all holders of
the Common Stock and Class A Common Stock and may be made (a) in shares of
Common Stock to the holders of Common Stock and to the holders of Class A Common
Stock, (b) in shares of Class A Common Stock to the holders of Class A Common
Stock and in shares of Common Stock to the holders of Common Stock, or (c) in
any other authorized class or series of capital stock to the holders of Common
Stock and Class A Common Stock. In no event will either Common Stock or Class A
Common Stock be split, subdivided or combined unless the other is
proportionately split, subdivided or combined.
Although the Board of Directors has authority to pay dividends and make
distributions on the Common Stock in amounts greater than on the Class A Common
Stock, the Board of Directors currently intends to pay dividends on an equal per
share basis.
36
<PAGE>
There are no redemption or sinking fund provisions applicable to the Common
Stock or the Class A Common Stock. Holders of Common Stock and Class A Common
Stock are not subject to further calls or assessments by the Company. All
outstanding shares of Common Stock and Class A Common Stock are, and the shares
of Common Stock to be offered by the Company in this Offering when validly
issued, will be, fully paid and non-assessable.
Except as otherwise required by the DGCL or as otherwise provided in the
Company's Certificate of Incorporation, each share of Common Stock and each
share of Class A Common Stock have identical powers, preferences, and rights in
all respects.
MERGERS AND CONSOLIDATIONS
Each holder of Common Stock and Class A Common Stock is entitled to receive
the same per share consideration in a merger or consolidation of the Company.
CONVERTIBILITY
Neither the Common Stock nor the Class A Common Stock will be convertible
into another class of capital stock or any other security of the Company, except
that in the event that a change of control occurs, (i) all of the then issued
shares of Common Stock will automatically convert into an equal number of shares
of Class A Common Stock, and (ii) all rights, warrants, or options to purchase
shares of Common Stock, or other securities convertible into shares of Common
Stock, will be converted into similar rights, warrants, or options to purchase,
or other securities convertible into, an equal number of shares of Class A
Common Stock. A change of control shall be deemed to have occurred if: (i) any
person or group of persons, other than members of the Swanstrom Family (as
defined below), directly or indirectly, purchases, or otherwise becomes the
beneficial owner of, or has the right to acquire such beneficial ownership of,
or, either solely or with others, acquires the right to vote or direct the
disposition of voting securities of the Company representing more than 50% of
the combined voting power of all outstanding voting securities of the Company,
or (ii) during any period of two consecutive years, the individuals who at the
beginning of such period constituted the Board of Directors (together with any
new director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute at least a majority of the members of the Board of
Directors then in office. For purposes of this change of control provision, the
'Swanstrom Family' means Kenneth A. Swanstrom, Daryl L. Swanstrom, their
respective spouses, descendants, heirs, estates, trusts in which any such person
has a beneficial interest, and any partnership, corporation or other entity in
which any such person has a controlling interest.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS;
DELAWARE ANTI-TAKEOVER PROVISIONS
The Certificate of Incorporation and By-laws of the Company and Delaware
law contain certain provisions that may enhance the likelihood of continuity and
stability in the composition of the Board of Directors and may discourage a
future unsolicited takeover of the Company. These provisions could have the
effect of discouraging certain attempts to acquire the Company or remove
incumbent management, including incumbent members of the Board of Directors,
even if some or a majority of the Company's stockholders deemed such an attempt
to be in their best interests.
Article VIII of the Company's Certificate of Incorporation provides that
the Board of Directors may consider any and all of the following in connection
with its determination whether to oppose a tender or other offer for the
Company's securities: (i) whether the offer price is acceptable based upon the
historical and present operating results or financial condition of the Company;
(ii) whether a more favorable price could be obtained for the Company's
securities in the future; (iii) the impact that an acquisition of the Company
would have on the employees and customers of the Company and the communities in
which the Company operates; (iv) the reputation and business practices of the
offeror
37
<PAGE>
and its management and affiliates as they would affect the employees and
customers of the Company and the future value of the Company's securities; (v)
the value of the securities, if any, which the offeror is offering in exchange
for the Company's securities; and (vi) any antitrust or other legal and
regulatory issues that are raised by the offer. If the Board of Directors
determines that an offer should be rejected, Article VIII authorizes the Board
of Directors to take any lawful action to accomplish that purpose, including,
but not limited to, advising stockholders not to accept the offer, acquiring the
Company's securities, instituting litigation, selling or otherwise issuing
authorized but unissued securities or treasury stock, acquiring a company to
create antitrust or other regulatory problems, or soliciting a more favorable
offer.
Article IX of the Company's Certificate of Incorporation provides that the
Company shall not become a party to a business combination with a related person
unless: (i) the business combination is approved by a majority vote of the Board
of Directors of the Company either at a time prior to the time the related
person became a related person or after such time if the related person obtains
the affirmative vote of at least 80% of the Board of Directors of the
acquisition of the shares that caused such person to become a related person;
(ii) the business combination is approved by the affirmative vote of 80% of the
continuing directors and (a) the ratio of the amount of the consideration to be
received per share of Class A Common Stock of the Company to the market price
thereof immediately prior to the announcement of the business combination is at
least as great as the ratio of the highest per share price that the related
person paid in acquiring any shares prior to such business combination to the
market price per share immediately prior to the initial acquisition by the
related person of any shares of Class A Common Stock, (b) the amount of the
consideration to be received per share in the business combination is not less
than the highest price per share paid by the related person in acquiring any
shares of Class A Common Stock and is not less than the book value per share as
reflected on the Company's balance sheet for the immediately preceding fiscal
quarter, and (c) the consideration to be received per share other than by the
related person is in the same form and same kind as the consideration paid by
the related person in acquiring Class A Common Stock already owned by the
related person; and (iii) if there is not full compliance with the provisions as
described in clauses (i) and (ii) of this paragraph, the business combination
must be approved by the affirmative vote of the holders of 80% of the issued and
outstanding Class A Common Stock of the Company.
For purposes of Article IX, a 'business combination' includes a sale of all
or substantially all of the assets of the Company to the related person, a
merger or consolidation of the Company with the related person or any affiliate
of the related person, any reclassification of securities or other transaction
or series of transactions that has the effect of increasing the proportionate
amount of the shares beneficially owned by the related person or the acquisition
by the Company of all of the assets or business of the related person. A
'related person' includes any person who beneficially owns 10% or more of the
Class A Common Stock of the Company or who had been the beneficial owner of 10%
or more of the Class A Common Stock of the Company at any time within five years
preceding the business combination. A 'continuing director' is defined as an
individual who was first elected a director prior to May 1985, who was first
elected a director prior to the time that the related person became a 10%
beneficial owner or who was elected as a continuing director by a majority of
the then continuing directors.
The By-laws of the Company provide for a classified Board of Directors
consisting of three classes as nearly equal in size as possible. The
classification of the Board of Directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Company is a Delaware corporation and consequently is subject to
certain anti-takeover provisions of the DGCL. The business combination provision
contained in Section 203 of the DGCL ('Section 203') defines an interested
stockholder of a corporation as any person that (i) owns, directly or
indirectly, or has the right to acquire, 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder, and
38
<PAGE>
the affiliates and the associates of such person. Under Section 203, a Delaware
corporation may not engage in any business combination with any interested
stockholder for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for determining the number of shares
outstanding, (a) shares owned by persons who are directors and officers and (b)
employee stock plans, in certain instances), or (iii) on or subsequent to such
date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by at least 66-2/3%
of the outstanding voting stock that is not owned by the interested stockholder.
The restrictions imposed by Section 203 will not apply to a corporation if the
corporation, by the action of its stockholders holding a majority of the
outstanding stock, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203 (such amendment
will not be effective until 12 months after adoption and shall not apply to any
business combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption).
The Company has not elected to opt out of Section 203, and the restrictions
imposed by Section 203 apply to the Company. Section 203 could, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, deny stockholders the receipt of a premium on their Common Stock and
Class A Common Stock and have a depressive effect on the market price of the
Common Stock and Class A Common Stock.
TRANSFERABILITY; TRADING MARKET
The Class A Common Stock and the Common Stock are freely transferable and
listed on the American Stock Exchange. The Company has applied to list both
classes of Capital Stock on the New York Stock Exchange. It is anticipated that
upon the listing of the Common Stock and the Class A Common Stock on the New
York Stock Exchange, the trading thereof on the American Stock Exchange will
cease.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Capital Stock is Chemical Mellon
Shareholder Services, L.L.C. Its address for such purposes is P.O. Box 590,
Ridgefield Park, New Jersey 07660, and its telephone number at that address is
800-851-9677.
39
<PAGE>
UNDERWRITING
The Underwriters named below, for whom PaineWebber Incorporated is acting
as Representative (the 'Representative'), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Stockholders and the Representative (the 'Underwriting
Agreement'), to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to the Underwriters,
the respective number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
PaineWebber Incorporated.................................................................
---------
Total.................................................................................. 2,850,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to certain conditions, to purchase all of the shares of Common Stock
being sold pursuant to the Underwriting Agreement (other than those covered by
the over-allotment option described below), if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company and the Selling Stockholders have been advised by the
Representative that the Underwriters propose to offer the Common Stock to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share and that the Underwriters may allow and such dealers may
reallow, a concession not in excess of $ per share to other dealers. The public
offering price and other selling terms may be changed by the Representative.
The Company has granted to the Underwriters an over-allotment option
exercisable during the 30-day period after the date of this Prospectus to
purchase up to 285,000 additional shares of Common Stock at the offering price
to the public less the underwriting discounts and commissions shown on the cover
page of this Prospectus. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
2,850,000 shares of Common Stock offered hereby. The Underwriters may exercise
the option only to cover over-allotments made in connection with the sale of the
shares of Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and any person who controls the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.
The Underwriters have undertaken to satisfy the distribution standards of
the New York Stock Exchange with respect to the Offering.
40
<PAGE>
The Company and its directors, certain officers, and the Swanstrom Family
have agreed that, for a period of 120 days after the date of this Prospectus,
they will not, directly or indirectly, assign, transfer, offer, sell,
hypothecate, or otherwise dispose of any shares of Capital Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Capital Stock, except pursuant to the Underwriting Agreement or the
granting of stock options and the issuance of shares pursuant to the Company's
stock option and stock purchase plans and bona fide gifts of shares by
directors, officers, or members of the Swanstrom Family to family members or to
charities, without the prior written consent of the Representative.
LEGAL MATTERS
Certain legal matters in connection with this Offering, including the
validity of the shares of Common Stock offered hereby, will be passed upon for
the Company and the Selling Stockholders by Duane, Morris & Heckscher, 4200 One
Liberty Place, Philadelphia, Pennsylvania 19103-7396. Certain legal matters
relating to this Offering will be passed upon for the Underwriters by McDermott,
Will & Emery, 227 West Monroe Street, Chicago, Illinois 60606-5096. Thomas M.
Hyndman, Jr., a director of the Company, is Of Counsel to the firm of Duane,
Morris & Heckscher and owns 1,710 shares of Common Stock and 570 shares of Class
A Common Stock. Mr. Hyndman also holds in various fiduciary capacities for
members of the Swanstrom Family an aggregate of 1,262,670 shares of Common Stock
and an aggregate of 420,890 shares of Class A Common Stock.
EXPERTS
The Company's financial statements as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement (which reports express an unqualified opinion and include an
explanatory paragraph referring to a change in the method of accounting for
income taxes), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1995, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, and the Company's Proxy Statement dated April 29, 1996, with the
exception of the Compensation Committee Report and Performance Graph included
therein, filed with the Commission are hereby incorporated by reference in this
Prospectus except as superseded or modified herein. Any statement contained in
any document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein (other
than exhibits to such documents which are not specifically incorporated by
reference into such documents). Such requests should be directed to the
Company's Corporate Secretary at its principal executive offices at P.O. Box
1000, Danboro, Pennsylvania 18916, or by telephone at (215) 766-8853.
41
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. 20549, and at the Commission's
following Regional Offices: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549-1004. Quotations relating to the Company's Capital Stock appear on
the American Stock Exchange and such reports and other information concerning
the Company can also be inspected at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933 (the 'Securities Act') with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete; and with respect to each such contract or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and exhibits thereto. The information so omitted,
including exhibits, may be obtained from the Commission at its principal office
in Washington, D.C. upon payment of the prescribed fees, or may be inspected
without charge at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004.
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
(unaudited) March 31, 1996........................................................................... F-3
Statements of Consolidated Income and Retained Earnings
for the years ended December 31, 1993, 1994 and 1995 and
(unaudited) for the three-month periods ended March 31, 1995 and 1996................................ F-4
Statements of Consolidated Cash Flows for the years ended December 31, 1993,
1994 and 1995 and (unaudited) for the three-month periods ended March 31, 1995 and 1996.............. F-5
Notes to Consolidated Financial Statements............................................................. F-6
</TABLE>
F-1
<PAGE>
To the Stockholders and Board of Directors
of Penn Engineering & Manufacturing Corp.
We have audited the accompanying consolidated balance sheets of Penn
Engineering & Manufacturing Corp. and subsidiaries (the 'Company') as of
December 31, 1994 and 1995 and the related statements of consolidated income and
retained earnings and of consolidated cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1994 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective January 1,
1993 to conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 6, 1996
(April 17, 1996 as to Note 11)
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1994 1995 1996
--------- --------- -----------
(DOLLARS IN THOUSANDS EXCEPT
SHARE AMOUNTS)
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 6,106 $ 1,459 $ 3,402
Short-term investments............................................. 5,303 5,988 5,606
Accounts receivable (less allowance for doubtful accounts-
1994, $800; 1995, $900; March 31, 1996, $900)................... 20,059 20,845 22,154
Inventories........................................................ 17,637 20,275 25,146
Deferred income taxes.............................................. 897 959 961
Other current assets............................................... 1,107 2,557 3,262
--------- --------- -----------
Total current assets......................................... 51,109 52,083 60,531
--------- --------- -----------
PROPERTY-At cost:
Land and improvements.............................................. 2,247 3,699 3,702
Buildings and improvements......................................... 14,089 15,843 17,095
Machinery and equipment............................................ 43,416 57,295 62,283
--------- --------- -----------
Total........................................................ 59,752 76,837 83,080
Less accumulated depreciation...................................... 30,832 34,896 35,852
--------- --------- -----------
Total property-net........................................... 28,920 41,941 47,228
--------- --------- -----------
OTHER ASSETS......................................................... 2,098 2,050 2,186
--------- --------- -----------
TOTAL........................................................ $ 82,127 $ 96,074 $ 109,945
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 2,750 $ 4,303 $ 5,538
Notes payable...................................................... 1,500 11,000
Dividend payable................................................... 470
Accrued expenses:
Pension and profit sharing...................................... 2,736 3,984 1,586
Income taxes.................................................... 813 468 1,773
Payroll and commissions......................................... 2,654 2,426 3,512
Other........................................................... 544 521 700
--------- --------- -----------
Total current liabilities.................................... 9,497 13,202 24,579
--------- --------- -----------
ACCRUED PENSION COST................................................. 5,370 4,715 4,715
--------- --------- -----------
DEFERRED INCOME TAXES................................................ 1,350 2,066 2,284
--------- --------- -----------
STOCKHOLDERS' EQUITY (See Note 11):
Common stock -- authorized 3,000,000 shares of $1.00 par value
each; issued 1,772,025 shares................................... 1,772 1,772 1,772
Additional paid-in capital......................................... 932 932 932
Retained earnings.................................................. 64,521 74,905 77,304
Unrealized (loss) on investments (net of tax)...................... (140) (60) (64)
Cumulative foreign currency translation adjustment.............. (223) (506) (625)
--------- --------- -----------
Total........................................................ 66,862 77,043 79,319
--------- --------- -----------
Less cost of treasury stock -- 64,943 shares....................... 952 952 952
--------- --------- -----------
Total stockholders' equity................................... 65,910 76,091 78,367
--------- --------- -----------
TOTAL........................................................ $ 82,127 $ 96,074 $ 109,945
--------- --------- -----------
--------- --------- -----------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-3
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES........................................ $ 100,665 $ 121,470 $ 141,268 $ 35,298 $ 39,029
OTHER INCOME -- Net.............................. 387 627 1,099 349 135
----------- ----------- ----------- ----------- -----------
Total...................................... 101,052 122,097 142,367 35,647 39,164
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold.......................... 70,979 83,128 96,190 24,630 27,477
Selling expenses............................... 10,885 13,634 14,867 3,504 4,109
General and administrative expenses............ 7,711 8,208 9,189 2,513 3,004
----------- ----------- ----------- ----------- -----------
Total...................................... 89,575 104,970 120,246 30,647 34,590
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF 1993 ACCOUNTING CHANGE...................... 11,477 17,127 22,121 5,000 4,574
PROVISION FOR INCOME TAXES....................... 4,548 6,686 8,323 1,977 1,705
----------- ----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF 1993
ACCOUNTING CHANGE.............................. 6,929 10,441 13,798 3,023 2,869
CUMULATIVE EFFECT OF 1993 ACCOUNTING CHANGE...... 423
----------- ----------- ----------- ----------- -----------
NET INCOME....................................... 7,352 10,441 13,798 3,023 2,869
RETAINED EARNINGS AT BEGINNING OF PERIOD......... 51,294 56,683 64,521 64,521 74,905
DIVIDENDS ON COMMON STOCK
(Historical per share -- 1993, $1.15; 1994,
$1.525; 1995, $2.00; March 31, 1995, $.275;
March 31, 1996, $.275) (Pro forma per share
-- 1993, $.2875; 1994, $.38125; 1995, $.50;
March 31, 1995, $.069; March 31, 1996,
$.069) (See Note 11)......................... (1,963) (2,603) (3,414) (470) (470)
----------- ----------- ----------- ----------- -----------
RETAINED EARNINGS AT END OF PERIOD............... $ 56,683 $ 64,521 $ 74,905 $ 67,074 $ 77,304
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
INCOME PER SHARE -- Historical
Weighted average number of shares of common
stock outstanding during the period.......... 1,707,082 1,707,082 1,707,082 1,707,082 1,707,082
Income before cumulative effect of 1993
accounting change.......................... $ 4.06 $ 6.12 $ 8.08 $ 1.77 $ 1.68
Cumulative effect of 1993 accounting change.. .25
----------- ----------- ----------- ----------- -----------
Net income................................... $ 4.31 $ 6.12 $ 8.08 $ 1.77 $ 1.68
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
INCOME PER SHARE -- Pro forma (See Note 11)
Weighted average number of shares of common
stock outstanding during the period.......... 6,828,328 6,828,328 6,828,328 6,828,328 6,828,328
Income before cumulative effect of 1993
accounting change.......................... $ 1.01 $ 1.53 $ 2.02 $ 0.44 $ 0.42
Cumulative effect of 1993 accounting change.. .07
----------- ----------- ----------- ----------- -----------
Net income................................. $ 1.08 $ 1.53 $ 2.02 $ 0.44 $ 0.42
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 7,352 $ 10,441 $ 13,798 $ 3,023 $ 2,869
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation....................................... 3,180 3,425 4,165 1,030 1,181
Loss (gain) on disposal of property................ 5 (2) 17 2 27
Loss (gain) on disposal of investments............. (6) 34 (41)
Reserve for impairment on short-term investments... (100)
Changes in assets and liabilities:
(Increase) in receivables.......................... (792) (4,718) (786) (401) (1,309)
(Increase) decrease in inventories................. (1,150...) 3,496 (2,638...) (440) (4,871)
(Increase) decrease in other current assets........ 646 (523) (1,450) (78) (705)
(Increase) decrease in deferred income
taxes-current................................... (31) 1 (62) (49) (2)
(Increase) in other assets......................... (1,490) (560) (232) (136)
Increase (decrease) in accounts payable............ (1,119) 385 1,553 1,188 1,235
Increase in accrued expenses....................... 701 852 652 2,182 172
Increase (decrease) in accrued pension costs....... 896 201 (655) 127
Increase (decrease) in deferred income taxes-
noncurrent...................................... (541) 208 716 (54) 218
--------- --------- --------- --------- ---------
Net cash provided (used) by operating activities... 9,041 12,310 14,709 6,298 (1,321)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions..................................... (8,354) (3,833) (17,213) (2,932) (6,518)
Additions to available-for-sale and held-to-maturity
investments.......................................... (13,266) (28,343) (7,353) (829)
Additions to investments............................... (1,400)
Proceeds from disposal of available-for-sale and
held-to-maturity investments......................... 12,079 28,440 1,998 1,205
Proceeds from disposal of investments.................. 714
Proceeds from disposal of property..................... 6 13 3 7
--------- --------- --------- --------- ---------
Net cash (used) in investing activities............ (9,034) (5,007) (17,113) (8,287) (6,135)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments)................. 1,152 (1,152) 1,500 9,500
Dividends paid......................................... (1,963) (2,603) (3,414)
--------- --------- --------- --------- ---------
Net cash provided (used) in financing activities... (811) (3,755) (1,914) 9,500
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash................ (58) 358 (329) 174 (101)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... (862) 3,906 (4,647) (1,815) 1,943
Cash and cash equivalents at beginning of period....... 3,062 2,200 6,106 6,106 1,459
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 2,200 $ 6,106 $ 1,459 $ 4,291 $ 3,402
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Income taxes......................................... $ 5,230 $ 6,008 $ 8,062 $ 322 $ 181
Interest............................................. 181 66 10 13
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of Penn Engineering & Manufacturing Corp. and its wholly owned subsidiaries, PEM
International Ltd., PEM International (Singapore) Pte Ltd., PEM Investment,
Inc., PEM Management, Inc., and PEM World Sales Limited. All significant
intercompany transactions and balances are eliminated in consolidation.
INVESTMENTS
The Company adopted as of January 1, 1994, the accounting and disclosure
requirements of the Statement of Financial Accounting Standards No. 115 (SFAS
No. 115), 'Accounting for Certain Investments in Debt and Equity Securities'
(Note 2). For years prior to 1994, the Company accounted for investments under
the provisions of SFAS No. 12. Investments are classified as short-term if the
maturities at December 31 are less than one year.
INVENTORIES
The Company's domestic fastener inventories are priced on the last-in,
first-out (LIFO) method, at the lower of cost or market. Other inventories,
representing approximately 72%, 70%, and 67% of total inventories at December
31, 1994, 1995, and March 31, 1996, respectively, are priced on the first-in,
first-out (FIFO) method, at the lower of cost or market.
PROPERTY
Depreciation is calculated under the straight-line method over the
estimated useful lives of the respective assets, generally 3-5 years for tooling
and computer equipment, 10 years for furniture, fixtures and machinery, and
25-40 years for buildings. Maintenance and repairs are charged to income and
major renewals and betterments are capitalized. At the time properties are
retired or sold, the cost and related accumulated depreciation are eliminated
and any gain or loss is included in income.
INCOME TAXES
The Company adopted as of January 1, 1993, the accounting and disclosure
requirements of the Statement of Financial Accounting Standards No. 109 (SFAS
No. 109), 'Accounting for Income Taxes'. Under SFAS No. 109, the deferred tax
provision is determined using the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences between financial
statement and tax bases of assets and liabilities using presently enacted tax
rates.
STATEMENT OF CONSOLIDATED CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on deposit, cash in excess of daily requirements which is invested in
overnight repurchase agreements, and other interest bearing accounts
withdrawable on a daily basis.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses all research and development costs as incurred.
FOREIGN CURRENCY TRANSACTIONS
The effects of translating the financial statements of PEM International
Ltd. and, in 1996, PEM International (Singapore) Pte Ltd. are recorded as a
separate component of Stockholders' Equity in the consolidated financial
statements. All assets and liabilities are translated at the year-end or
quarter-end exchange rate while all income and expense accounts are translated
at the weighted average rate for the year-to-date.
Gains and losses resulting from transactions of the Company and its
subsidiaries which are made in currency different from their own are included in
income as they occur. Total foreign currency transaction gains (losses) of
($104,000), $109,000, and $174,000 were recorded in 1993, 1994, and
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
1995, respectively. Total foreign currency transaction gains (losses) for the
three months ended March 31, 1995 and 1996 were $150,000 and ($7,000),
respectively.
Forward foreign currency exchange contracts are purchased to insulate
revenue streams from the impact of foreign currency fluctuations. The effect of
this practice is to minimize variability in the Company's operating results
arising from foreign exchange rate movements. Gains and losses on forward
exchange contracts are recognized currently in income. These contracts have
maturities that do not exceed one year and require the Company to exchange
foreign currency for U.S. dollars at maturity. The Company had foreign exchange
contracts of $9.4 million outstanding at both December 31, 1994 and 1995 and
$13.2 million outstanding at March 31, 1996, which approximated their fair
value. The fair value of these foreign exchange contracts is the amount the
Company would receive or pay to terminate the contracts using quoted market
rates.
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 the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts and balances
to conform with the 1995 presentation.
2. INVESTMENTS
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 115, 'Accounting for Certain Investments
in Debt and Equity Securities' (SFAS No. 115). As discussed in Note 1 (b), the
Company elected to adopt SFAS No. 115 effective January 1, 1994. The cumulative
and current year effect of the accounting change is not considered to be
significant. SFAS No. 115 requires the Company to account for debt and equity
securities as follows:
Trading -- The Company holds no investments that were designated as trading
securities.
Held-to-Maturity -- Securities that management has the positive intent and
ability to hold until maturity. These investments are carried at their remaining
unpaid principal balance net of any unamortized premiums or discounts. The
following is a summary of the net unpaid principal value of held-to-maturity
securities at December 31, 1994 and 1995 and March 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities and securities of U.S. Government
agencies:
Short-Term Investments...................................... $ 2,712 $ 4,466 $ 4,090
Long-Term Investments....................................... 608
------------- ------------- -----------
TOTAL................................................. $ 3,320 $ 4,466 $ 4,090
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
Available-for-Sale -- Securities that will be held for indefinite periods
of time. These investments are carried at market value which is determined using
published quotes as of the close of business on December 31, 1994 and 1995 and
March 31, 1996. Unrealized gains and losses are excluded from earnings and are
reported net of tax as a separate component of equity until realized. Unrealized
losses
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
2. INVESTMENTS -- CONTINUED
were $140,000, net of taxes of $93,000 at December 31, 1994, $60,000, net of
taxes of $39,000 at December 31, 1995, and $64,000, net of taxes of $41,000 at
March 31, 1996. The following is a summary of the estimated fair value of
short-term available-for-sale securities at December 31, 1994 and 1995 and March
31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mutual Common Stock Funds..................................... $ 1,075 $ 571 $ 564
U.S. Government Security Income Fund.......................... 939 759 764
State and Municipal Bond Funds................................ 577 192 188
------------- ------------- -----------
TOTAL.................................................... $ 2,591 $ 1,522 $ 1,516
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
3. INVENTORIES
At December 31, 1994 and 1995 and March 31, 1996 inventories comprised:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Raw material.................................................. $ 3,585 $ 4,570 $ 4,806
Tooling....................................................... 2,741 3,610 3,851
Work-in-process............................................... 5,099 6,512 7,970
Finished goods................................................ 6,212 5,583 8,519
------------ ------------ -----------
TOTAL.................................................... $ 17,637 $ 20,275 $ 25,146
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
If the FIFO method of inventory valuation had been used for all inventories
by the Company, inventories at December 31, 1993, 1994, 1995, and March 31,
1996, would have been $7.5 million, $7.6 million, $8.0 million, and $8.3 million
higher and net income would have been $487,000, $77,000, and $240,000 higher
than reported for the years ended December 31, 1993, 1994 and 1995, respectively
and would have been $55,000 and $192,000 higher than reported for the three
months ended March 31, 1995 and 1996, respectively.
A reduction in inventory quantities for the year ended December 31, 1994
resulted in the liquidation of LIFO inventory quantities carried at lower
manufacturing costs prevailing in prior years compared with current year
manufacturing costs. The effect of such a reduction was to increase 1994 net
income by approximately $832,000.
Included in other assets is long-term tooling inventory totaling $1.5
million, $2.0 million, and $2.2 million at December 31, 1994 and 1995 and March
31, 1996, respectively.
4. LINES OF CREDIT
At December 31, 1995 and March 31, 1996, the Company had available unused
short-term lines of credit totaling approximately $36.0 million and $26.5
million, respectively. Borrowings under these lines totaled $1.5 million and
$11.0 million at an effective interest rate of 6.71% and 6.44% at December 31,
1995 and March 31, 1996, respectively.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
5. PENSION AND PROFIT SHARING PLANS
The Company has a defined benefit pension plan covering substantially all
employees in the United States. The benefits are based on years of service and
the employee's earned compensation during any period of the highest 60
consecutive months occurring during the last ten years of employment. The
Company's policy is to fund at least the minimum pension payment required for
federal income tax qualification purposes. Plan provisions and funding meet the
requirements of the Employee Retirement Income Security Act of 1974.
The Company records pension costs in accordance with Statement of Financial
Accounting Standards No. 87. The total pension expense for the years ended
December 31, 1993, 1994, and 1995 was $1.9 million, $1.9 million, and $1.8
million, respectively. The total pension expense for the three months ended
March 31, 1995 and 1996 was $545,000 and $634,000, respectively. The following
table sets forth the plans' funded status and amounts recognized in the
Company's consolidated financial statements for the years ended December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees........................................................................ $ 9,897 $ 13,301
Non-vested employees.................................................................... 170 365
--------- ---------
Total................................................................................... $ 10,067 $ 13,666
--------- ---------
--------- ---------
Projected plan benefit obligation for services rendered to date......................... $ 17,313 $ 24,807
Plan assets at fair value (primarily listed stocks, bonds, and cash equivalents)........ (12,452) (17,230)
--------- ---------
Excess of projected benefit obligation over plan assets................................. 4,861 7,577
Unrecognized net (gain) loss from past experience different from that assumed and
effects of changes in assumptions..................................................... 762 (2,494)
Unrecognized net asset at January 1, 1987 being recognized over
15 years.............................................................................. 443 380
--------- ---------
Total accrued pension cost.............................................................. $ 6,066 $ 5,463
--------- ---------
--------- ---------
Current pension cost payable.................................................... $ 696 $ 748
Accrued pension cost -- noncurrent.............................................. $ 5,370 $ 4,715
</TABLE>
Net pension cost for 1993, 1994, and 1995 included the following
components:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period................................ $ 1,486 $ 1,586 $ 1,426
Interest cost on projected benefit obligation................................. 1,263 1,339 1,435
Actual return on plan assets.................................................. (877) 355 (3,261)
Net amortization and deferral................................................. (54) (1,450) 2,132
--------- --------- ---------
Net periodic pension cost..................................................... $ 1,818 $ 1,830 $ 1,732
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumed discount rate, rate of increase in long-term compensation
levels, and expected long-term rate of return on assets were 7% (7% in 1993 and
8% in 1994), 6%, and 8%, respectively. The increase in the discount rate from 7%
in 1993 to 8% in 1994 caused a decrease in the projected benefit obligation of
approximately $3.9 million. The decrease in the discount rate from 8% in 1994 to
7% in 1995 caused an increase in the projected benefit obligation of
approximately $4.6 million.
The Company has profit sharing plans covering all eligible employees in the
United States. Contributions and costs are determined as the lesser of 25% of
income before income taxes and profit sharing cost or 10% of each covered
employee's salary, and totaled $2.5 million, $3.0 million, and $3.2
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
5. PENSION AND PROFIT SHARING PLANS -- CONTINUED
million for the years ended December 31, 1993, 1994, and 1995, respectively, and
totaled $837,000 and $953,000 for the three months ended March 31, 1995 and
1996, respectively.
6. INCOME TAXES
As discussed in Note 1(e), effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' (SFAS No. 109). The adoption of SFAS No. 109 resulted in an increase in
net income of $423,000, or $.25 per share, reflecting the cumulative effect of
the change for periods prior to January 1, 1993. The effect of the change on
1993 income before cumulative effect of accounting change is not considered to
be significant.
The income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal..................................... $ 3,826 $ 5,234 $ 6,837 $ 1,751 $ 1,327
State....................................... 870 1,303 863 356 160
------------- ------------- ------------- ----------- -----------
Total current tax provision........... 4,696 6,537 $ 7,700 $ 2,107 $ 1,487
------------- ------------- ------------- ----------- -----------
Deferred:
Federal..................................... (131) 133 553 (116) 189
State....................................... (17) 16 70 (14) 29
------------- ------------- ------------- ----------- -----------
Total deferred tax (benefit).......... (148) 149 623 (130) 218
------------- ------------- ------------- ----------- -----------
Total income tax provision............ $ 4,548 $ 6,686 $ 8,323 $ 1,977 $ 1,705
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
The significant components of the Company's net deferred tax assets and
liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Pension..................................................... $ 2,152 $ 1,854 $ 1,854
Allowance for doubtful accounts............................. 312 346 346
Inventory................................................... 312 343 343
Other....................................................... 278 290 292
------------- ------------- -----------
Total deferred tax asset.............................. 3,054 2,833 2,835
------------- ------------- -----------
Deferred tax liabilities:
Property.................................................... 3,437 3,847 3,971
Other....................................................... 70 93 187
------------- ------------- -----------
Total deferred tax liability............................. 3,507 3,940 4,158
------------- ------------- -----------
Net deferred tax liability.................................... $ 453 $ 1,107 $ 1,323
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
6. INCOME TAXES -- CONTINUED
A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate to income before taxes, and the
actual provision for income taxes on such income is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal income tax provision at statutory
rate........................................ $ 3,902 $ 5,958 $ 7,742 $ 1,750 $ 1,601
State income taxes, after deducting federal
income tax benefit.......................... 574 860 606 222 123
Interest and dividend income excluded from
taxable income.............................. (34) (24) (23) (11) (3)
Other......................................... 106 (108) (2) 16 (16)
------------- ------------- ------------- ----------- -----------
Actual provision for income taxes............. $ 4,548 $ 6,686 $ 8,323 $ 1,977 $ 1,705
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
7. CERTAIN TRANSACTIONS
The Company sold fasteners at standard authorized distributor prices to a
corporation, an officer and director of which is also a director of the Company,
in the amounts of $4.0 million, $7.1 million, and $7.9 million for the years
ended December 31, 1993, 1994, and 1995, respectively, and $2.6 million and $1.7
million for the three months ended March 31, 1995 and 1996, respectively. The
Company also made purchases from this party in the amounts of $323,000,
$356,000, and $320,000 for the years ended December 31, 1993, 1994, and 1995,
respectively, and $57,000 and $171,000 for the three months ended March 31, 1995
and 1996, respectively. At December 31, 1994 and 1995 and March 31, 1996, the
Company has trade receivables due from this party in the amounts of $821,000,
$778,000, and $1.1 million, respectively.
8. COMMITMENTS
The Company has operating leases covering certain automobiles and office
equipment. Rental and operating lease expense charged against earnings were
$416,000, $374,000, and $429,000 for the years ended December 31, 1993, 1994,
and 1995, respectively, and were $94,000 and $130,000 for the three months ended
March 31, 1995 and 1996, respectively.
9. CONTINGENCIES
The Company is exposed to asserted and unasserted potential claims
encountered in the normal course of business. Based on the advice of legal
counsel, management believes that the final resolution of these matters will not
materially affect the Company's consolidated financial position or results of
operations.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY
Information about the operations of the Company in different industry
segments for 1993, 1994, 1995, and for the three months ended March 31, 1995 and
1996 follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 77,192 $ 23,473 $ 100,665
----------- ----------- ------------
Operating profit.......................................................... $ 9,346 $ 1,744 $ 11,090
Other income.............................................................. 387
------------
Income before income taxes................................................ $ 11,477
------------
------------
Identifiable assets....................................................... $ 54,215 $ 12,393 $ 66,608
Corporate assets.......................................................... 6,934
------------
Total assets at December 31, 1993......................................... $ 73,542
------------
------------
Depreciation.............................................................. $ 2,686 $ 494 $ 3,180
Capital expenditures...................................................... $ 7,815 $ 539 $ 8,354
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 96,067 $ 25,403 $ 121,470
----------- ----------- ------------
Operating profit.......................................................... $ 14,152 $ 2,348 $ 16,500
Other income.............................................................. 627
------------
Income before income taxes................................................ $ 17,127
------------
------------
Identifiable assets....................................................... $ 61,490 $ 12,684 $ 74,174
Corporate assets.......................................................... 7,953
------------
Total assets at December 31, 1994......................................... $ 82,127
------------
------------
Depreciation.............................................................. $ 2,932 $ 493 $ 3,425
Capital expenditures...................................................... $ 3,307 $ 526 $ 3,833
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 113,323 $ 27,945 $ 141,268
----------- ----------- ------------
Operating profit.......................................................... $ 18,353 $ 2,669 $ 21,022
Other income.............................................................. 1,099
------------
Income before income taxes and cumulative effect of accounting change..... $ 22,121
------------
------------
Identifiable assets....................................................... $ 74,328 $ 13,654 $ 87,982
Corporate assets.......................................................... 8,092
------------
Total assets at December 31, 1995......................................... $ 96,074
------------
------------
Depreciation.............................................................. $ 3,686 $ 479 $ 4,165
Capital expenditures...................................................... $ 16,464 $ 749 $ 17,213
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY -- CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
----------------------------------
FASTENERS MOTORS CONSOLIDATED
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................... $ 28,301 $ 6,997 $ 35,298
--------- --------- ------------
Operating profit............................................................ $ 4,153 $ 498 $ 4,651
Other income................................................................ 349
------------
Income before income taxes.................................................. $ 5,000
------------
------------
Identifiable assets......................................................... $ 62,725 $ 13,282 $ 76,007
Corporate assets............................................................ 12,848
------------
Total assets at March 31, 1995.............................................. $ 88,855
------------
------------
Depreciation................................................................ $ 915 $ 115 $ 1,030
Capital expenditures........................................................ $ 2,835 $ 97 $ 2,932
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
----------------------------------
FASTENERS MOTORS CONSOLIDATED
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................... $ 31,475 $ 7,554 $ 39,029
--------- --------- ------------
Operating profit............................................................ $ 3,937 $ 501 $ 4,438
Other income................................................................ 136
------------
Income before income taxes.................................................. $ 4,574
------------
------------
Identifiable assets......................................................... $ 87,778 $ 14,454 $ 102,232
Corporate assets............................................................ 7,713
------------
Total assets at March 31, 1996.............................................. $ 109,945
------------
------------
Depreciation................................................................ $ 1,057 $ 124 $ 1,181
Capital expenditures........................................................ $ 6,169 $ 349 $ 6,518
</TABLE>
The Company operates in two industries, fastener products and electric
motors. Operating profit is net sales less costs and expenses. Identifiable
assets by industry are those assets that are used in the Company's operations in
each industry. Sales of fasteners to one customer (an authorized distributor of
the Company) totaled approximately $14.3 million, $16.6 million, and $20.9
million for the years ended December 31, 1993, 1994, and 1995, respectively
(approximately 14% of consolidated net sales in 1993 and 1994 and 15% of
consolidated net sales in 1995). For the three months ended March 31, 1995 and
1996, sales to this customer totaled approximately $4.3 million and $4.9
million, respectively (approximately 12% and 13% of consolidated net sales for
the three months ended March 31, 1995 and 1996, respectively).
Sales of PEM International Ltd. totaled approximately $12.0 million, $17.4
million, and $22.9 million for the years ended December 31, 1993, 1994, and
1995, respectively (approximately 12%, 14%, and 16% of consolidated net sales in
1993, 1994, and 1995, respectively). Sales of PEM International Ltd. and PEM
International (Singapore) Pte Ltd. totaled approximately $6.4 million and $7.2
million for the three months ended March 31, 1995 and 1996, respectively
(approximately 18% and 19% of consolidated net sales for the three months ended
March 31, 1995 and 1996, respectively). Sales from the parent Company to PEM
International Ltd. and PEM International (Singapore) Pte Ltd. result in profit
margins which are representative of those obtained from sales to unaffiliated
distributors. PEM International Ltd.'s income (loss) before taxes totaled
$354,000, ($17,000), and
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)
10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY -- CONTINUED
$605,000 for the years ended December 31, 1993, 1994, and 1995, respectively and
totaled $112,000 and $265,000 for the three months ended March 31, 1995 and
1996, respectively. PEM International (Singapore) Pte Ltd. began operations on
March 1, 1996 and had income of $10,000 for the period ended March 31, 1996. PEM
International Ltd.'s assets represented approximately 13% and 12% of
consolidated total assets as of December 31, 1994 and 1995, respectively, and
together with PEM International (Singapore) Pte Ltd. represented approximately
15% of consolidated total assets as of March 31, 1996. Export sales, other than
to PEM International Ltd. and PEM International (Singapore) Pte Ltd., totaled
approximately $8.6 million, $10.1 million, and $12.6 million for the years ended
December 31, 1993, 1994, and 1995, respectively, (approximately 8% of
consolidated net sales in 1993 and 1994 and 9% of consolidated net sales in
1995). For the three months ended March 31, 1995 and 1996 export sales totaled
$2.6 million and $1.8 million, respectively, (approximately 7% and 5% of
consolidated net sales for the three months ended March 31, 1995 and 1996,
respectively).
11. SUBSEQUENT EVENT
On April 17, 1996, the Board of Directors authorized a reclassification of
the Company's existing common stock whereby each share of existing $1.00 par
value voting common stock was exchanged for one share of new $.01 par value
Class A voting common stock (the 'Stock Reclassification'). Immediately after
the Stock Reclassification, the Board authorized a 4-for-1 stock split, effected
in the form of a stock dividend, payable in shares of $.01 par value non-voting
common stock to stockholders of record on May 3, 1996 (the 'Stock Dividend').
Stockholders' equity as of December 31, 1994 and 1995 and March 31, 1996,
adjusted to give pro forma effect to the Stock Reclassification and the Stock
Dividend, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY -- PRO FORMA:
Common stock class A -- authorized 3,000,000 shares of $.01 par
value each; issued 1,772,025 shares.............................. $ 18 $ 18 $ 18
Common stock -- authorized 20,000,000 shares of $.01 par value
each; issued 5,316,075 shares.................................... 53 53 53
Additional paid-in capital......................................... 2,686 2,686 2,686
Retained earnings.................................................. 64,468 74,852 77,251
Unrealized (loss) on investments (net of tax)...................... (140) (60) (64)
Cumulative foreign currency translation adjustment................. (223) (506) (625)
------------ ------------ -----------
Total......................................................... 66,862 77,043 79,319
Less cost of treasury stock -- 259,772 shares...................... 952 952 952
------------ ------------ -----------
Total stockholders' equity.................................... $ 65,910 $ 76,091 $ 78,367
============ ============ ===========
</TABLE>
Accordingly, all references in the financial statements to average numbers
of shares outstanding and per share amounts have been stated at their historical
amounts as well as adjusted to give pro forma effect to the Stock
Reclassification and the Stock Dividend.
F-14
<PAGE>
In the Printed version Graphics
Appear Here:
Graphic -- Photo Of PEMSERTER(R) Series 2000 (TM)FASTENER
Installation Press
Graphic -- Photo Of PEM(R) Inserts For Plastics
Graphic -- Photo Of Fasteners Wire Formed With Customized Tooling
Graphic -- Photo Of A Machine With The Caption Of
A Worldwide Reputation For Rigorous Quality Control
Graphic -- Photo Of Fasteners Manufactured On Over 300
Screw Machines
F-15
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Reclassification................................ 9
Price Range of Capital Stock and
Dividends..................................... 10
Dividend Policy................................. 11
Use of Proceeds................................. 11
Capitalization.................................. 12
Selected Consolidated Financial Data............ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business........................................ 20
Management...................................... 30
Principal and Selling Stockholders.............. 32
Description of Capital Stock.................... 36
Underwriting.................................... 40
Legal Matters................................... 41
Experts......................................... 41
Incorporation of Certain Documents by
Reference..................................... 41
Available Information........................... 42
Index to Consolidated Financial Statements...... F-1
</TABLE>
2,850,000 SHARES
[LOGO]
PENN ENGINEERING &
MANUFACTURING CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
------------------------
, 1996
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Duane, Morris & Heckscher.
23.1 Consent of Duane, Morris & Heckscher. (Included in their opinion filed as Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
</TABLE>
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Danboro, Pennsylvania on June 3, 1996.
PENN ENGINEERING & MANUFACTURING CORP.
By: /s/ KENNETH A. SWANSTROM
---------------------------------------------
Kenneth A. Swanstrom, Chairman
of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- ----------------
<S> <C> <C>
/s/ KENNETH A. SWANSTROM Chairman of the Board, President, June 3, 1996
- --------------------------------------------- Chief Executive Officer, and Director
Kenneth A. Swanstrom (principal executive officer)
/s/ MARK W. SIMON Vice President-Finance, Chief Financial June 3, 1996
- --------------------------------------------- Officer, Corporate Secretary, and Director
Mark W. Simon (principal financial and accounting officer)
* Director June 3, 1996
- ---------------------------------------------
Willard S. Boothby, Jr.
* Director June 3, 1996
- ---------------------------------------------
Frank S. Hermance
* Director June 3, 1996
- ---------------------------------------------
Lewis W. Hull
* Director June 3, 1996
- ---------------------------------------------
Thomas M. Hyndman, Jr.
* Director June 3, 1996
- ---------------------------------------------
Maurice D. Oaks
* Director June 3, 1996
- ---------------------------------------------
Daryl L. Swanstrom
*By: /s/ MARK W. SIMON
----------------------------------------
Mark W. Simon,
Attorney-in-Fact
</TABLE>
II-2
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
EXHIBIT
NO. EXHIBIT PAGE
---------- ------- -----
1.1 Form of Underwriting Agreement.
5.1 Opinion of Duane, Morris & Heckscher.
23.1 Consent of Duane, Morris & Heckscher (included in
their opinion filed as Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
EXHIBIT 1
2,850,000 Shares
PENN ENGINEERING & MANUFACTURING CORP.
Common Stock
UNDERWRITING AGREEMENT
___________ ___, 1996
PAINEWEBBER INCORPORATED
As Representative of the
several Underwriters
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Penn Engineering & Manufacturing Corp., a Delaware corporation (the
"Company"), and the persons named in Schedule I (the "Selling Shareholders"),
propose to sell an aggregate of 2,850,000 shares (the "Firm Shares") of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), of which
1,750,000 shares are to be issued and sold by the Company and an aggregate of
1,100,000 shares are to be sold by the Selling Shareholders in the respective
amounts set forth opposite their respective names in Schedule I, to you and to
the several other Underwriters named in Schedule II hereto (collectively, the
"Underwriters"), for whom you are acting as representative (the
"Representative"), in connection with the offering and sale of such shares of
Common Stock. The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 285,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b). The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares."
-1-
<PAGE>
The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the Company, the Selling Shareholders and the
Representative, acting on behalf of the several Underwriters, and such agreement
shall be set forth in a separate written instrument substantially in the form of
Exhibit A hereto (the "Price Determination Agreement"). The Price Determination
Agreement may take the form of an exchange of any standard form of written
telecommunication among the Company, the Selling Shareholders and the
Representative and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed by this Agreement,
as supplemented by the Price Determination Agreement. From and after the date of
execution and delivery of the Price Determination Agreement, this Agreement
shall be deemed to incorporate, and, unless the context otherwise indicates, all
references contained herein to "this Agreement" and to the phrase "herein" shall
be deemed to include the Price Determination Agreement.
Each Selling Shareholder has executed and delivered a Power of Attorney
and a Custody Agreement in the form attached hereto as Exhibit B (collectively,
the "Agreement and Power of Attorney") pursuant to which each Selling
Shareholder has placed his or her Firm Shares in custody and appointed the
persons designated therein as a committee (the "Committee") with authority to
execute and deliver this Agreement on behalf of such Selling Shareholder and to
take certain other actions with respect thereto and hereto.
The Company and the Selling Shareholders confirm as follows their
respective agreements with the Representative and the several other
Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the respective representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions of this Agreement, (i) the Company and
each of the Selling Shareholders, severally and not jointly, agree to sell to
the several Underwriters and (ii) each of the Underwriters,
-2-
<PAGE>
severally and not jointly, agrees to purchase from the Company and the Selling
Shareholders at the purchase price per share for the Firm Shares to be agreed
upon by the Representative, the Company and the Selling Shareholders in
accordance with Section 1(c) or 1(d) and set forth in the Price Determination
Agreement, the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II, plus such additional number of Firm Shares which
such Underwriter may become obligated to purchase pursuant to Section 9 hereof.
If the Company elects to rely on Rule 430A (as hereinafter defined), Schedule II
may be attached to the Price Determination Agreement.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 285,000 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 30th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representative to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date") setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, as adjusted by the Representative in
such manner as they deem advisable to avoid fractional shares.
(c) If the Company has elected not to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be agreed
upon and set forth in the Price Determination Agreement, which shall be dated
the date
-3-
<PAGE>
hereof, and an amendment to the Registration Statement (as hereinafter defined)
containing such per share price information shall be filed before the
Registration Statement becomes effective.
(d) If the Company has elected to rely on Rule 430A, the initial public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement. In the event that the Price
Determination Agreement has not been executed by the close of business on the
fourteenth business day following the date on which the Registration Statement
(as defined below) becomes effective, this Agreement shall terminate forthwith,
without liability of any party to any other party except that Section 7 shall
remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representative for the accounts of the Underwriters against payment of the
purchase price by credit to the account of the Company, for itself and on behalf
of each of the Selling Shareholders, with the Depository Trust Company. Such
payment shall be made at 10:00 a.m., New York City time, on the fourth business
day following the date of this Agreement or, if the Company has elected to rely
on Rule 430A, the fourth business day after the date on which the first bona
fide offering of the Shares to the public is made by the Underwriters or at such
time on such other date as may be agreed upon by the Company and the
Representative (such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the time and date (which may be the Closing Date) specified in the
Option Shares Notice.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The cost of tax stamps,
if any, in connection with the sale of the Firm Shares by the Selling
Shareholders shall be borne by the Selling Shareholders. The
-4-
<PAGE>
Company and the Selling Shareholders will pay and save each Underwriter and any
subsequent holder of the Shares harmless from any and all liabilities with
respect to or resulting from any failure or delay in paying Federal and state
stamp and other transfer taxes, if any, which may be payable or determined to be
payable in connection with the original issuance or sale to such Underwriter of
the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-2. A
registration statement (Registration No. 333-04249) on Form S-2
relating to the Shares (the "initial registration statement"),
including a preliminary prospectus and such amendments to such
registration statement, as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. If the Company
elects to rely on Rule 462(b) of the Rules and Regulations ("Rule
462(b)") to register a portion of the Shares, a registration statement
on Form S-2 relating to the Shares (the "Rule 462 registration
statement") has been or will be prepared by the Company under the
provisions of the Act and the Rules and Regulations and has been or
will be filed with the Commission. The initial registration statement
and the Rule 462 registration statement contain forms of preliminary
prospectuses to be used in connection with the offering and sale of the
Shares. The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule
430A") of the Rules and Regulations included at any time as part of the
initial registration statement. Copies of the initial registration
statement and amendments thereto and the Rule 462 registration
-5-
<PAGE>
statement, if any, have been delivered to the Representative, and
copies of each related Preliminary Prospectus have been delivered to
the Representative. If the initial registration statement has not
become effective, a further amendment to the initial registration
statement, including a form of final prospectus, necessary to permit
the initial registration statement to become effective will be filed
promptly by the Company with the Commission. If the initial
registration statement has become effective, a final prospectus
containing information permitted to be omitted at the time of
effectiveness of the initial registration statement by Rule 430A will
be filed by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations ("Rule 424(b)") promptly after
execution and delivery of the Price Determination Agreement. The term
"Registration Statement" means, collectively, (i) the initial
registration statement as amended at the time it becomes or became
effective (the "Effective Date"), including financial statements and
all exhibits and any information deemed to be included by Rule 430A,
and (ii) if the Company elects to rely on Rule 462(b) to register a
portion of the Shares, the Rule 462 registration statement at the time
it becomes or became effective (the "Rule 462 Effective Date"). The
term "Prospectus" means a prospectus relating to the Shares in the form
it is first filed with the Commission pursuant to Rule 424(b), or if
the Company elects to rely on Rule 434(c) of the Rules and Regulations
("Rule 434(c)"), the Preliminary Prospectus and abbreviated term sheet
in the form such term sheet is first filed with the Commission pursuant
to Rule 424(b) (the "Prospectus") or, if such filing under Rule 424(b)
is not required, the form of final prospectus included in the
Registration Statement at the Effective Date and the Rule 462 Effective
Date, if applicable. Any reference herein to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed
to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-2 which were filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on or
-6-
<PAGE>
before the Effective Date, the Rule 462 Effective Date, or the date of
such preliminary prospectus or the Prospectus, as the case may be. Any
reference herein to the terms "amend", "amendment" or "supplement" with
respect to the Registration Statement, any preliminary prospectus or
the Prospectus shall be deemed to refer to and include the filing of
any document under the Exchange Act after the Effective Date, the Rule
462 Effective Date, or the date of any preliminary prospectus or the
Prospectus, as the case may be, and deemed to be incorporated therein
by reference.
(b) On the Effective Date, the Rule 462 Effective Date, the
date the Prospectus is first filed with the Commission pursuant to Rule
424(b) (if required), at all times subsequent to and including the
Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed
with the Commission, the Registration Statement and the Prospectus (as
amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement thereto), including the
financial statements included or incorporated by reference in the
Prospectus, did or will comply with all applicable provisions of the
Act, the Exchange Act, the rules and regulations thereunder (the
"Exchange Act Rules and Regulations") and the Rules and Regulations and
will contain all statements required to be stated therein in accordance
with the Act, the Exchange Act, the Exchange Act Rules and Regulations
and the Rules and Regulations. On the Effective Date, the Rule 462
Effective Date, and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration
Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading. At the Effective Date, the Rule 462 Effective
Date, the date the Prospectus or any amendment or supplement to the
-7-
<PAGE>
Prospectus is filed with the Commission and at the Closing Date and, if
later, the Option Closing Date, the Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not
apply to any statements or omissions made in reliance on and in
conformity with information relating to any Underwriter furnished in
writing to the Company by the Representative specifically for inclusion
in the Registration Statement or Prospectus or any amendment or
supplement thereto. For all purposes of this Agreement, the amounts of
the selling concession and reallowance set forth in the Prospectus
constitute the only information relating to any Underwriter furnished
in writing to the Company by the Representative on behalf of the
Underwriters expressly for inclusion in the Preliminary Prospectus, the
Registration Statement or the Prospectus. The Company has not
distributed any offering material in connection with the offering or
sale of the Shares other than the Registration Statement, the
preliminary prospectus, the Prospectus or any other materials, if any,
permitted by the Act.
(c) The documents which are incorporated by reference in the
preliminary prospectus and the Prospectus or from which information is
so incorporated by reference, when they become effective or were filed
with the Commission, as the case may be, complied in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, the Exchange Act Rules and Regulations and the Rules and
Regulations; and any documents so filed and incorporated by reference
subsequent to the Effective Date shall, when they are filed with the
Commission, conform in all material respects with the requirements of
the Act and the Exchange Act, as applicable, the Exchange Act Rules and
Regulations and the Rules and Regulations.
-8-
<PAGE>
(d) The only subsidiaries (as defined in the Rules and
Regulations) of the Company are the subsidiaries listed on Exhibit C
attached hereto (the "subsidiaries"). The Company and each of its
subsidiaries is, and at the Closing Date will be, a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and each of its subsidiaries
has, and at the Closing Date will have, full power and authority to
conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described
in the Registration Statement and the Prospectus. The Company and each
of its subsidiaries is, and at the Closing Date will be, duly licensed
or qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it
makes such licensing or qualification necessary except where the
failure to be so qualified, considering all such cases in the
aggregate, does not involve a material risk to the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries. Except for
the stock of its subsidiaries and as disclosed in the Registration
Statement, the Company does not own, and at the Closing Date will not
own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other
entity. Complete and correct copies of the charter documents, by-laws,
and other governing instruments of the Company and each of its
subsidiaries and all amendments thereto have been delivered to the
Representative, and no changes therein will be made subsequent to the
date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
(e) The outstanding shares of Common Stock and Class A Common
Stock, par value $.01 per share, of the Company ("Class A Common
Stock"), have been, and the
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<PAGE>
Shares to be issued and sold by the Company upon such issuance will be,
duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right. The description of
the Common Stock, and the statement of the authorized and outstanding
capital stock of the Company, contained or incorporated by reference in
the Registration Statement and the Prospectus is, and at the Closing
Date will be, complete and accurate in all material respects. Except as
set forth in the Prospectus, the Company does not have outstanding, and
at the Closing Date will not have outstanding, any options to purchase,
or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of Common Stock, Class A Common Stock, any shares
of capital stock of any subsidiary or any such warrants, convertible
securities or obligations. All of the issued and outstanding shares of
capital stock of, or other ownership interests in, each subsidiary of
the Company have been duly and validly authorized and issued, are fully
paid and nonassessable, and, except as disclosed in the Prospectus as
of the Closing Date and, if later, the Option Closing Date, all of the
shares of capital stock of, or other ownership interests in, each
subsidiary of the Company will be owned, directly or through
subsidiaries of the Company, by the Company free and clear of any
security interest, mortgage, pledge, claim, lien or encumbrance. No
subsidiary of the Company is prohibited, directly or indirectly, from
paying any dividends to the Company or any other subsidiary of the
Company, from making any other distribution on such subsidiary's
capital stock, from repaying to the Company or any other subsidiary of
the Company, any loans or advances to such subsidiary from the Company
or from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except as described in
or contemplated by the Prospectus.
(f) The financial statements and schedules included or
incorporated by reference in the Registration
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<PAGE>
Statement or the Prospectus present fairly the consolidated financial
condition of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for
the respective periods covered thereby, all in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the entire period involved, except as otherwise disclosed in
the Prospectus. No other financial statements or schedules of the
Company are required by the Act, the Exchange Act or the Rules and
Regulations to be included in the Registration Statement or the
Prospectus. Deloitte & Touche LLP (the "Accountants"), who have
reported on such financial statements and schedules, are independent
accountants with respect to the Company as required by the Act and the
Rules and Regulations. No other financial statements or schedules of
any subsidiary are required by the Act, the Exchange Act or the Rules
and Regulations to be included in the Registration Statement or the
Prospectus. The statements included in the Registration Statement with
respect to the Accountants pursuant to Rule 509 of Regulation S-K of
the Rules and Regulations are true and correct in all material
respects.
(g) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and
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<PAGE>
the Prospectus and prior to the Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i)
there has not been and will not have been any change in the
capitalization of the Company, or any material adverse change in the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its
subsidiaries, arising for any reason whatsoever, (ii) neither the
Company nor any of its subsidiaries has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it
entered into nor will it enter into any material transactions other
than pursuant to this Agreement and the transactions referred to herein
and (iii) the Company has not and will not have paid or declared any
dividends or other distributions of any kind on any class of its
capital stock.
(i) Neither the Company nor any subsidiary is an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
(j) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or
threatened against or affecting the Company or any of its subsidiaries
or any of their respective officers in their capacities as such, before
or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign,
wherein an unfavorable ruling, decision or finding might materially and
adversely affect the Company or any of its subsidiaries or its
business, properties, business prospects, condition (financial or
otherwise) or results of operations.
(k) The Company and each of its subsidiaries has, and at the
Closing Date will have, (i) all governmental licenses, permits,
consents, orders, approvals and other authorizations necessary to carry
on its business as
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<PAGE>
contemplated in the Prospectus, (ii) complied in all respects with all
laws, regulations and orders applicable to it or its business and (iii)
performed all its obligations required to be performed by it, and is
not, and at the Closing Date will not be, in default, under any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement, lease, contract or other
agreement or instrument (collectively a "contract or other agreement")
to which it is a party or by which its property is bound or affected.
To the best knowledge of the Company and each of its subsidiaries, no
other party under any contract or other agreement to which it is a
party is in default in any respect thereunder. Neither the Company nor
any of its subsidiaries is, nor at the Closing Date will any of them
be, in violation of any provision of its charter documents, by-laws, or
other governing instruments.
(l) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part contemplated herein, except such as have been obtained under the
Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the
National Association of Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution by the Underwriters of
the Shares to be sold by the Company.
(m) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company
in accordance with the terms hereof and thereof. The performance of
this Agreement and the consummation of the transactions contemplated
hereby will not result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or any of
its
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<PAGE>
subsidiaries pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation
under, the charter documents, by-laws, or other governing instruments
of the Company or any of its subsidiaries, any contract or other
agreement to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or any of its
properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any
court or other governmental agency or body applicable to the business
or properties of the Company or any of its subsidiaries.
(n) The Company and each of its subsidiaries has good and
marketable title to all properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company or its
subsidiaries. The Company and each of its subsidiaries has valid,
subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, with such exceptions as are not material
and do not materially interfere with the use made and proposed to be
made of such properties by the Company and such subsidiaries.
(o) There is no document or contract of a character required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement which is not
described or filed as required. All such contracts to which the Company
or any of its subsidiaries is a party have been duly authorized,
executed and delivered by the Company or such subsidiary, constitute
valid and binding agreements of the Company or such subsidiary and are
enforceable against the Company or such subsidiary in accordance with
the terms thereof.
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(p) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Representative was or
will be, when made, inaccurate, untrue or incorrect.
(q) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action
intended, or which might reasonably be expected, to cause or result,
under the Act or otherwise, in, or which has constituted, stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(r) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of
the Registration Statement.
(s) The Shares are duly authorized for listing, subject to
official notice of issuance, on the New York Stock Exchange.
(t) Neither the Company nor any of its subsidiaries is
involved in any material labor dispute nor, to the knowledge of the
Company, is any such dispute threatened.
(u) The Company and its subsidiaries own, or are licensed or
otherwise have the full exclusive right to use, the patents, patent
rights, inventions, know-how (including trade secrets and other
unpatented and unpatentable proprietary or confidential information,
systems or procedures) and all material trademarks and trade names
which are used in or necessary for the conduct of their respective
businesses as described in the Prospectus. No claims have been asserted
by any person to the use of any of the foregoing or challenging or
questioning the validity or effectiveness of any of the foregoing. The
use, in connection with the business and operations of the Company and
its subsidiaries of the foregoing does not infringe on the rights of
any person.
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(v) Neither the Company nor any of its subsidiaries nor, to
the Company's knowledge, any employee or agent of the Company or any
subsidiary has made any payment of funds of the Company or any
subsidiary or received or retained any funds in violation of any law,
rule or regulation which payment, receipt or retention is of a
character required to be disclosed in the Prospectus.
(w) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have
paid all taxes shown as due thereon except where extensions have been
obtained or a failure to file a return would not have a material
adverse effect on the condition (financial or otherwise) or the results
of operations of the Company and its subsidiaries, taken as a whole;
and the Company has no knowledge of any tax deficiency which has been
or might be asserted or threatened against the Company or any of its
subsidiaries which could materially and adversely affect the condition
(financial or otherwise) or the results of operations of the Company
and its subsidiaries, taken as a whole.
(x) All material transactions between the Company and its
subsidiaries and the officers, directors and major stockholders of the
Company have been accurately disclosed in the Registration Statement
and the terms of each such transaction are fair to the Company and
comparable to the terms that could have been obtained from unrelated
parties.
(y) The Company and its subsidiaries maintain in full force
and effect insurance of the types and in the amounts generally deemed
adequate for their businesses, including, but not limited to, insurance
covering real and personal property owned or leased by them against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against except where the failure to maintain such
insurance would not have a material adverse effect on the condition
(financial or otherwise) of the Company and its subsidiaries, taken as
a whole.
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(z) Neither the Company nor any of its subsidiaries has at any
time during the last five years made any payment to any government
officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by laws
of the United States or any jurisdiction thereof.
4. Representations and Warranties of the Selling
Shareholders. Each of the Selling Shareholders, severally and not
jointly, represents, warrants and covenants to each Underwriter
that:
(a) Such Selling Shareholder has full power and authority to
enter into this Agreement. All authorizations and consents necessary
for the execution and delivery by such Selling Shareholder of the
Agreement and Power of Attorney, and for the execution of this
Agreement on behalf of such Selling Shareholder, have been given. Each
person acting as trustee of such a Selling Shareholder organized as a
trust has the authority to so act under the terms of the trust
instruments and no claim has been asserted by a beneficiary of such
trust or any other person contesting the trustee's authority so to act
or objecting in any way to the trustee's actions taken or proposed to
be taken in connection with the Agreement and Power of Attorney or this
Agreement. Each of the Agreement and Power of Attorney and this
Agreement has been duly authorized, executed and delivered by or on
behalf of such Selling Shareholder and constitutes a valid and binding
agreement of such Selling Shareholder and is enforceable against such
Selling Shareholder in accordance with the terms thereof and hereof.
(b) Such Selling Shareholder now has, and at the time of
delivery thereof hereunder will have, (i) good and marketable title to
the Shares to be sold by such Selling Shareholder hereunder, free and
clear of all liens, encumbrances and claims whatsoever (other than
pursuant to the Agreement and Power of Attorney), and (ii) full legal
right and power, and all authorizations
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and approvals required by law, to sell, transfer and deliver such
Shares to the Underwriters hereunder and to make the representations,
warranties and agreements made by such Selling Shareholder herein and
therein. Upon the delivery of and payment for such Shares hereunder,
such Selling Shareholder will deliver good and marketable title
thereto, free and clear of all liens, encumbrances and claims
whatsoever.
(c) On the Closing Date or the Option Closing Date, as the
case may be, all stock transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and
transfer of the Shares to be sold by such Selling Shareholder to the
several Underwriters hereunder will have been fully paid or provided
for by such Selling Shareholder and all laws imposing such taxes will
have been fully complied with.
(d) The performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of
such Selling Shareholder pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, or result in the acceleration of any
obligation under, if such Selling Shareholder is a corporation,
partnership, limited liability company, trust, estate or other entity,
the organizational documents of such Selling Shareholder, or, as to all
such Selling Shareholders, any contract or other agreement to which
such Selling Shareholder is a party or by which such Selling
Shareholder or any of its property is bound or affected, or under any
ruling, decree, judgment, order, statute, rule or regulation of any
court or other governmental agency or body having jurisdiction over
such Selling Shareholder or the property of such Selling Shareholder.
(e) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the
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consummation by such Selling Shareholder of the transactions on its
part contemplated herein and in the Agreement and Power of Attorney,
except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue
Sky laws or the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares to be sold
by such Selling Shareholder.
(f) Such Selling Shareholder has no knowledge of any material
fact or condition not set forth in the Registration Statement or the
Prospectus which has adversely affected, or may adversely affect, the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, and the sale of the
Shares proposed to be sold by such Selling Shareholder is not prompted
by any such knowledge.
(g) With respect to all information pertaining to such Selling
Shareholder contained in the Registration Statement and the Prospectus
(as amended or supplemented, if the Company shall have filed with the
Commission any amendment or supplement thereto), the Registration
Statement and Prospectus complied and will comply with all applicable
provisions of the Act and the Rules and Regulations, contain and will
contain all statements required to be stated therein in accordance with
the Act and the Rules and Regulations, and do not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading.
(h) To the best knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section 3
are true and correct.
(i) Other than as permitted by the Act and the Rules and
Regulations, such Selling Shareholder has not
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distributed and will not distribute any preliminary prospectus, the
Prospectus or any other offering material in connection with the
offering and sale of the Shares. Such Selling Shareholder has not
taken, directly or indirectly, any action intended, or which might
reasonably be expected, to cause or result in, under the Act or
otherwise, or which has constituted, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or
resale of the Shares.
(j) Certificates in negotiable form for the Firm Shares to be
sold hereunder by such Selling Shareholder have been placed in custody,
for the purpose of making delivery of such Firm Shares under this
Agreement, under the Agreement and Power of Attorney which appoints
_______ as custodian (the "Custodian") for each Selling Shareholder.
Such Selling Shareholder agrees that the Shares represented by the
certificates held in custody for him, her or it under the Agreement and
Power of Attorney are for the benefit of and coupled with and subject
to the interest hereunder of the Custodian, the Committee, the
Underwriters, each other Selling Shareholder and the Company, that the
arrangements made by such Selling Shareholder for such custody and the
appointment of the Custodian and the Committee by such Selling
Shareholder are irrevocable, and that the obligations of such Selling
Shareholder hereunder shall not be terminated by operation of law,
whether by the death, disability, incapacity or liquidation of any
Selling Shareholder or the occurrence of any other event. If any
Selling Shareholder should die, become disabled or incapacitated or be
liquidated or if any other such event should occur before the delivery
of the Firm Shares hereunder, certificates for the Firm Shares shall be
delivered by the Custodian in accordance with the terms and conditions
of this Agreement and actions taken by the Committee and the Custodian
pursuant to the Agreement and Power of Attorney shall be as valid as if
such death, liquidation, incapacity or other event had not occurred,
regardless of whether or not the Custodian or the
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Committee, or either of them, shall have received notice thereof.
5. Agreements of the Company and the Selling Shareholders. The
Company and the Selling Shareholders (as to Sections 5(i), (j), (k), (n), (o),
(p) and (q)) agree, severally and not jointly, with the several Underwriters as
follows:
(a) The Company will not, either prior to the Effective Date
or thereafter during such period as the Prospectus is required by law
to be delivered in connection with sales of the Shares by an
Underwriter or dealer, file any amendment or supplement to the
Registration Statement or the Prospectus, unless a copy thereof shall
first have been submitted to the Representative within a reasonable
period of time prior to the filing thereof and the Representative shall
have not objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the
Representative promptly, and will confirm such advice in writing (1)
when the Registration Statement (including the Rule 462 registration
statement, if any) has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the
Commission for amendments or supplements to the Registration Statement
or the Prospectus or for additional information, (3) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose or the threat thereof, (4) of the happening of any event during
the period mentioned in the second sentence of Section 5(e) that in the
judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any
changes in the Registration Statement or the Prospectus in order to
make the statements therein, in light of the circumstances in which
they are made, not misleading and (5) of receipt by the Company or any
representative or attorney of the
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Company of any other communication from the Commission relating to the
Company, the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order
suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A, the
Company will use its best efforts to comply with the provisions of and
make all requisite filings with the Commission pursuant to said Rule
430A and to notify the Representative promptly of all such filings.
(c) The Company will furnish to the Representative, without
charge, two signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto (including any document filed under
the Exchange Act and deemed to be incorporated by reference into the
Prospectus), and will furnish to the Representative, without charge,
for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time,
the Company will deliver to each of the Underwriters, without charge,
as many copies of the Prospectus or any amendment or supplement thereto
as the Representative may reasonably request. The Company consents to
the use of the Prospectus or any amendment or supplement thereto by the
several Underwriters and by all dealers to whom the Shares may be sold,
both in connection with the offering or sale of the Shares and for any
period of time thereafter during which the
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Prospectus is required by law to be delivered in connection therewith.
If during such period of time any event shall occur which in the
judgment of the Company or counsel to the Underwriters should be set
forth in the Prospectus in order to make any statement therein, in the
light of the circumstances under which it was made, not misleading, or
if it is necessary to supplement or amend the Prospectus to comply with
law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will
deliver to each of the Underwriters, without charge, such number of
copies of such supplement or amendment to the Prospectus as the
Representative may reasonably request. The Company shall not file any
document under the Exchange Act before the termination of the offering
of the Shares by the Underwriters if such document would be deemed to
be incorporated by reference into the Prospectus which is not approved
by the Representative after reasonable notice thereof.
(f) Prior to any public offering of the Shares, the Company
will cooperate with the Representative and counsel to the Underwriters
in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representative may request, including, without
limitation, the provinces and territories of Canada and other
jurisdictions outside the United States; provided, that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action
which would subject it to general service of process in any
jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representative and each
other Underwriter who may so request copies of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class
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of its capital stock, and will furnish to the Representative and each
other Underwriter who may so request a copy of each annual or other
report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of
its securities as soon as may be practicable but in no event later than
the last day of the fifteenth full calendar month following the
calendar quarter in which the Effective Date falls, an earnings
statement (which need not be audited but shall be in reasonable detail)
for a period of 12 months ended commencing after the Effective Date,
and satisfying the provisions of Section 11(a) of the Act (including
Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
and the Selling Shareholders, jointly and severally, will pay, or
reimburse if paid by the Representative, all costs and expenses
incident to the performance of the obligations of the Company and the
Selling Shareholders under this Agreement, including but not limited to
costs and expenses of or relating to (1) the preparation, printing and
filing of the Registration Statement and exhibits to it, each
preliminary prospectus, Prospectus and any amendment or supplement to
the Registration Statement or Prospectus, (2) the preparation and
delivery of certificates representing the Shares, (3) the printing of
this Agreement, the Agreement Among Underwriters, any Dealer
Agreements, any Underwriters' Questionnaire and the Agreement and Power
of Attorney, (4) furnishing (including costs of shipping and mailing)
such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as
may be requested for use in connection with the offering and sale of
the Shares by the Underwriters or by dealers to whom Shares may be
sold, (5) the listing of the Shares on the New York Stock Exchange, (6)
any filing fees required to be paid by the Underwriters to the NASD,
and the fees,
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disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the
Shares for the offer and sale under the securities or Blue Sky laws of
such jurisdictions designated pursuant to Section 5(f), including the
fees, disbursements and other charges of counsel (including counsel in
Canadian provinces and territories) to the Underwriters in connection
therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company
and counsel to the Selling Stockholders and (9) the transfer agent and
registrar for the Shares.
(j) If this Agreement shall be terminated by the Company or
the Selling Shareholders pursuant to any of the provisions hereof or
thereof (otherwise than pursuant to Section 9 hereof and Section 9
thereof) or if for any reason the Company or any Selling Shareholder
shall be unable to perform its obligations hereunder or thereunder, the
Company and the Selling Shareholders, jointly and severally, will
reimburse the several Underwriters for all out-of-pocket expenses
(including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith.
(k) The Company and the Selling Shareholders will not at any
time, directly or indirectly, take any action intended, or which might
reasonably be expected, to cause or result in, or which will
constitute, stabilization of the price of the shares of Common Stock or
the Class A Common Stock to facilitate the sale or resale of any of the
Shares.
(l) The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds".
(m) The Company will not, and will cause each of its
executive officers, directors and each beneficial
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owner of more than 5% of the outstanding shares of Class A Common Stock
and/or Common Stock to enter into agreements with the Representative in
the form set forth in Exhibit D to the effect that they will not, for a
period of 120 days after the commencement of the public offering of the
Shares, without the prior written consent of the Representative.
(n) Each Selling Shareholder will not, for a period of 120
days after the commencement of the public offering of the Shares,
without the prior written consent of the Representative, (i) directly
or indirectly, assign, transfer, offer, sell, agree to sell, issue,
hypothecate, or otherwise dispose of any shares of Common Stock or
Class A Common Stock or securities convertible into or exchangeable for
or any rights to acquire shares of Common Stock or Class A Common Stock
or (ii) any way reduce his, her or its risk of ownership or investment
in any shares of Common Stock or Class A Common Stock other than
pursuant to bona fide gifts to persons who agree in writing with the
Representative to be bound by the provisions of this Section 5(n).
(o) The Selling Shareholders will not, without the prior
written consent of the Representative, make any bid for or purchase any
shares of Common Stock or Class A Common Stock during the 120-day
period following the date hereof.
(p) As soon as any Selling Shareholder is advised thereof,
such Selling Shareholder will advise the Representative and confirm
such advice in writing, (1) of receipt by such Selling Shareholder, or
by any representative of such Selling Shareholder, of any communication
from the Commission relating to the Registration Statement, the
Prospectus or any preliminary prospectus, or any notice or order of the
Commission relating to the Company or any of the Selling Shareholders
in connection with the transactions contemplated by this Agreement and
(2) of the happening of any event during the period from and after the
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Effective Date that in the judgment of such Selling Shareholder makes
any statement made in the Registration Statement or the Prospectus
untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(q) The Selling Shareholders will deliver to the
Representative prior to or on the Closing Date a properly completed and
executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. Conditions of the Obligations of the Underwriters. In
addition to the execution and delivery of the Price Determination Agreement, the
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representative not later than 5:00
p.m., New York City time, on the date of this Agreement or at such
later date and time as shall be consented to in writing by the
Representative and all filings required by Rules 424 and 462 of the
Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or threatened by the Commission, (ii) no
order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or
Blue Sky laws of any jurisdiction shall be in effect and no proceeding
for such purpose shall be pending before or threatened or contemplated
by the Commission or the authorities of any such jurisdiction, (iii)
any request for additional information on the part of the staff of the
Commission or any such authorities shall have been compiled with to the
satisfaction of the
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staff of the Commission or such authorities and (iv) after the date
hereof no amendment or supplement to the Registration Statement or the
Prospectus shall have been filed unless a copy thereof was first
submitted to the Representative and the Representative does not object
thereto in good faith, and the Representative shall have received
certificates, dated the Closing Date and the Option Closing Date and
signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company
(who may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall
not have been a material adverse change in the general affairs,
business, business prospects, properties, management, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, in each case other
than as set forth in or contemplated by the Registration Statement and
the Prospectus and (ii) neither the Company nor any of its subsidiaries
shall have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree,
which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Representative any such
development makes it impracticable or inadvisable to consummate the
sale and delivery of the Shares by the Underwriters at the public
offering price specified in the Price Determination Agreement.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall
have been no litigation or
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other proceeding instituted against the Company or any of its
subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or
proceeding an unfavorable ruling, decision or finding would materially
and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole.
(e) Each of the representations and warranties of the Company
and the Selling Shareholders contained herein shall be true and correct
in all material respects at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date as if made at the Closing
Date and, with respect to the Option Shares, at the Option Closing
Date, and all covenants and agreements contained herein to be performed
on the part of the Company and the Selling Shareholders and all
conditions contained herein to be fulfilled or complied with by the
Company and the Selling Shareholders at or prior to the Closing Date
and, with respect to the Option Shares, at or prior to the Option
Closing Date, shall have been duly performed, fulfilled or complied
with.
(f) The Representative shall have received an opinion, dated
the Closing Date and, with respect to the Option Shares, the Option
Closing Date, and satisfactory in form and substance to counsel for the
Underwriters, from Duane, Morris & Heckscher, counsel to the Company
and the Selling Shareholders, to the effect set forth in Exhibit E.
(g) The Representative shall have received an opinion, dated
the Closing Date and the Option Closing Date, from McDermott, Will &
Emery, counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be
satisfactory in all respects to the Representative.
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(h) Concurrently with the execution and delivery of this
Agreement, or, if the Company elects to rely on Rule 430A, on the date
of the Prospectus, the Accountants shall have furnished to the
Representative a letter, dated the date of its delivery, addressed to
the Representative and in form and substance satisfactory to the
Representative, confirming that they are independent accountants with
respect to the Company as required by the Act and the Rules and
Regulations and with respect to the financial and other statistical and
numerical information contained in the Registration Statement or
incorporated by reference therein. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall have
furnished to the Representative another letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the letter referred to in the prior
sentence, that nothing has come to their attention during the period
from the date of the letter referred to in the prior sentence to a date
(specified in the subsequent letter) not more than five days prior to
the Closing Date and the Option Closing Date, as the case may be, which
would require any change in the letter referred to in the prior
sentence dated the date hereof if it were required to be dated and
delivered at the Closing Date and the Option Closing Date.
(i) Concurrently with the execution and delivery of this
Agreement, or, if the Company elects to rely on Rule 430A, on the date
of the Prospectus, and at the Closing Date and, as to the Option
Shares, the Option Closing Date, there shall be furnished to the
Representative an accurate certificate, dated the date of its delivery,
signed by each of the Chief Executive Officer and the Chief Financial
Officer of the Company, in form and substance satisfactory to the
Representative, to the effect that:
(i) Each signer of such certificate has carefully examined
the Registration Statement and the Prospectus (including any
documents
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filed under the Exchange Act and deemed to be incorporated by
reference into the Prospectus) and (A) as of the date of such
certificate, such documents are true and correct in all
material respects and do not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not untrue or misleading and (B) in the
case of the certificate delivered at the Closing Date and the
Option Closing Date, since the Effective Date no event has
occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements
therein not untrue or misleading in any material respect and
there has been no document required to be filed under the
Exchange Act and the Exchange Act Rules and Regulations that
upon such filing would be deemed to be incorporated by
reference into the Prospectus that has not been so filed.
(ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally
made, and are, at the time such certificate is dated, true and
correct in all material respects.
(iii) Each of the covenants required to be performed
by the Company herein on or prior to the date of such
certificate has been duly, timely and fully performed and each
condition herein required to be satisfied or fulfilled on or
prior to the date of such certificate has been duly, timely
and fully satisfied or fulfilled.
(j) Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall have been furnished to the
Representative an accurate
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<PAGE>
certificate, dated the date of its delivery, signed by the Committee on
behalf of each of the Selling Shareholders, in form and substance
satisfactory to the Representative, to the effect that the
representations and warranties of each of the Selling Shareholders
contained herein are true and correct in all material respects on and
as of the date of such certificate as if made on and as of the date of
such certificate, and each of the covenants and conditions required
herein to be performed or complied with by the Selling Shareholders on
or prior to the date of such certificate has been duly, timely and
fully performed or complied with.
(k) On or prior to the Closing Date, the Representative shall
have received the executed agreements referred to in Section 5(m).
(l) The Shares shall be qualified for sale in such
jurisdictions as the Representative may reasonably request, each such
qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date or the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the New York Stock Exchange upon official
notice of issuance.
(n) The Company and the Selling Shareholders shall have
furnished to the Representative such certificates, in addition to those
specifically mentioned herein, as the Representative may have
reasonably requested as to the accuracy and completeness at the Closing
Date and the Option Closing Date of any statement in the Registration
Statement or the Prospectus or any documents filed under the Exchange
Act and deemed to be incorporated by reference into the Prospectus, as
to the accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company and the Selling
Shareholders herein, as to the performance by the Company and the
Selling Shareholders of its and their respective obligations hereunder,
or as to the
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<PAGE>
fulfillment of the conditions concurrent and precedent to
the obligations hereunder of the Representative.
7. Indemnification.
(a) Each of the Company and the Selling Shareholders, jointly
and severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person, if any, who
controls each Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement, or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or in any documents filed under the Exchange Act
and deemed to be incorporated by reference into the Prospectus, or the omission
or alleged omission to state in such document a material fact required to be
stated in it or necessary to make the statements in it not misleading, provided
that the Company and the Selling Shareholders will not be liable to the extent
that such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by a Underwriter and is based on an
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representative on behalf of any
Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus or the Prospectus. This indemnity agreement will be in
addition to any liability that the Company or any Selling Shareholder might
otherwise have.
(b) Each Underwriter will indemnify and hold harmless
the Company, the Selling Shareholders, each person, if any, who
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<PAGE>
controls the Company or the Selling Shareholders within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, each director of the Company
and each officer of the Company who signs the Registration Statement to the same
extent as the foregoing indemnity from the Company and the Selling Shareholders
to each Underwriter, but only insofar as losses, claims, liabilities, expenses
or damages arise out of or are based on any untrue statement or omission or
alleged untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representative on behalf of such Underwriter expressly for use in the
Registration Statement, the Preliminary Prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 7, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 7 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such
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<PAGE>
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified parties. All such fees, disbursements and other charges will be
reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company, the Selling Shareholders
or the Underwriters, the Company, the Selling Shareholders and the Underwriters
will contribute to the total losses, claims, liabilities, expenses and damages
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting any contribution received
by the Company or the Selling Shareholders from persons other than the
Underwriters, such as persons who
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<PAGE>
control the Company or the Selling Shareholders within the meaning of the Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who also may be liable for contribution) to which the Company or
the Selling Shareholders and any one or more of the Underwriters may be subject
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company and Selling Shareholders on the one hand and the
Underwriters on the other. The relative benefits received by the Company and the
Selling Shareholders, on the one hand, and the Underwriters, on the other, shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence but also the relative
fault of the Company and the Selling Shareholders, on the one hand, and the
Underwriters, on the other, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders, or the Representative on behalf of the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 7(d) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 7(d) shall be deemed to include, for purposes of this Section 7(d),
any legal or other
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<PAGE>
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts received by it and no person
found guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 7(d) are several in proportion to their
respective underwriting obligations and not joint. For purposes of this Section
7(d), any person who controls a party to this Agreement within the meaning of
the Act will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d). No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company and the
Selling Shareholders contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Underwriters, (ii) acceptance of any of the Shares and payment therefor
or (iii) any termination of this Agreement.
8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company and the Committee from the Representative, without
liability on the part of any Underwriter to the Company or any
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<PAGE>
Selling Shareholder, if, prior to delivery and payment for the Shares (or the
Option Shares, as the case may be), in the sole judgment of the Representative,
(i) trading in any of the equity securities of the Company shall have been
suspended by the Commission, by the New York Stock Exchange or by the American
Stock Exchange, (ii) trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or minimum or maximum prices shall
have been generally established on such exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange or by
order of the Commission or any court or other governmental authority, (iii) a
general banking moratorium shall have been declared by either Federal or New
York State authorities, (iv) a moratorium in foreign exchange trading by major
international banks shall have been declared or (v) any material adverse change
in the financial or securities markets in the United States or Europe or in
political, financial or economic conditions in the United States or Europe or
any outbreak or escalation of hostilities or declaration by the United States of
a national emergency or war or other calamity or crisis shall have occurred, the
effect of any of which is such as to make it, in the sole judgment of the
Representative, impracticable or inadvisable to market the Shares on the terms
and in the manner contemplated by the Prospectus.
9. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representative may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant
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<PAGE>
to this Section 9 by more than one-ninth of the number of Firm Shares agreed to
be purchased by such Underwriter without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase
any Firm Shares and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase exceeds
one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representative, the Company and the Committee for the
purchase of such Firm Shares are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, or the Company or any Selling Shareholder for the
purchase or sale of any Shares under this Agreement. In any such case either the
Representative or the Company and the Committee shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any documents or arrangements may be effected. Any action taken pursuant to
this Section 9 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 5190
Old Easton Road, Danboro, Pennsylvania 18916, Attention: Kenneth A. Swanstrom,
(b) if to any Selling Shareholder, ______________________, or (c) if to the
Underwriters, to the Representative at the offices of PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate
Finance Department. Any such notice shall be effective only upon receipt. Any
notice under Section 8 or 9 may be made by telex or telephone, but if so made
shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and the Selling Shareholders and the
controlling persons, directors and officers referred to in Section 7, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
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<PAGE>
as used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from any of the several Underwriters.
With respect to any obligation of the Company and the Selling
Shareholders hereunder to make any payment, to indemnify for any liability or to
reimburse for any expense, notwithstanding the fact that such obligation is a
joint and several obligation of the Company and the Selling Shareholders, the
Underwriters (or any other person to whom such payment, indemnification or
reimbursement is owed) may pursue the Company with respect thereto prior to
pursuing any Selling Shareholder.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company, the Selling Shareholders and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect of any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
* * * * *
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
PENN ENGINEERING & MANUFACTURING
CORP.
By: _______________________________
Title:
THE SELLING SHAREHOLDERS NAMED IN
SCHEDULE I ATTACHED HERETO
By: The Committee
By: ________________________________
Title:
Confirmed as of the date first above mentioned:
PAINEWEBBER INCORPORATED
Acting on behalf of itself and as the
Representative of the other several
Underwriters named in Schedule II attached hereto.
By: PAINEWEBBER INCORPORATED
By: _________________________
Title:
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<PAGE>
SCHEDULE I
SELLING SHAREHOLDERS
Total
Name of Number of Firm
Selling Shares to be
Shareholder Sold
- ------------ --------------
Kenneth A. Swanstrom 100,000
Trust under the Will of
Gladys Swanstrom 97,500
Trust under the Will of
Klas A. Swanstrom 97,500
Daryl L. Swanstrom 350,000
Trust under Item Fourth of the Will of Lawrence W.
Swanstrom 100,000
Trust under Item Fifth of of the Will of Lawrence W.
Swanstrom 200,000
Trust under Deed of Klas A.
Swanstrom dated 6/14/73 77,500
Trust under Deed of Klas A.
Swanstrom dated 9/26/66 ______
Trust under Deed of Gladys
Swanstrom dated 9/26/66 ______
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<PAGE>
Total............................ 1,100,000
=========
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<PAGE>
SCHEDULE II
UNDERWRITERS
Number of
Name of Firm Shares
Underwriter to be Purchased
PaineWebber Incorporated
Total............................ $2,850,000
==========
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<PAGE>
EXHIBIT A
PENN ENGINEERING & MANUFACTURING CORP.
------------
PRICE DETERMINATION AGREEMENT
___________ ___, 1996
PAINEWEBBER INCORPORATED
As Representative of the
several Underwriters
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated
_________ ___, 1996 (the "Underwriting Agreement"), among Penn Engineering &
Manufacturing Corp., a Delaware corporation (the "Company"), the Selling
Shareholders named in Schedule I thereto (the "Selling Shareholders"), and the
several Underwriters named in Schedule II thereto or hereto (the
"Underwriters"), for whom PaineWebber Incorporated is acting as representative
(the "Representative"). The Underwriting Agreement provides for the purchase by
the Underwriters from the Company and the Selling Shareholders, subject to the
terms and conditions set forth therein, of an aggregate of 2,850,000 shares (the
"Firm Shares") of the Company's Common Stock, $.01 par value per share. This
Agreement is the Price Determination Agreement referred to in the Underwriting
Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the
undersigned agree with the Representative as follows:
A-1
<PAGE>
1. The initial public offering price per share for the
Firm Shares shall be $_____.
2. The purchase price per share for the Firm Shares to be paid
by the several Underwriters shall be $_____ representing an amount equal to the
initial public offering price set forth above, less $_______ per share.
The Company represents and warrants to each of the
Underwriters that the representations and warranties of the Company set forth in
Section 3 of the Underwriting Agreement are accurate as though expressly made at
and as of the date hereof.
The Selling Shareholders represent and warrant to each of the
Underwriters that the representations and warranties of the Selling Shareholders
set forth in Section 4 of the Underwriting Agreement are accurate as though
expressly made at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as
Schedule II is a completed list of the several Underwriters, which shall be a
part of this Agreement and the Underwriting Agreement.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of
the agreement among the Underwriters, the Company and the Selling Shareholders,
please sign and return to the Company a counterpart hereof, whereupon this
instrument along with all counterparts and together with the Underwriting
Agreement, shall be a binding agreement among the Underwriters, the Company and
the Selling Shareholders in accordance with its terms and the terms of the
Underwriting Agreement.
* * *
A-2
<PAGE>
Very truly yours,
PENN ENGINEERING & MANUFACTURING
CORP.
By: _______________________________
Title:
THE SELLING SHAREHOLDERS NAMED IN
SCHEDULE I ATTACHED TO THE
UNDERWRITING AGREEMENT
By: The Committee
By: _________________________________________
Title:
Confirmed as of the date first above mentioned:
PAINEWEBBER INCORPORATED
Acting on behalf of itself and as the Representative of
the other several Underwriters named in Schedule II attached to the
Underwriting Agreement.
By: PAINEWEBBER INCORPORATED
By: _________________________
Title:
A-3
<PAGE>
EXHIBIT B
AGREEMENT AND POWER OF ATTORNEY
PENN ENGINEERING & MANUFACTURING CORP.
Common Stock
______________ and
______________ and
- --------------
Penn Engineering & Manufacturing Corp.
5190 Old Easton Road
Danboro, Pennsylvania 18916
Dear Sirs:
The undersigned understands that Penn Engineering &
Manufacturing Corp., a Delaware corporation (the "Company"), intends to file a
registration statement (together with any subsequent registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Act") relating to the prior registration statement, the "Registration
Statement") under the Act, in connection with the proposed public offering and
sale by the Company, the undersigned (the "Selling Shareholder") and certain
other selling shareholders (collectively, the "Selling Shareholders") of the
Company's Common Stock, par value $.01 per share (the "Common Stock").
The Selling Shareholder desires to sell certain shares of
Common Stock and to include such shares among the shares covered by the
Registration Statement. The number of shares of Common Stock which the
undersigned desires to sell (the "Shares") are set forth beneath the signature
of the Selling Shareholder below.
Concurrently with the execution and delivery of this Agreement
and Power of Attorney (the "Power of Attorney"), the undersigned is delivering
to you, or requesting the Company to deliver to you, certificates for the
Shares, which you are
B-1
<PAGE>
authorized to deposit with ___________, as custodian (the "Custodian"), pursuant
to a custody agreement in the form attached as Attachment A hereto (the "Custody
Agreement").
1. In connection with the foregoing, the Selling Shareholder
hereby makes, constitutes and appoints you collectively, and each of you,
individually (a "Member") and each of your respective substitutes under Section
3, the true and lawful attorneys-in-fact of the undersigned (the Members or any
of them or their respective substitutes, being herein referred to collectively
as the "Committee"), with full power and authority, in the name and on behalf of
the Selling Shareholder:
(a) To enter into the Custody Agreement and deposit with the
Custodian pursuant thereto the certificates for the Shares delivered to
the Committee concurrently herewith;
(b) For the purpose of effecting the sale of the Shares, to
execute and deliver (i) an Underwriting Agreement (the "Underwriting
Agreement"), by and among the Company, the other Selling Shareholders
and the representative (the "Representative"), selected by the Company,
of the several Underwriters (the "Underwriters"), and (ii) a Price
Determination Agreement (as defined in the Underwriting Agreement), by
and among the Company, the other Selling Shareholders and the
Representative of the several Underwriters;
(c) To endorse, transfer and deliver certificates for the
Shares to or on the order of the Representative or to its nominee or
nominees, and to give such orders and instructions to the Custodian as
the Committee may in its sole discretion determine with respect to (i)
the transfer on the books of the Company of the Shares in order to
effect such sale (including the names in which new certificates for
such Shares are to be issued and the denominations thereof); (ii) the
delivery to or for the account of the Representative of the
certificates for the Shares against receipt by the Custodian of the
full purchase price to be paid therefor; (iii) the remittance
B-2
<PAGE>
to the Selling Shareholder of the Selling Shareholder's share of the
proceeds, after payment of the expenses described in the Underwriting
Agreement, from any sale of Shares; and (iv) the return to the Selling
Shareholder of certificates representing the number of Shares (if any)
deposited with the Custodian but not sold by the Selling Shareholder
under the Registration Statement for any reason;
(d) To take for the Selling Shareholder all steps deemed
necessary or advisable by the Committee in connection with the
registration of the Shares under the Act, including without limitation
filing amendments to the Registration Statement, filing a registration
statement under Rule 462(b) relating to the Registration Statement,
requesting acceleration of effectiveness of the Registration Statement,
informing said Commission that the Selling Shareholder has no knowledge
of any material adverse information with regard to the current and
prospective operations of the Company which is not stated in the
Registration Statement, and such other steps as the Committee may in
its absolute discretion deem necessary or advisable;
(e) To make, acknowledge, verify and file on the behalf of the
Selling Shareholder applications, consents to service of process and
such other undertakings or reports as may be required by law with state
commissioners or officers administering state securities or Blue Sky
laws and to take any other action required to facilitate the
qualification of the Shares under the securities or Blue Sky laws of
the jurisdictions in which the Shares are to be offered;
(f) If necessary, to endorse (in blank or otherwise) on behalf
of the Selling Shareholder the certificate or certificates representing
the Shares, or a stock power or powers attached to such certificate or
certificates; and
B-3
<PAGE>
(g) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions,
certificates, letters and other writings and, in general, to do all
things and to take all action which the Committee in its sole
discretion may consider necessary or proper in connection with or to
carry out the aforesaid sale of Shares, as fully as could the Selling
Shareholder if personally present and acting.
2. This Power of Attorney and all authority conferred hereby
is granted and conferred subject to and in consideration of the interest of the
Company, the Representative, the Underwriters and the other Selling Shareholders
and, for the purpose of completing the transactions contemplated by this Power
of Attorney, this Power of Attorney and all authority conferred hereby shall be
irrevocable and shall not be terminated by any act of the Selling Shareholder or
by operation of law, whether by the death, disability, or incapacity of the
Selling Shareholder or by the occurrence of any other event or events, and if,
after the execution hereof, the Selling Shareholder shall die or become disabled
or incapacitated, or if any other such event or events shall occur before the
completion of the transactions contemplated by this Power of Attorney, the
Committee shall nevertheless be authorized and directed to complete all such
transactions as if such death, disability, incapacity, or other event or events
had not occurred and regardless of notice thereof.
3. Each Member shall have the full power to make and
substitute any person in the place and stead of such Member, and the Selling
Shareholder hereby ratifies and confirms all that each Member or substitute or
substitutes shall do by virtue of these presents. All actions hereunder may be
taken by any one Member or his substitute. In the event of the death, disability
or incapacity of any Member, the remaining Member or Members shall appoint a
substitute therefor.
4. The Selling Shareholder hereby represents, warrants
and covenants that:
(a) All information furnished to the Company by or
on behalf of the Selling Shareholder for use in
B-4
<PAGE>
connection with the preparation of the Registration Statement is and
will be true and correct in all material respects and does not and will
not omit any material fact necessary to make such information not
misleading;
(b) The Selling Shareholder, having full right, power and
authority to do so, has duly executed and delivered this Power and
Attorney;
(c) The Selling Shareholder has carefully reviewed the
Registration Statement and will carefully review each amendment thereto
immediately upon receipt thereof from the Company and will promptly
advise the Company in writing if:
(i) The name and address of the Selling Shareholder
is not properly set forth in each preliminary prospectus
(collectively, the "Preliminary Prospectus") contained in the
Registration Statement at the time it becomes effective;
(ii) The Selling Shareholder has reason to believe
that (A) any information furnished to the Company by or on
behalf of the Selling Shareholder for use in connection with
the Registration Statement, the Preliminary Prospectus, or the
final prospectus (including the abbreviated term sheet, if
any) (the "Prospectus") is not true and complete; and (B) any
Preliminary Prospectus, the Prospectus and any supplements
thereto contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(iii) The Selling Shareholder knows of any material adverse
information with regard
B-5
<PAGE>
to the current or prospective operations of the Company or any
of its subsidiaries which is not disclosed in any Preliminary
Prospectus, the Prospectus or the Registration Statement; or
(iv) Except as indicated in the Prospectus, the
Selling Shareholder knows of any arrangements made or to be
made by any person, or of any transaction already effected,
(A) to limit or restrict the sale of shares of the Common
Stock or the Company's Class A Common Stock, par value $.01
per share (the "Class A Common Stock") during the period of
the public distribution, (B) to stabilize the market for the
Common Stock and/or the Class A Common Stock or (C) to
withhold commissions, or otherwise to hold any other person
responsible for the distribution of the Shares;
(d) In connection with the offering of the Shares, the Selling
Shareholder has not taken and will not knowingly take, directly or
indirectly, any action intended to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the
price of the Shares, the Common Stock or the Class A Common Stock to
facilitate the sale or resale of the Shares;
(e) The Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with
the offering and sale of the Shares other than a Preliminary
Prospectus, the Prospectus or other material permitted by the Act;
(f) The Selling Shareholder will notify the Company in writing
immediately of any changes in the foregoing information which should be
made as a result of developments occurring after the date hereof and
prior to the Closing Date under the Underwriting Agreement, and
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<PAGE>
the Committee may consider that there has not been any such development
unless advised to the contrary;
(g) The Selling Shareholder has, and at the time of delivery
of the Shares to the Representative it will have, full power and
authority to enter into this Power of Attorney, to carry out the terms
and provisions hereof and to make all the representations, warranties
and covenants contained herein; and
(h) This Power of Attorney is the valid and binding agreement
of the Selling Shareholder and is enforceable against the Selling
Shareholder in accordance with its terms, except as such enforceability
may be limited by general principles of equity, whether applied in a
court of law or a court of equity, and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
5. The representations, warranties and covenants of the
Selling Shareholder in this Power of Attorney are made for the benefit of, and
may be relied upon by, the other Selling Shareholders, the Committee, the
Company and its counsel, and their representatives, agents and counsel, the
Custodian, the Underwriters and the Representative.
6. The Committee shall be entitled to act and rely upon any
statement, request, notice or instructions respecting this Power of Attorney
given to it by the Selling Shareholder, not only as to the authorization,
validity and effectiveness thereof, but also as to truth and acceptability of
any information therein contained.
It is understood that the Committee assumes no responsibility
or liability to any person other than to deal with the Shares deposited with it
and the proceeds from the sale of the Shares in accordance with the provisions
hereof. The Committee makes no representations with respect to and shall have no
responsibility for the Registration Statement, the Prospectus or any Preliminary
Prospectus nor, except as herein expressly provided, for any aspect of the
offering of Common Stock, and it
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<PAGE>
shall not be liable for any error of judgment or for any act done or omitted or
for any mistake of fact or law except for its own negligence or bad faith. The
Selling Shareholder agrees to indemnify the Committee for and to hold the
Committee harmless against any loss, claim, damage or liability incurred on its
part arising out of or in connection with it acting as the Committee under this
Power of Attorney, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extent such loss claim, damage or liability is due to the negligence or bad
faith of the Member seeking indemnification; provided that the maximum amount
for which any Selling Shareholder shall be liable under this Agreement shall be
the net proceeds from the offering received by such Selling Shareholder less any
amounts for which such Selling Shareholder is liable under Section 7 of the
Underwriting Agreement and Section 7 of the Custodian Agreement. The Selling
Shareholder agrees that the Committee may consult with counsel of its own choice
(who may be counsel for the Company) and it shall have full and complete
authorization and protection for any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel.
It is understood that the Committee may, without breaching any
express or implied obligation to the Selling Shareholder hereunder, release,
amend or modify any other Power of Attorney granted by any other Selling
Shareholder.
7. It is understood that the Committee shall serve
entirely without compensation.
8. This Power of Attorney shall be governed by the laws
of the State of New York.
This Power of Attorney may be signed in two or more
counterparts with the same effect as if the signature thereto and hereto upon
the same instrument.
In case any provision in this Power of Attorney shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
B-8
<PAGE>
The Power of Attorney shall be binding upon the Committee and
the Selling Shareholder and the heirs, legal representatives, distributees,
successors and assigns of the Selling Shareholder.
* * *
Dated: ________ ___, 1996
Very truly yours,
-----------------------------------
-----------------------------------
Signature(s) of Selling
Shareholder(s)
-----------------------------------
SHARES TO BE SOLD:
______ shares of Common Stock
ACKNOWLEDGED AND ACCEPTED
THE COMMITTEE:
- -------------------------------
- -------------------------------
B-9
<PAGE>
- -------------------------------
NOTE: SIGNATURES MUST BE NOTARIZED
Selling Shareholders should use the appropriate
form for the state in which they are located.
B-10
<PAGE>
ATTACHMENT A
CUSTODY AGREEMENT
CUSTODY AGREEMENT, dated _________ ___, 1996, among
_________________, as Custodian (the "Custodian"), and the persons listed on
Annex I hereto (each a "Selling Shareholder" and collectively the "Selling
Shareholders").
Penn Engineering & Manufacturing Corp., a Delaware corporation
(the "Company"), intends to file a registration statement (together with any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act") relating to the prior
registration statement, the "Registration Statement") with the Securities and
Exchange Commission to register for sale to the public under the Act, shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock").
The shares to be covered by the Registration Statement shall
consist of (a) up to 1,750,000 shares of Common Stock to be sold by the Company
and (b) up to 1,100,000 shares of Common Stock (the "Shares") to be sold by the
Selling Shareholders.
Each of the Selling Shareholders has executed and delivered a
Power of Attorney (the "Power of Attorney") naming ____________ and ____________
and ____________, and each of them, as his attorney-in-fact (the "Committee"),
for certain purposes, including the execution, delivery and performance of this
Agreement in his name, place and stead, in connection with the proposed sale by
each Selling Shareholder of the number of Shares set forth opposite such Selling
Shareholder's name in Annex A.
1. A custody arrangement is hereby established by the Selling
Shareholders with the Custodian with respect to the Shares, and the Custodian is
hereby instructed to act in accordance with this Agreement and any amendments or
supplements hereto authorized by the Committee.
B-11
<PAGE>
2. There are herewith delivered to the Custodian, and the
Custodian hereby acknowledges receipt of, certificates representing the Shares,
which certificates have been endorsed in blank or are accompanied by duly
executed stock powers, in each case with all signatures accompanied by the
signature of another officer of the Company. Such certificates are to be held by
the Custodian for the account of the Selling Shareholders and are to be disposed
of by the Custodian in accordance with this Agreement.
3. The Custodian is authorized and directed by the
Selling Shareholders:
(a) To hold the certificates representing the
Shares delivered by the Selling Shareholders in its
custody;
(b) On or prior to the closing date for any Shares sold
pursuant to the Registration Statement (the "Closing Date"), to cause
such Shares to be transferred on the books of the Company into such
names as the Custodian shall have been instructed by the representative
(the "Representative") of the several Underwriters (the
"Underwriters"); to cause to be issued, against surrender of the
certificates for the Shares, a new certificate or certificates for such
Shares, free of any restrictive legend, registered in such name or
names; to deliver such new certificates representing such Shares to the
Representative, as instructed by the Representative on the Closing Date
for their account or accounts against full payment therefor; and to
give receipt for such payment; and
(c) To disburse such payments in the following manner: (i) to
itself, as agent for the Selling Shareholders, a reserve amount to be
designated in writing by the Committee from which amount the Custodian
shall pay, as soon as reasonably practicable, any applicable stock
transfer taxes; and (ii) to each Selling Shareholder, pursuant to the
written instructions of the Committee, (A) on the Closing Date, a sum
equal to the share of the proceeds to which such Selling Shareholder
B-12
<PAGE>
is entitled, as determined by the Committee, less the reserve amount
designated by any Committee, and (B) promptly after all proper charges,
disbursements, costs and expenses shall have been paid, any remaining
balance of the amount reserved under clause (i) above. Before making
any payment from the amount reserved under clause (i) above, except
payments made pursuant to subclause (B) of clause (ii) above, the
Custodian shall request and receive the written approval of the
Committee.
4. Subject in each case to the indemnification obligations set
forth in Section 7, in the event Shares of any Selling Shareholder are not sold
prior to December 31, 1996, the Custodian shall deliver to such Selling
Shareholder as soon as practicable after the earlier to occur of such date and
termination of the offering of the Shares, certificates representing such Shares
deposited by such Selling Shareholder. Certificates returned to any Selling
Shareholder shall be returned with any related stock powers, and any new
certificates issued to the Selling Shareholders with respect to such Shares
shall bear any appropriate legend reflecting the unregistered status thereof
under the Act.
5. This Agreement is for the express benefit of the Company
and the Selling Shareholders, the Underwriters and the Representative. The
obligations and authorizations of the Selling Shareholders hereunder are
irrevocable and shall not be terminated by any act of any Selling Shareholder or
by operation of law, whether by the death, disability, or incapacity of any
Selling Shareholder or by the occurrence of any other event or events, and if
after the execution hereof any Selling Shareholder shall die or become disabled
or incapacitated, or if any other event or events shall occur before the
delivery of such Selling Shareholder's Shares hereunder to the Representative,
such Shares shall be delivered to the Representative in accordance with the
terms and conditions of this Agreement, as if such event had not occurred,
regardless of whether or not the Custodian shall have received notice of such
event.
6. Until payment of the purchase price for the Shares
has been made to the Selling Shareholders or to the Custodian, each
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<PAGE>
Selling Shareholder shall remain the owner of (and shall retain the right to
receive dividends and distributions on, and to vote) the number of Shares
delivered by him to the Custodian hereunder. Until such payment in full has been
made or until the offering of Shares has been terminated, each Selling
Shareholder agrees that it will not give, assign, sell, agree to sell, pledge,
hypothecate, grant any lien on, transfer, or otherwise dispose of the Shares or
any interests therein.
7. The Custodian shall assume no responsibility to any person
other than to deal with the certificates for the Shares and the proceeds from
the sale of the Shares represented thereby in accordance with the provisions
hereof, and the Selling Shareholders, severally and not jointly, hereby agree to
indemnify the Custodian for and to hold the Custodian harmless against any and
all losses, claims, damages or liabilities incurred on its part arising out or
in connection with it acting as the Custodian pursuant hereto, as well as the
costs and expenses of investigating and defending any such losses, claims,
damages or liabilities, except to the extent such losses, claims, damages or
liabilities are due to the negligence or bad faith of the Custodian; provided
that the maximum amount for which any Selling Shareholder shall be liable under
this Agreement shall be the net proceeds from the offering received by such
Selling Shareholder less any amounts for which such Selling Shareholder is
liable for indemnification under Section 7 of the Underwriting Agreement and the
Agreement and Power of Attorney. The Selling Shareholders agree that the
Custodian may consult with counsel of its own choice (who may be counsel for the
Company), and the Custodian shall have full and complete authorization and
protection for any action taken or suffered by the Custodian hereunder in good
faith and in accordance with the opinion of such counsel.
8. Each of the Selling Shareholders, severally and not
jointly, hereby represents and warrants that: (a) it has, and at the time of
delivery of its Shares to the Representative it will have, full power and
authority to enter into this Agreement and the Power of Attorney, to carry out
the terms and provisions hereof and thereof and to make all of the
representations, warranties and agreements contained herein and therein; and (b)
this Agreement and the Power of Attorney are the valid and binding agreements of
such
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<PAGE>
Selling Shareholder and are enforceable against such Selling Shareholder in
accordance with their respective terms.
9. The Custodian's acceptance of this Agreement by the
execution hereof shall constitute an acknowledgment by the Custodian of the
authorization herein conferred and shall evidence the Custodian's agreement to
carry out and perform this Agreement in accordance with its terms.
10. The Custodian shall be entitled to act and rely upon any
statement, request, notice or instruction with respect to this Agreement given
to it on behalf of each of the Selling Shareholders if the same shall be made or
given to the Custodian by the Committee, not only as to the authorization,
validity and effectiveness thereof, but also as to the truth and acceptability
of any information therein contained.
11. This Agreement may be executed in two or more counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Execution by the Custodian of one counterpart hereof and its
delivery thereof to the Committee shall constitute the valid execution of this
Agreement by the Custodian.
12. This Agreement shall be binding upon the Custodian, each
of the Selling Shareholders and the respective heirs, legal representatives,
distributees, successors and assigns of the Selling Shareholders.
13. This Agreement shall be governed by the laws of the
State of New York.
14. Any notice given pursuant to this Agreement shall be
deemed given if in writing and delivered in person, or if given by
telephone or telegraph if subsequently confirmed by letter: (i) if
to a Selling Shareholder, to his address set forth in Annex I; and
(ii) if to the Custodian, to it at ___________________________
________________________________ .
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
-------------------------------
------------------,
as Custodian
THE SELLING SHAREHOLDERS LISTED
IN ANNEX I HERETO:
By: The Committee
By:
------------------------------
By:
------------------------------
By:
------------------------------
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<PAGE>
Annex I
Names and Addresses of
Selling Shareholders Shares to be Sold
Kenneth A. Swanstrom 100,000
Trust under the Will of
Gladys Swanstrom 97,500
Trust under the Will of
Klas A. Swanstrom 97,500
Daryl L. Swanstrom 350,000
Trust under Item Fourth of the Will of Lawrence W.
Swanstrom 100,000
Trust under Item Fifth of of the Will of Lawrence W.
Swanstrom 200,000
Trust under Deed of Klas A.
Swanstrom dated 6/14/73 77,500
Trust under Deed of Klas A.
Swanstrom dated 9/26/66 _______
Trust under Deed of Gladys
Swanstrom dated 9/26/66 _______
---------
Total 1,100,000
=========
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<PAGE>
EXHIBIT C
SUBSIDIARIES
PEM International Ltd.
PEM Investment, Inc.
PEM Management, Inc.
C-1
<PAGE>
EXHIBIT D
____________ ___, 1996
PAINEWEBBER INCORPORATED
As Representative of the
several Underwriters
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters for which
PaineWebber Incorporated (the "Representative"), intends to act as
Representative, to underwrite a proposed public offering (the "Offering") of
2,850,000 shares of Common Stock, $.01 par value (the "Common Stock") of Penn
Engineering & Manufacturing Corp., a Delaware corporation, as contemplated by a
registration statement with respect to such shares filed with the Securities and
Exchange Commission on Form S-2 (Registration No. 333-04249), the undersigned
hereby agrees that the undersigned will not, for a period of 120 days after the
commencement of the public offering of such shares, without the prior written
consent of the Representative, (i) directly or indirectly assign, transfer,
offer, sell, agree to sell, hypothecate, or otherwise dispose of any shares of
Common Stock or Class A Common Stock, par value $.01 per share of the Company
(the "Class A Common Stock") or securities convertible into or exchangeable for
or any rights to acquire shares of Common Stock or Class A Common Stock, or (ii)
any way reduce his risk of ownership or investment in any shares of Common Stock
or Class A Common Stock.
Very truly yours,
By: __________________________________
Print Name: __________________________
D-1
<PAGE>
EXHIBIT E
Form of Opinion of
Counsel to the Company
and the Selling Shareholders
Relating to the Issuance and Sale by the Company:
1. The Company and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, is duly licensed or qualified to do business
and is in good standing as a foreign corporation in all jurisdictions in which
the nature of the activities conducted by it or the character of the assets
owned or leased by it makes such license or qualification necessary, has full
corporate power and authority to conduct all the activities conducted by it, to
own or lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus and has all
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to carry on its business as contemplated in the
Prospectus. The Company is the sole record and beneficial owner of all of the
capital stock of each of its subsidiaries.
2. All of the outstanding shares of Common Stock and Class A
Common Stock have been, and the Shares when paid for by the Underwriters in
accordance with the terms of the Agreement will be, duly authorized, validly
issued, fully paid and nonassessable and will not be subject to any preemptive
or similar right.
3. No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection with the execution, delivery and
performance of the Agreement by the Company or in connection with the taking by
the Company of any action contemplated thereby, except such as have been
obtained under the Act and the Rules and Regulations and such
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<PAGE>
as may be required by the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares to be sold by the
Company. All references in this opinion to the Agreement shall include the Price
Determination Agreement.
4. The authorized and outstanding capital stock of the Company
is as set forth in the Registration Statement and the Prospectus. The
description of the Common Stock contained in or incorporated by reference in the
Prospectus conforms to the terms thereof contained in the Company's certificate
of incorporation, as amended.
5. The Registration Statement and the Prospectus (including
any documents incorporated by reference into the Prospectus, at the time they
were filed) comply or complied in all material respects as to form with the
requirements of the Act, the Exchange Act, the Exchange Act Rules and
Regulations and the Rules and Regulations (except that we express no opinion as
to financial statements, schedules and other financial and statistical data
contained in the Registration Statement or the Prospectus or incorporated by
referenced therein).
6. We have participated in the preparation of the Registration
Statement and the Prospectus and nothing has come to our attention which has
caused us to believe that, as of the Effective Date, as of the Rule 462
Effective Date, as of the Closing Date, and as of the Option Closing Date, the
Registration Statement, or any amendment thereto, contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any Prospectus or any amendment or supplement thereto
including any documents incorporated by reference into the Prospectus, at the
time such Prospectus was issued, at the time any such amended or supplemented
Prospectus was issued, at the Closing Date and the Option Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading (except that we express no opinion as to financial statements,
schedules and other financial
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<PAGE>
or statistical data contained in the Registration Statement or the
Prospectus or incorporated by reference therein).
7. The Registration Statement has become effective under the
Act and, to the best of our knowledge, no order suspending the effectiveness of
the Registration Statement has been issued and no proceeding for that purpose
has been instituted or is threatened, pending or contemplated.
8. We have reviewed all contracts, instruments or other
documents referred to in the Registration Statement and the Prospectus and such
contracts, instruments or other documents are fairly summarized or disclosed
therein, and filed as exhibits thereto as required, and, after due inquiry, we
do not know of any contracts, instruments or other documents required to be so
summarized or disclosed or filed or required to be filed under the Exchange Act
if upon such filing they would be incorporated, in whole or in part, by
reference therein which have not been so summarized or disclosed or filed.
9. All descriptions in the Prospectus of statutes, regulations
or legal or governmental proceedings are accurate and fairly present the
information required to be shown.
10. The Company has full corporate power and authority to
enter into the Agreement, and the Agreement has been duly authorized, executed
and delivered by the Company, is a valid and binding agreement of the Company
and, except for the indemnification and contribution provisions thereof, as to
which we express no opinion, and subject to applicable bankruptcy laws, is
enforceable against the Company in accordance with the terms thereof.
11. The execution and delivery of the Agreement by the
Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the Agreement
do not and will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or any of its subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default or result in
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<PAGE>
the acceleration of any obligation under, the charter documents, by-laws, or
other governing instruments of the Company or any of its subsidiaries, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument known to us to which the Company or
any of its subsidiaries is a party or by which it or any of its subsidiaries or
any of its or any of its subsidiaries' properties is bound or affected, or any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company or any of its subsidiaries (except that we express no opinion as to
the securities or Blue Sky laws of any jurisdiction other than the United
States).
12. Delivery of certificates for the Shares will transfer
valid and marketable title thereto to each Underwriter that has purchased such
Shares in good faith and we are not aware, after the inquiry, of any adverse
claim with respect thereto, and such Shares are free and clear of all liens,
encumbrances and claims.
13. We know of no actions, suits or proceedings pending or
threatened against or affecting the Company or any of its subsidiaries or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company or any of its subsidiaries, or any of its
or their respective officers in their capacities as such, before or by any
Federal, state or foreign court, commission, regulatory body, administrative
agency or other governmental body, wherein an unfavorable ruling, decision or
finding might materially and adversely affect the Company or any of its
subsidiaries or its business, properties, business prospects, condition
(financial or otherwise) or results of operations, except as set forth in or
contemplated by the Registration Statement and the Prospectus.
14. To the best of our knowledge, neither the Company nor any
of its subsidiaries is in violation of its charter documents, by-laws or other
governing instruments or in default (nor has an event occurred which with notice
or lapse of time or both would constitute a default or acceleration) in the
performance
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<PAGE>
of any obligation, agreement or condition contained in any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other agreement
or instrument known to us to which the Company or any of its subsidiaries is a
party or by which it or any of its subsidiaries or its or any of its
subsidiaries' properties is bound or affected, and neither the Company nor any
of its subsidiaries is in violation of any judgment, ruling, decree, order,
franchise, license or permit known to us or any statute, rule or regulation of
any court or other governmental agency or body applicable to the business or
properties of the Company or any of its subsidiaries which violation or default
might have a material adverse effect on the business, properties, business
prospects, condition (financial or otherwise) or results of operation of the
Company or any of its subsidiaries.
15. The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended.
16. The Shares have been duly authorized for listing by the
New York Stock Exchange upon official notice of issuance.
Relating to the Sale by the Selling Shareholders:
1. Each of the Selling Shareholders has full power and
authority to enter into the Agreement and the Agreement and Power of Attorney
and to sell, transfer and deliver such Shares pursuant to the Agreement and the
Agreement and Power of Attorney. All authorizations and consents necessary for
the execution and delivery of the Agreement, and the Agreement and Power of
Attorney on behalf of each of the Selling Shareholders has been given. The
delivery of the Shares on behalf of the Selling Shareholders pursuant to the
terms of the Agreement and payment therefor by the Underwriters will transfer
good and marketable title to the Shares to the several Underwriters purchasing
the Shares, free and clear of all liens, encumbrances and claims whatsoever.
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2. Each of the Agreement and the Agreement and Power of
Attorney has been duly authorized, executed and delivered by or on behalf of
each of the Selling Shareholders, is a valid and binding agreement of each
Selling Shareholder and, except for the indemnification and contribution
provisions of the Agreement and subject to applicable bankruptcy laws, the
Agreement and the Agreement and Power of Attorney are enforceable against each
Selling Shareholder in accordance with the terms thereof.
3. No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Shares by or on behalf of the Selling Shareholders, in connection with the
execution, delivery and performance of the Agreement and the Agreement and Power
of Attorney by or on behalf of the Selling Shareholders or in connection with
the taking by or on behalf of the Selling Shareholders of any action
contemplated thereby, except such as have been obtained under the Act or the
Rules and Regulations and such as may be required by the by-laws and rules of
the NASD in connection with the purchase and distribution by the Underwriters of
the Shares to be sold by the Selling Shareholders.
4. The execution and delivery of the Agreement and the
Agreement and Power of Attorney by the Selling Shareholders, the consummation by
the Selling Shareholders of the transactions therein contemplated and the
compliance by the Selling Shareholders with the terms thereof do not and will
not result in the creation or imposition of any lien, charge or encumbrance upon
any of the assets of the Selling Shareholders pursuant to the term or provisions
of, or result in a breach or violation of any of the terms or provisions of, or
constitute a default under or result in the acceleration of any obligation
under, the charter documents, by-laws, or other governing instruments of any
corporate, partnership, trust, estate, limited liability company or other entity
Selling Shareholder, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to us to
which any Selling Shareholder is a party or by which it or any of its properties
is bound or affected, or any statute, judgment, ruling, decree, order,
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<PAGE>
rule or regulation of any court or other governmental agency or body applicable
to any Selling Shareholder (except that we express no opinion as to the
securities or Blue Sky laws of any jurisdiction other than the United States).
5. There are no transfer or similar taxes payable in
connection with the sale and delivery of the Shares by the Selling Shareholders
to the several Underwriters.
In rendering the foregoing opinions, counsel may rely, to the
extent they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States, and as to matters of fact, upon
certificates of officers of the Company and of government officials; provided
that such counsel shall state that the opinion of any other counsel is in form
satisfactory to such counsel and, in such counsel's opinion, such counsel and
the Underwriters are justified in relying on such opinions of other counsel.
Copies of all such opinions and certificates shall be furnished to counsel to
the Underwriters on the Closing Date.
E-7
EXHIBIT 5.1
June 4, 1996
The Board of Directors of
Penn Engineering & Manufacturing Corp.
P.O. Box 1000
Danboro, Pennsylvania 18916-1000
Gentlemen:
We have acted as counsel to Penn Engineering & Manufacturing Corp.
(the "Company") in connection with the preparation and filing with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of a registration statement (No. 333-04249) on Form S-2 (the "Registration
Statement") relating to the offer and sale by the Company of up to 2,035,000
shares (the "Company Shares") of Common Stock, $.01 par value (the "Common
Stock"), of the Company and 1,100,000 shares of Common Stock by certain selling
stockholders (the "Selling Stockholder Shares"). The Company Shares and the
Selling Stockholder Shares are collectively referred to herein as the "Shares."
As counsel to the Company, we have supervised all corporate pro-
ceedings in connection with the preparation and filing of the Registration
Statement. We have also examined the Company's Certificate of Incorporation and
By-laws, as amended to date, the Company's minutes and other proceedings and
records relating to the authorization, sale and issuance of the Shares, and such
other documents and matters of law as we have deemed necessary or appropriate
in order to render this opinion. Based upon the foregoing, it is our opinion
that each of the Company Shares, when paid for, will be duly authorized, legally
and validly issued and outstanding and fully paid and nonassessable and that
each of the Selling Stockholder Shares is duly authorized, legally and validly
issued and outstanding and fully paid and nonassessable.
We hereby consent to the use of this opinion in the Registration
Statement, and we further consent to the reference to our name in the Prospectus
under the caption "Legal Matters."
Sincerely,
DUANE, MORRIS & HECKSCHER
By: /s/ FREDERICK W. DREHER
-----------------------
A Partner
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Penn Engineering &
Manufacturing Corp.on Form S-2 of our report dated February 6, 1996, (April 17,
1996 as to Note 11) included and incorporated by reference in the Annual Report
on Form 10-K of Penn Engineering & Manufacturing Corp. for the years ended
December 31, 1995, and to the use of our report dated February 6, 1996 (April
17, 1996 as to Note 11), appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
June 3, 1996
