SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of
1934)
Amendment No. 1
PTI, Inc. (f\k\a Physio Technology, Inc.)
(Name of Issuer)
PTI, Inc.
John C. Castel
Castel Holdings, Inc.
(Name of Person(s) Filing Statement)
Common Stock, no par value
(Title of Class of Securities)
719433104
(CUSIP Number of Class of Securities)
John C. Castel Howard H. Mick
PTI, Inc. Stinson, Mag & Fizzell, P.C.
6700 S.W. Topeka Blvd. 1201 Walnut, Suite 2800
Forbes Field, Bldg. 140 Kansas City, Missouri 64106
Topeka, Kansas 66619 (816) 842-8600
(800) 255-3554
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing
Statement)
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This statement is filed in connection with (check the appropriate
box):
a. [ ] The filing of solicitation materials or an
information statement subject to Regulation 14A [17 CFR 240.14a-1
to 240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-101]
or Rule 13e-3(c) [Section 240.13e-3(c)] under the Securities Exchange
Act of 1934.
<PAGE>
b. [ ] The filing of a registration statement under the
Securities Act of 1933.
c. [ ] A tender offer.
d. [x] None of the above.
Check the following box if the soliciting materials or
information statement referred to in checking box (a) are
preliminary copies: [ ]
This Rule 13e-3 Transaction Statement is being filed by
PTI, Inc., a Kansas corporation ("PTI"), by Castel Holdings,
Inc., a Kansas corporation ("Castel Holdings"), which owns
19,661,169 shares (approximately 94.04%) of the outstanding
common stock, no par value per share of PTI (the "Common Stock"),
and by John C. Castel, the sole stockholder of Castel Holdings,
in connection with the merger of PTI with and into Castel
Holdings (the "Merger").
SPECIAL FACTORS
THE INFORMATION CONTAINED IN ITEMS 7, 8 AND 9 BEGINNING
ON PAGE 11 HEREOF CONSTITUTE SPECIAL FACTORS AND SPECIAL
CONSIDERATION SHOULD BE GIVEN THERETO.
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) PTI, Inc., a Kansas corporation (f\k\a Physio
Technology, Inc. ) ("PTI"), is the issuer of the common stock, no
par value per share that is the subject of the Rule 13e-3
transaction reported in this Schedule 13e-3 Transaction
Statement. The address of PTI's principal executive offices is
6700 S.W. Topeka Boulevard, Forbes Field Building 140, Topeka,
Kansas 66619.
(b) PTI's common stock, no par value per share (the
"Common Stock") is the security that is the subject of the Rule
13e-3 transaction reported in this Schedule 13e-3 Transaction
Statement. As of September 25, 1997, there were 20,906,842
shares of PTI's Common Stock outstanding and approximately 800
holders of record of PTI's Common Stock.
(c) There is currently no established trading market
for PTI's Common Stock.
(d) During the past two years PTI has not paid any
dividends on its Common Stock. There is no restriction on PTI's
present or future ability to pay dividends on its Common Stock
other than its current financial situation. See Item 7 and Item
14 below for a discussion of PTI's current financial situation.
(e) PTI has not made an underwritten public offering
of its Common Stock during the past three years.
(f) The purchases of PTI's Common Stock made by PTI or
an affiliate since June 30, 1995 are detailed below:
Average
Quarterly
Amount Price Per Purchase
Date Purchaser Purchased Share Paid Price
12/31/96 John C. Castel 67,675 $0.00
12/31/96 HC, Inc. 67,675 $0.00
12/31/96 $0.00
01/15/97 John C. Castel 250,000 $0.00
03/31/97 $0.00
01/15/97 John C. Castel 25,000 $0.00
04/01/97 HC, Inc. 83 $0.00
04/02/97 John C. Castel 17,572,443 $0.00
04/02/97 Dawn S. Castel 614,726 $0.00
04/02/97 Castel Holdings 18,462,169 $0.00
04/10/97 John C. Castel 999,000 $0.01
04/10/97 Castel Holdings 999,000 $0.01
06/26/97 John C. Castel 200,000
06/26/97 Castel Holdings 200,000 $0.00
06/30/97 $0.03
<PAGE>
On December 31, 1996, Mr. Castel was gifted 67,675
shares of PTI's Common Stock by Mr. Marc Castel. The shares of
PTI Common Stock gifted to Mr. Castel were not transferred in
exchange for any funds or other consideration. The 67,675 shares
of PTI Common Stock gifted to Mr. Castel were contributed to the
capital of Castel Holdings on December 31, 1996, as explained
below.
On December 31, 1996, John C. Castel contributed the
67,675 shares of PTI's Common Stock transferred to him to the
capital of HC, Inc., a Kansas corporation ("HC"), which at the
time was a corporation wholly-owned by Mr. Castel and his wife.
The shares of PTI's Common Stock contributed to the capital of HC
were not contributed in exchange for any funds or other
consideration.
On January 15, 1997, Mr. Castel was gifted 250,000
shares of PTI's Common Stock by Mr. Joe Kay. The shares of PTI
Common Stock gifted to Mr. Castel were not transferred in
exchange for any funds or other consideration. The 250,000
shares of PTI Common Stock gifted to Mr. Castel were contributed
to the capital of Castel Holdings on April 2, 1997, as explained
below.
On January 15, 1997, Mr. Castel was also gifted 25,000
shares of PTI's Common Stock by Mr. David Draper. The shares of
PTI Common Stock gifted to Mr. Castel were not transferred in
exchange for any funds or other consideration. The 25,000 shares
of PTI Common Stock gifted to Mr. Castel were contributed to the
capital of Castel Holdings on April 2, 1997, as explained below.
On April 1, 1997, Dawn Castel contributed 29 shares of
PTI's Common Stock to the capital of HC. Also on April 1, 1997,
John C. Castel contributed 54 shares of PTI's Common Stock to the
capital of HC. The 83 shares of PTI's Common Stock contributed
to HC were not contributed in exchange for any funds or other
consideration.
On April 2, 1997, HC made a distribution to its
stockholders in proportion to their respective stock ownership of
all 18,187,169 shares of the Common Stock of PTI held by HC. The
shares of PTI's Common Stock distributed to the stockholders of
HC were not issued in exchange for any funds or other
consideration. The shares were deemed to have no market value
because there is no trading market in the stock, PTI has very few
operating assets and its liabilities substantially exceed the
value of its assets. After the completion of the distribution,
HC no longer owned any of the Common Stock of PTI.
As a result of the distribution HC made to its
stockholders on April 2, 1997, Mr. Castel received 17,572,443
shares of PTI's Common Stock and his wife, Dawn Castel, received
614,726 shares of PTI's Common Stock.
Also on April 2, 1997, Dawn Castel contributed the
614,726 shares of PTI Common Stock distributed to her by HC to
the capital of Castel Holdings and John Castel contributed the
<PAGE>
17,572,443 shares of PTI Common Stock distributed to him by HC,
along with 475,000 shares of PTI Common Stock previously held by
him, to the capital of Castel Holdings. The 18,462,169 shares of
Common Stock contributed to the capital of Castel Holdings by
John and Dawn Castel on April 2, 1997 were not contributed in
exchange for any funds or other consideration.
On April 10, 1997, Mr. Castel purchased 999,000 shares
of the Common Stock of PTI from Promatek Industries, Ltd.
("Promatek") in exchange for $10,000 in cash, which was paid from
Mr. Castel's personal funds. On April 11, 1997, Mr. Castel
transferred the 999,000 shares of Common Stock purchased from
Promatek to Castel Holdings in exchange for a note from Castel
Holdings in the face amount of $10,000. The 999,000 shares of
Common Stock acquired by Mr. Castel from Promatek were acquired
in a negotiated transaction in connection with the settlement of
litigation between PTI and Promatek.
On June 26, 1997, Mr. Castel purchased 200,000 shares
of the Common Stock of PTI from the Frank S. Sabatini IRA (the
"Sabatini IRA") pursuant to a repurchase commitment made to the
Sabatini IRA on May 18, 1994, which was the date of the sale of
such shares, for a purchase price of $50,000 plus an interest
increment in the amount of $25,062.84 for the period from May 18,
1994 through June 18, 1997 at an effective rate of 13.25%, for a
total purchase price equal to $75,062.84, paid in cash from Mr.
Castel's personal funds. Also on June 26, 1997, Mr. Castel
contributed the 200,000 shares of Common Stock purchased from the
Sabatini IRA to the capital of Castel Holdings. The 200,000
shares of PTI's Common stock contributed to the capital of Castel
Holdings were not contributed in exchange for any funds or other
consideration.
ITEM 2. IDENTITY AND BACKGROUND
PTI, the issuer of the class of equity securities which
is the subject of the Rule 13e-3 transaction reported in this
Schedule 13e-3 Transaction Statement, is one of the persons or
entities filing this Schedule 13e-3 Transaction Statement.
John C. Castel is another one of the persons or
entities filing this Schedule 13e-3 Transaction Statement. John
C. Castel is a natural person and an affiliate of PTI. The
following paragraph sets forth certain relevant information about
Mr. Castel.
(a) Mr. Castel's full name is John C. Castel.
(b) Mr. Castel's business address is 6700 S.W. Topeka
Blvd., Forbes Field Bldg. 140, Topeka, Kansas
66619.
(c) Mr. Castel is a Senior Vice President of
Accelerated Care Plus, LLC, a Delaware limited
liability company, which is in the business of
leasing equipment to long term care facilities and
providing disposables and clinical services to
such care facilities. The principal address of
Accelerated Care Plus, LLC is 6700 S.W. Topeka
Blvd., Forbes Field Bldg. 140, Topeka, Kansas
66619.
<PAGE>
(d) During the last five years, Mr. Castel has held
the following positions, offices or employments:
From June 6, 1989 to June 26, 1997, Mr. Castel
served as Chairman of the Board and President of
HC, Inc. From December 10, 1991 to the present,
Mr. Castel has served as Chairman of the Board and
President of PTI. From April 26, 1995 to April 4,
1997, Mr. Castel was one of the two directors of
Accelerated Care Plus, LLC. From April 4, 1997 to
the present, Mr. Castel has served as Senior Vice
President of Accelerated Care Plus, LLC.
(e) During the last five years, Mr. Castel has not
been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
(f) During the last five years, Mr. Castel has not
been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction
and therefore was not and is not subject to a
judgment, decree or final order enjoining future
violations of, or prohibiting or mandating
activities subject to, federal or state securities
laws or finding any violation with respect to such
laws as a result of any such proceeding.
(g) Mr. Castel is a citizen of the United States of
America.
Castel Holdings is also filing this Schedule 13e-3
Transaction Statement. Castel Holdings is a Kansas corporation
and an affiliate of PTI. The principal business of Castel
Holdings includes acting as the parent company of PTI. The
address of the principal executive office of Castel Holdings is
6700 S.W. Topeka Blvd., Forbes Field Bldg. 140, Topeka, Kansas
66619. During the last five years, Castel Holdings has not been
convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors). During the last five years, Castel
Holdings also has not been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and
therefore was not and is not subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws as a result of
any such proceeding.
ITEM 3. PAST CONTACTS , TRANSACTIONS OR NEGOTIATIONS
(a) (1) No transactions have occurred between
either John Castel or Castel Holdings and PTI since
June 30, 1995, other than the 999,000 shares of PTI
Common Stock purchased by Mr. Castel from Promatek in a
negotiated transaction in connection with the
settlement of litigation between PTI and Promatek, as
previously explained in Item 1(f) above.
<PAGE>
(2) Although no contracts, negotiations or
transactions have been entered into between PTI and an
affiliate concerning a merger, consolidation,
acquisition, tender offer for or other acquisition of
securities of any class of PTI, an election of
directors of PTI or a sale or other transfer of a
material amount of assets of PTI since June 30, 1995,
on May 15, 1995, PTI entered into an agreement with HC,
which was the parent company of PTI prior to April 2,
1997, pursuant to which PTI agreed to sell certain
assets, patents, trademarks and FDA registrations owned
by it to HC in exchange for the extinguishment of all
security and royalty agreements and $432,856.00 in debt
due to HC by PTI, as well as the waiver of interest and
royalties due to HC pursuant to certain notes issued by
PTI in favor of HC for the period of July 1, 1994
through May 1, 1995. For a complete discussion of the
terms and conditions of this transaction, as well as
the reasons for this transaction, see Item 7 below.
(b) On April 4, 1997, Castel Holdings entered
into a contract with Sundance Rehabilitation
Corporation ("Sundance") pursuant to which Castel
Holdings agreed to sell all of the assets that it would
acquire from PTI pursuant to the Merger to Sundance in
exchange for reimbursement for certain of the
liabilities of PTI that Castel Holdings would also
acquire pursuant to the Merger, with no further
consideration to the stockholders of PTI. PTI's assets
consist primarily of approximately $200,000 in accounts
receivable and $363,785 in a long-term note originally
issued by John C. Castel in favor of HC. HC
contributed Mr. Castel's note to the capital of PTI
prior to the distribution of PTI's stock to Mr. and
Mrs. Castel and such note does not represent personal
borrowings from PTI by Mr. Castel. PTI had a negative
net worth of $607,521 on March 31, 1997. The sale of
assets detailed above is expected to be complete on the
third business day following the consummation of the
Merger.
All contacts made in connection with the
contract between Castel Holdings and Sundance were
intertwined with the negotiations regarding the sale of
the HC stock to Sundance, as more fully explained in
Item 7(c) below. The discussions with Sundance began
on June 15, 1996 and continued intermittently through
the end of February, 1997. The discussions with
Sundance were initiated by John Castel and were initially
conducted with David Kniess, President of Sundance and
Robert Levin, Senior Vice President Therapy Services for
Sundance Healthcare Group. Later, negotiations mainly
included John Castel and Warren McInteer, Vice President
of Sundance. The discussions with Sundance increased
during March of 1997 and ended with the signing
of the agreement between HC and Sundance with respect to
the sale of the HC stock (the "HC Agreement") and the
agreement between Castel Holdings and Sundance with respect
to the assets of PTI (the "PTI Agreement") on April 4, 1997.
The PTI Agreement was a relatively minor part of the
discussions with Sundance. During the course of such
negotiations it became apparent that there would be no
net consideration available to the stockholders of PTI
because of PTI's substantial negative net <PAGE> worth.
However, Mr. Castel made clear that he wanted to ensure
that the total consideration to PTI was sufficient to
satisfy all of the known liabilities of PTI at the time
of the execution of the PTI Agreement. Sundance wanted
to maintain the business continuity, and whatever good
will and going concern value PTI had. Therefore, it
was agreed that Castel Holdings would acquire the
assets of PTI pursuant to a going private transaction
and Castel Holdings would then be reimbursed for the
liabilities of PTI that it assumed pursuant to the
Merger. These negotiations are reflected in the PTI
Agreement, which is contingent upon the consummation of
the Merger.
ITEM 4. TERMS OF THE TRANSACTION
(a) The Merger will be effected pursuant to
K.S.A. Section 17-6703, the Kansas short-form merger
statute. Section 17-6703 provides that if at least 90%
of the outstanding shares of each class of the stock of
a corporation (the "subsidiary corporation") is owned
by another corporation (the "parent corporation"), then
the parent corporation may cause the subsidiary
corporation to merge into the parent without a vote of
the stockholders. Since Castel Holdings owns
approximately 94.04% of the outstanding Common Stock of
PTI, PTI can merge with and into Castel Holdings
without a vote of the stockholders of PTI.
Pursuant to certain resolutions of merger,
PTI will be merged with and into Castel Holdings.
Castel Holdings will be the surviving corporation.
Castel Holdings will assume all of the obligations of
PTI and continue to be organized and existing under the
laws of the State of Kansas.
Upon the effectiveness of the Merger, each
share of PTI Common Stock will be canceled and the
holder of each such share of PTI Common Stock will be
entitled to receive from Castel Holdings cash in the
amount of $.01 per share.
On and after the effectiveness of the Merger,
the Articles of Incorporation and Bylaws of Castel
Holdings in effect immediately prior to the
effectiveness of the Merger will continue in effect
without change. The assets, liabilities and
stockholders' equity of each corporation will be
continued on the books of Castel Holdings at the
amounts at which they were recorded immediately prior
to the effectiveness of the Merger, with appropriate
adjustments, if any. The member of the Board of
Directors and the officers of Castel Holdings
immediately prior to the effectiveness of the Merger
will continue to serve as the member of the Board of
Directors and officers of Castel Holdings, as the
surviving corporation.
All expenses of the Merger will be paid by
Castel Holdings.
<PAGE>
Any stockholder of PTI objecting to the
Merger will have certain appraisal rights, as explained
more fully in Item 13(a) below.
(b) There are no terms or arrangements concerning
the Merger relating to any stockholder of PTI which are
not identical to those relating to other stockholders
of the same class of securities of PTI, other than that
Castel Holdings will, as the surviving corporation in
the merger, succeed to all of PTI's assets and
liabilities in lieu of the cash payment received by
other stockholders.
Item 5. Plans or Proposals of the Issuer or Affiliate
(a) Other than the sale of assets to Sundance,
neither John Castel nor Castel Holdings has any plan or
proposal to enter into an extraordinary corporate
transaction, such as a merger, reorganization or
liquidation, involving Castel Holdings or any of its
subsidiaries after the completion of the Merger.
(b) As explained in Item 3(b) above, on April 4,
1997, Castel Holdings entered into a contract with
Sundance pursuant to which Castel Holdings agreed to
sell all of the assets that it would acquire from PTI
pursuant to the Merger to Sundance in exchange for
reimbursement for certain of the liabilities of PTI
that Castel Holdings would also acquire pursuant to the
Merger. PTI's assets consist primarily of
approximately $200,000 in accounts receivable and
$363,785 in a long-term note originally issued by John
C. Castel in favor of HC, which was contributed to the
capital of PTI by HC. PTI had a negative net worth of
$607,521 on March 31, 1997. The sale of assets
detailed above is expected to be complete on the third
business day following the consummation of the Merger.
(c) Neither John Castel nor Castel Holdings has
any plan or proposal to change the present board of
directors or management of Castel Holdings, as the
surviving corporation of the Merger, including, but not
limited to, any plan or proposal to change the number
or term of directors, to fill any existing vacancy on
the board or to change any material term of the
employment contract of any executive officer after the
completion of the Merger.
(d) Neither John Castel nor Castel Holdings has
any plan or proposal to make any material change in the
present dividend rate or policy or indebtedness or
capitalization of Castel Holdings, as the surviving
corporation of the Merger, after the completion of the
Merger.
(e) Other than as explained in paragraph (b) and
Item 3(b) above, neither John Castel nor Castel
Holdings has any plan or proposal to make any other
material change in Castel Holdings' corporate structure
or business after the completion of the Merger.
<PAGE>
(f) After the completion of the Merger, PTI's
Common Stock would become eligible for termination of
registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), because PTI would cease to exist and
its successor, Castel Holdings, would have less than
$1,000,000 in total assets and its Common Stock would
be held of record by less than seven hundred and fifty
persons. Castel Holdings currently intends to
terminate such registration.
(g) After the completion of the Merger, PTI's
obligation to file reports with the Securities and
Exchange Commission pursuant to Section 15(d) of the
Exchange Act would be suspended because PTI's Common
Stock would be exchanged for cash and the stock of its
successor would be held of record by less than three
hundred persons.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
(a) The total amount of cash funds that will be
required by Castel Holdings to purchase the shares of
PTI Common Stock owned by persons other than Castel
Holdings through the Merger is estimated to be
approximately $37,060, including estimated fees and
expenses of approximately $24,600. Castel Holdings
will pay the total amount of such cash funds from its
own available liquid assets.
(b) The following is an itemized statement of all
expenses incurred or reasonably estimated to be
incurred in connection with the Merger and the filing
of this Schedule 13e-3 Transaction Statement:
Filing Fees $ 100.00
Legal Expenses $18,000.00
Accounting Expenses $ 5,000.00
Appraisal Fees $ 0.00
Solicitation Expenses $ 0.00
Printing and Mailing Costs $ 1,500.00
PTI and Castel Holdings will be responsible for paying
all of the expenses relating to the Merger and the
filing of this Schedule 13e-3 Transaction Statement.
(c) No part of the funds or other consideration
to be used in the Merger is expected to be directly or
indirectly borrowed from another person or entity.
<PAGE>
(d) No part of the funds to be used in the Merger
will be a loan made in the ordinary course of business
by a bank as defined by Section 3(a)(6) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act").
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) The purposes of the Merger are the following:
(i) to enable Castel Holdings to acquire direct
ownership of PTI's remaining assets for transfer to the
buyer described in Item 7(c);
(ii) to provide the present stockholders
of PTI with an opportunity to receive, in
exchange for their Common Stock, a cash
amount which will enable them to close out
their interest in an investment on a basis
where they can receive a consideration and
establish conclusively a disposition of their
shares for income tax purposes;
(iii) to reduce the number of
stockholders of record of PTI to less than
300 so that PTI may terminate its
registration under the Exchange Act, and
thereby relieve itself of the burdens and
costs associated with the regulatory and
reporting requirements of the Exchange Act
and the rules and regulations of the
Securities and Exchange Commission issued
thereunder; and
(iv) to eliminate all minority
stockholder interest from Castel Holdings,
the surviving corporation of the Merger,
thereby simplifying its control structure and
its management decisions.
(b) No alternative means were considered to
accomplish the purposes referred to in (a) above.
(c) PTI is engaged in the design, development,
assembly and distribution of electromedical devices
designed to accelerate healing and recovery from
injury, using components manufactured to PTI's
specifications by others. PTI was founded in April
1981, and was originally named Omni International, Inc.
PTI was established by a group consisting of the
principal stockholders of Smith Truss Company ("STC"),
and Neuromed, Inc. ("Neuromed"). On November 8, 1983,
STC and Neuromed were merged into PTI as the surviving
corporation in a statutory merger and PTI took on its
current name. PTI offered its shares to the public on
November 10, 1983.
Between 1983 and 1986, a substantial portion
of PTI's operating profits and funds raised from the
sale of its stock to the public were dedicated to the
<PAGE>
research and development of low power lasers for tissue
healing. PTI failed to obtain the necessary Food and
Drug Administration approval of the low power lasers.
This substantial expense and other operating problems
resulted in PTI suffering financial difficulties. In
order to resolve its financial difficulties, PTI began
to search for new investors, which it found in K.D.F.,
a Kansas nominee general partnership acting solely for
the account of the Kansas Public Employees Retirement
System ("KPERS") and Reimer and Koger Associates, Inc.
("R&K"), the investment advisor to KPERS.
Between 1986 and 1989, K.D.F. and R&K
invested money in PTI and provided PTI with working
capital through the purchase of PTI Common Stock and
debentures and by providing PTI with a line of credit
of up to $1,000,000. Despite the investment of K.D.F.
and R&K, on March 31, 1989, the National Association of
Securities Dealers ("NASD") notified PTI that its stock
would be deleted from the NASDAQ System effective April
4, 1989, due to non-compliance with a NASDAQ
requirement that listed companies have capital and
surplus of at least $375,000. After PTI's financial
situation continued to worsen and its stock was
delisted, K.D.F. and R&K decided to sell their
investment in PTI. Consequently, on June 5, 1989, HC,
Inc. (f/k/a HCI, Inc.)("HC"), a Kansas corporation
formed by John C. Castel and Michael R. Hall for the
purpose of acting as a holding company for PTI's Common
Stock, purchased all of the stock and debt holdings of
K.D.F. and R&K in PTI. Pursuant to a Purchase
Agreement dated June 5, 1989, K.D.F. and R&K sold to HC
(i) all shares of PTI's Common Stock held by K.D.F. for
the account of KPERS, being 2,297,120 shares of Common
Stock, (ii) a 10% Convertible Subordinated Debenture,
Series A, in the face amount of $1,800,000, (iii) a
Revolving Credit Note dated December 23, 1988, in the
original principal amount of $1,000,000 issued by PTI
in favor of K.D.F., (iv) a Non-Recourse Term Note dated
June 22, 1987, in the original principal amount of
$106,166.65 issued by PTI in favor of K.D.F., (v) all
rights under the Debenture Agreement, the Stock
Purchase and Conversion Agreement and the Stock
Purchase and Loan Agreement, and (vi) all of the rights
of K.D.F., KPERS and R&K under the Revolving Credit
Agreement dated December 23, 1988, between PTI and
K.D.F. and R&K in exchange for approximately $300,000
in cash. At the time of such purchase by HC, PTI was
in the business of manufacturing electromedical devices
and orthopedic soft goods.
In 1989, HC implemented a new business plan
for PTI in hopes of correcting its financial situation.
HC streamlined PTI's operation, cut back on research
and development, focused PTI's remaining research and
development on devices not requiring the approval of
the Food and Drug Administration, and it worked on the
development of its ultrasonic devices. As a result of
HC's efforts, PTI's operations improved slightly in
1990. However, in 1991, PTI was again experiencing
financial difficulties. As a result, in 1991, PTI
transferred its <PAGE> orthopedic soft goods business to one
of its security holders in exchange for the
cancellation of the remainder of a 10% Convertible
Subordinated Debenture, Series B, of PTI in the face
amount of $100,000. Upon the completion of such
transfer, HC, which was then wholly owned by John C.
Castel, owned approximately 84% of the outstanding
Common Stock of PTI, and PTI's business was reduced to
the manufacture of electro-medical devices. An
additional 3% was owned by Mr. Castel, his wife and
relatives.
From 1991 through April of 1995 a number of
factors converged which resulted in the virtual
termination of PTI's status as a business with any
independent financial or operational capabilities.
Those factors were as follows:
Continued Substantial Negative Net
Worth. At the end of 1991, PTI's liabilities
exceeded its assets by $803,990. Its
operations were wholly dependent upon a
$1,000,000 line of credit from HC and the
willingness of HC to continually defer
interest and royalty payments. PTI's
financial condition worsened each year due to
continued operating losses.
Market and Business Factors. Although
PTI considers that its electro-medical
devices, which are used to promote an
acceleration of the healing process, have
advantages and features which makes such
products desirable as compared to those
offered by the competition, such devices are
available from a number of other sources and
PTI has not enjoyed a dominant or leadership
position in the market for such products.
Moreover, consolidation in the healthcare
industry caused the market for such devices
to become compressed due to the fewer number
of independent medical practitioners and
therapists who purchase such products.
Dispute with Supplier. In June of 1994,
a dispute with Promatek Industries, Inc.
("Promatek"), a major supplier of components
of PTI's products caused Promatek to
discontinue shipping such components to PTI.
This resulted in a substantial reduction of
PTI's product line.
All of foregoing factors contributed to a deterioration
in sales from $3,504,213 during the fiscal year ended
June 30, 1991 to $2,203,140 during the year ended June
30, 1995, when PTI incurred an operating loss of
$570,891.
Notwithstanding PTI's difficulties during the
1991-1995 period, prior to the Promatek dispute,
management continued its efforts to take action to
raise capital and improve operations. Small amounts of
operating capital were raised while PTI focused
primarily on seeking to locate an underwriter for a
public offering. On May 18, 1994, before the Promatek
dispute, PTI raised $50,000 in <PAGE> capital through the sale
of 200,000 shares of common stock to a private
investor. In order to raise such funds, it was
necessary for Mr. Castel to guarantee to repurchase
such shares upon demand at cost plus an interest factor
in excess of 13%. Also prior to its dispute with
Promatek in 1994, PTI sold 999,000 shares of its common
stock to Promatek in exchange for $100,000 in cash and
a credit toward PTI's accounts payable with Promatek.
Thereafter, however, continued deterioration in
operations combined with the dispute with Promatek
ended any hope that PTI would be able to raise funds
through a public offering.
In April of 1995, Mr. Castel was presented an
opportunity by Cal-Med Inc., a manufacturer of medical
disposables, to form a joint venture which would focus
on handling and marketing turn-key modules of equipment
and supplies designed to accelerate the healing and
pain relief of patients who have been injured. These
accelerated care modules would include electro-medical
devices manufactured by PTI, as well as a number of
other accessories and disposables and would be combined
with clinical services of a trained therapist provided
by the venture. Rather than being sold to end users,
these care modules would be leased. The designated
market for these modules would be long-term health care
facilities. Organization and operation of this new
venture would require a substantial time commitment by
Mr. Castel and additional financing, both for seed
money and to defray the increased capital costs
inherent in carrying products under lease.
Although Mr. Castel did not believe that he
was obligated to direct this opportunity to organize a
new venture to PTI, he explored that possibility.
Lenders who were approached to finance the venture
informed Mr. Castel that because of PTI's financial
condition they would not provide funds directly to PTI,
but would provide financing to HC if HC could provide
collateral in the form of a first security interest in
PTI's assets (which were already pledged to secure
prior indebtedness to HC), and if Mr. Castel would
infuse additional cash and provide his personal
guarantee.
Because of the lender's requirements and the
need for his own personal financial involvement, Mr.
Castel concluded that PTI was not in a position to
participate in the venture. He, therefore, decided
that HC, rather than PTI would be the participant in
this venture and that the only feasible way to proceed
was through a quasi-reorganization, or transfer of
assets in lieu of debt repayment, under which HC would
acquire substantially all PTI's assets (other than
accounts receivable which were needed to fund PTI's
current operations) in exchange for a substantial
forgiveness of indebtedness. The venture would then
become a customer for PTI's devices.
<PAGE>
The transfer of PTI's principal assets to HC
was accomplished in April of 1995. At that time HC
acquired substantially all of PTI's assets and, in
exchange, forgave indebtedness amounting to $432,856.
The assets acquired consisted primarily of certain
inventory, fixed assets, and patents and trademarks
that had a net book value of $111,378. Those assets
were then pledged to a lender which, based on such
security and Mr. Castel's personal guarantee, loaned
funds needed by HC for investing in and supporting the
operation of the new venture and for continued advances
of operating funds to PTI. Mr. Castel also provided
$201,967 in personal funds to HC, derived in part from
a second mortgage on his house, for investing in the
venture.
This quasi-reorganization and transfer of
assets was entered into after it became clear to Mr.
Castel that PTI had no hope of making a public offering
of stock and that no private purchaser of PTI stock
could be found. However, even if a purchaser had been
available, due to PTI's financial condition and the
already small interest (approximately 6%) owned by the
public stockholders, the interest in PTI which would
have been commanded by any purchaser of stock in a
sufficient amount to return PTI to solvency and
independent operating capabilities would, in
management's opinion, have diluted the public
stockholders' ownership in PTI to the point of virtual
elimination of any meaningful interest in the business.
Under Kansas law, a sale or transfer of all
of the assets of a Kansas corporation requires the
approval of the holders of a majority of the
outstanding stock. To call a meeting of stockholders
to vote on the transaction with HC, however, would have
required PTI to incur the expense and delay of bringing
its reports current with the Securities and Exchange
Commission and preparing an information statement or
proxy statement. Since (1) the stock owned by the
public stockholders was virtually without value and
there was no assurance that the investment in ACP would
be successful; (2) approval of the transaction was
assured, in any event, because of HC's large ownership
interest; and (3) the proposal to invest in the new
venture needed a prompt response, management chose not
to jeopardize further the interests of PTI's creditors,
including HC, by devoting time and resources to the
calling of a stockholders' meeting, which management
believed would not offer any corresponding benefits to
stockholders. Moreover, Mr. Castel believed that PTI
as an insolvent corporation had the right to transfer
assets in satisfaction of debt through bankruptcy,
foreclosure or voluntary agreement without following
the corporate procedures customarily utilized in
connection with the sale of substantially all of a
corporation's assets.
In pursuance of their joint venture plans,
in April of 1995, HC and Cal-Med Inc. formed
Accelerated Care Plus, LLC, a Delaware limited
liability company ("ACP"). That company soon began its
business of assembling and <PAGE> leasing accelerated care
modules to long-term care facilities as outlined in the
business plan presented to Mr. Castel. As ACP's
business developed, it became the principal market for
PTI's electro-medical devices.
In April of 1995, ACP commenced providing its
accelerated care units to Sundance Rehabilitation
Corporation ("Sundance"), a subsidiary of Sun
Healthcare, Inc. which operates a large network of
long-term care facilities.
In April of 1997, all of the stock of HC was
sold to Sundance. HC's principal asset was its
interest in ACP. Sundance did not wish to acquire the
PTI Common Stock owned by HC, so immediately prior to
the sale to Sundance, HC made a distribution to its
stockholders in proportion to their respective stock
ownership of all shares of PTI Common Stock held by HC.
The shares distributed to the stockholders of HC were
not issued in exchange for any funds or other
consideration. The shares were deemed to have no value
because PTI had virtually no operating assets and its
liabilities exceed the value of its assets by a
substantial margin. The PTI Common Stock distributed
to John Castel and his wife, the sole stockholders of
HC, was contributed to the capital of Castel Holdings,
which became the new parent company of PTI.
In conjunction with the sale of the HC stock,
Sundance agreed that it would reimburse substantially
all liabilities of PTI in consideration of the transfer
to Sundance of its assets. Castel Holdings agreed that
it would acquire such assets from PTI and transfer them
to Sundance in consideration of such reimbursement. A
major purpose of the Merger, therefore, is to provide a
mechanism for Castel Holdings to acquire PTI's assets
in order to transfer them to Sundance and obtain
reimbursement for PTI's liabilities. Other than the
reimbursement of liabilities which it will assume as
the result of the Merger, Castel Holdings is receiving
no consideration from Sundance for the PTI assets.
(d) (1) General Effects. Upon the effectiveness
of the Merger, the holders of all of the presently
outstanding PTI Common Stock except Castel Holdings
will have received payment in cash of $.01 per share
for all of the shares of PTI Common Stock owned by
them, as a result of their receipt of cash payments for
their PTI Common Stock under the terms of the Merger.
Upon the effectiveness of the Merger, the corporate
existence of PTI will cease and the shares of PTI
Common Stock owned by Castel Holdings will be
eliminated. John C. Castel presently owns all of the
outstanding shares of stock of Castel Holdings; and
following the effectiveness of the Merger he will
continue to own 100% of the outstanding shares of stock
of Castel Holdings, as the surviving corporation of the
Merger.
<PAGE>
(2) Tax Effects. The exchange of PTI Common
Stock for cash pursuant to the Merger constitutes a
sale and will be a taxable transaction for Federal
income tax purposes and may also be a taxable
transaction under applicable state and local income and
other tax laws.
If the PTI Common Stock constitutes a capital
asset in the hands of a disposing stockholder, gain or
loss realized by such stockholder upon the disposition
of such Common Stock will, except as hereinafter
otherwise indicated, be treated as long-term capital
gain or loss or as short-term capital gain or loss,
depending upon the holding period of the Common Stock.
The foregoing constitutes only a brief summary of the
applicable requirements of the Internal Revenue Code
and does not purport to be complete.
Because the tax consequences of a disposition
pursuant to the Merger may vary depending upon the
particular circumstances of the stockholder and other
factors, holders of PTI Common Stock may wish to
consult with their tax advisers to determine the
particular tax consequences to them (including the
application and effect of state and local income and
other tax laws) of the Merger.
(3) Financial Effects. As of September 25,
1997, there were 1,245,673 shares held by record owners
of PTI Common Stock other than Castel Holdings. PTI
does not believe that the payment of cash for 1,245,673
shares pursuant to the Merger will have a material pro
forma effect on (i) PTI's Consolidated Balance Sheet at
December 31, 1997 or at June 30, 1998; (ii) PTI's
Consolidated Statement of Income or earnings per share
or ratio of earnings to fixed charges, either for the
six months ended December 31, 1997 or for the fiscal
year ended June 30, 1998; or (iii) PTI's book value per
share at December 31, 1997 or at June 30, 1998.
(4) Termination of Exchange Act
Registration. PTI's Common Stock is registered under
Section 12 of the Exchange Act and, as a result, PTI is
required to file annual and periodic reports with the
Securities and Exchange Commission (the "Commission"),
and PTI and its directors and executive officers are
subject to various reporting, trading and proxy
solicitation requirements under the Exchange Act. Upon
the completion of the Merger, this registration will be
terminated and Castel Holdings, as the surviving
corporation of the Merger, will not then be subject to
the provisions of the Exchange Act or the rules or
regulations of the Commission issued thereunder. This
result will not affect the present stockholders of PTI,
however, since they no longer will have any stock
ownership in PTI, or in Castel Holdings as the
surviving corporation of the Merger, following the
completion of the Merger.
<PAGE>
(5) Effect on Market for Common Stock.
Following the completion of the Merger, there will be
no public ownership of the Common Stock of PTI, which
will cease to exist upon the effectiveness of the
Merger, nor will there be any public ownership of, or
trading market for, the shares of Castel Holdings, all
of which shares will be owned by John C. Castel.
(6) Stockholder Vote. Castel Holdings
currently owns at least 90% of the outstanding shares
of PTI Common Stock. Consequently, it is planned that
the Merger will be effected promptly by resolution of
the board of directors of Castel Holdings, as permitted
under applicable Kansas law. As a result, no meeting
of the stockholders of PTI will be held prior to the
effectiveness of the Merger.
(7) Adverse Effects on PTI and Unaffiliated
Shareholders. The Merger is not expected to have any
adverse effect on PTI, other than the fact that PTI's
corporate existence will cease, because the Merger will
eliminate PTI's substantial liabilities and provides an
alternative to liquidation. The Merger is not expected
to have any adverse effect on the unaffiliated
shareholders because, as discussed in Item 7(c) above,
PTI's financial condition is such that it has no
ability to continue as an independent entity.
Therefore, the Merger allows PTI's unaffiliated
shareholders to receive cash in an amount equal to
$0.01 per share rather than nothing upon liquidation.
(8) Benefits to Mr. Castel and his
Affiliates. Neither Mr. Castel, nor his affiliates,
will receive any consideration for their PTI Common
Stock. The shares of PTI Common Stock owned by Castel
Holdings will be eliminated pursuant to the Merger.
The only benefits of the Merger to Mr. Castel and
Castel Holdings are (i) the reimbursement by Sundance
for substantially all of the liabilities of PTI, as
explained in Item 3(b) above, and (ii) placing Castel
Holdings in a position to meet its obligations to
transfer PTI's assets to Sundance.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) PTI, John C. Castel and Castel Holdings all
believe that the Merger, including the price per share
to be paid by Castel Holdings to the PTI stockholders
for their shares, is fair to unaffiliated security
holders and in the best interests of PTI. No director
of PTI dissented to or abstained from voting on the
Merger.
(b) In reaching the conclusion that the Merger,
including the price per share to be paid by Castel
Holdings to the PTI stockholders for their shares, is
fair, the factors described below were considered on a
collective basis, without any particular weight being
assigned to any of the factors.
<PAGE>
With reference to the cash price per share to
be paid to stockholders pursuant to the Merger,
important consideration was given to recent
transactions in PTI's Common Stock. Effective April 4,
1989, PTI's Common Stock was deleted from the NASDAQ
System due to noncompliance with a NASDAQ requirement
that listed companies have capital and surplus of at
least $375,000. PTI's Common Stock has only traded
sporadically since then. Except for the repurchase of
stock by Mr. Castel pursuant to a put right granted to
the seller, all recent transfers of stock have either
been by gift or at a price of $.01 per share, which is
the price being paid pursuant to the Merger. Most
recently, on April 10, 1997, Mr. Castel purchased
999,000 shares of the Common Stock of PTI from Promatek
in exchange for $10,000.00 in cash. The 999,000 shares
of Common Stock acquired by Mr. Castel from Promatek
were acquired in a negotiated transaction in connection
with the settlement of litigation between PTI and
Promatek. See Item 1(f) above for a description of
prices paid in previous purchases.
PTI, John Castel, and Castel Holdings also
gave consideration to PTI's going concern value as
evidenced by its historical and current negative
operating results as well as its financial condition
(including its liquid assets) and the likelihood of
future earnings. On March 31, 1997, PTI had a negative
net worth of $607,521. Its only assets consisted of
accounts receivable, a $363,785 long-term note from
John C. Castel in favor of HC, which HC had contributed
to the capital of PTI, a small amount of equipment and
whatever goodwill or going concern value it had. With
sales to parties other than ACP amounting to less than
$330,000 per year on an annualized basis, management
does not believe that such going concern value is
significant. During the period from April 4, 1997,
the date that the agreement between Sundance and Castel
Holdings regarding PTI's assets was entered into, to
the present, PTI has been operating with employees
provided by ACP and utilizing the patents, trademarks,
FDA licenses and other assets provided by ACP without
charge. Without such patents, trademarks, FDA licenses
and other assets, PTI would be unable to operate its
business. For a complete discussion of PTI's past and
present financial condition, see Item 7(c). PTI, John
Castel and Castel Holdings concluded that, based upon
PTI's going concern value and current financial
condition, the price per share of $.01 to be paid
pursuant to the Merger is both reasonable and fair to
all of its stockholders.
PTI, John Castel and Castel Holdings did not
consider any report, opinion or appraisal of the PTI
Common Stock because PTI has not engaged any appraisers
in this transaction. PTI has not engaged any
appraisers in this transaction because in management's
opinion, with no independent capability to continue in
business, with assets which are not by their nature
susceptible of being valued significantly in excess of
their value on the books of PTI and with liabilities
<PAGE>
exceeding the amount of those assets, there could be no
basis for an appraiser finding any value remaining in
the PTI stock.
Based on the foregoing factors, PTI, John
Castel and Castel Holdings have concluded that the
price of $.01 per share to be paid in the Merger is
fair and reasonable.
PTI, John Castel and Castel Holdings did not
consider firm offers because, except for the contract
with Sundance, which is explained in Item 3(b) above,
there have been no firm offers during the eighteen
months preceding the date hereof of which PTI, John
Castel or Castel Holdings is aware, for (i) the merger
or consolidation of PTI with or into another person,
(ii) the sale or other transfer of all or any
substantial part of the assets of PTI, or (iii)
securities of PTI which would enable the holder thereof
to exercise control over PTI.
PTI, John Castel and Castel Holdings did not
consider the current or historical market prices of
PTI's Common Stock in determining the fairness of the
transaction because PTI's Common Stock was deleted from
the NASDAQ System due to noncompliance with a NASDAQ
requirement that listed companies have capital and
surplus of at least $375,000. PTI's Common Stock has
only traded sporadically since then. Instead,
consideration was given to recent transactions in PTI's
Common Stock and to PTI's current and historical
operating results, as explained above.
PTI, John Castel and Castel Holdings
considered the liquidation value of PTI in determining
the fairness of the transaction. The liquidation value
of PTI is zero because its liabilities substantially
exceed the realizable value of its assets. Therefore,
the liquidation value of zero is consistent with
payment of the nominal consideration of $.01 per share
to the PTI stockholders.
PTI, John Castel and Castel Holdings also
considered the net book value of PTI in determining the
fairness of the price per share to be paid by Castel
Holdings to the PTI stockholders for their shares. As
discussed above, since PTI had a negative net worth, or
negative net book value, on March 31, 1997 of $607,521,
PTI, John Castel and Castel Holdings concluded that
such negative book value is consistent with the nominal
price of $.01 per share to be paid in the Merger.
The Merger does not require the approval of
PTI's stockholders and, accordingly, the Merger has not
been structured so as to require the approval of a
majority of PTI's unaffiliated stockholders. No
unaffiliated representative has been retained by the
unaffiliated members of PTI's board to act solely on
behalf of <PAGE> unaffiliated stockholders for the purpose of
negotiating the terms of the Merger and/or to prepare a
report concerning the fairness of the Merger. PTI,
John Castel and Castel Holdings believe that in view of
the other bases for its belief as to the fairness of
the Merger and the $.01 per share to be paid to PTI
stockholders pursuant to the Merger, the procedural
devices described above that they have determined not
to implement are unnecessary in the context of the
Merger and the $.01 per share to be paid to PTI
stockholders pursuant to the Merger.
(c) The Merger will be effected pursuant to
K.S.A. Section 17-6703, the Kansas short-form merger
statute, since Castel Holdings currently owns more than
90% of PTI's outstanding Common Stock. Therefore, the
approval of at least a majority of unaffiliated
security holders is not required.
(d) A majority of the directors who are not
employees of PTI has not retained an unaffiliated
representative to act solely on behalf of unaffiliated
stockholders for the purposes of negotiating the terms
of the Merger or preparing a report concerning the
fairness of the Merger.
(e) PTI only has one director, John C. Castel.
PTI has had only one director since December 1, 1991.
The Merger was approved by Mr. Castel.
(f) Except for the contract with Sundance, which
is explained in Item 3(b) above, no firm offer has been
made by any unaffiliated person or entity during the
preceding eighteen months for (A) the merger or
consolidation of PTI into or with such unaffiliated
person or of such affiliated person into or with PTI,
(B) the sale or other transfer of all or any
substantial part of the assets of PTI, or (C)
securities of PTI which would enable the holder thereof
to exercise control of PTI.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) Neither PTI, John Castel, nor Castel Holdings
has received any report, opinion or appraisal from an
outside party which is materially related to the
Merger, including, but not limited to, any such report,
opinion or appraisal relating to the consideration or
the fairness of the consideration to be offered to
holders of PTI's Common Stock in connection with the
Merger or the fairness of the Merger to PTI, John
Castel, Castel Holdings, other affiliates of PTI or PTI
stockholders who are not affiliates of PTI.
(b) Not applicable.
(c) Not applicable.
<PAGE>
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) As of September 25, 1997, Castel Holdings
beneficially owned 19,661,169 shares of PTI Common
Stock, which represents approximately 94.04% of PTI's
20,906,842 shares outstanding on that date. Although
Mr. John C. Castel does not own any PTI Common Stock
individually, he is the sole stockholder and sole
director of Castel Holdings. Therefore, Mr. Castel may
be deemed to beneficially own the PTI Common Stock
owned by Castel Holdings. Neither Castel Holdings nor
Mr. Castel currently have the right to acquire any
securities of PTI.
No shares of PTI Common Stock are
beneficially owned by any pension, profit sharing or
similar plan of PTI or its affiliates, or by any
associate or majority owned subsidiary of PTI or its
affiliates.
(b) The following transactions in PTI's Common
Stock were effected by either PTI, John Castel or
Castel Holdings during the past 60 days:
On June 26, 1997, John C. Castel purchased
200,000 shares of the Common Stock of PTI from the
Sabatini IRA pursuant to a repurchase commitment made
to the Sabatini IRA on May 18, 1994, which was the date
of the sale of such shares, for a purchase price of
$50,000 plus an interest increment in the amount of
$25,062.84 for the period from June 28, 1996 through
June 18, 1997 at an effective rate of 13.25%, for a
total purchase price equal to $75,062.84, paid in cash
from Mr. Castel's personal funds. Also on June 26,
1997, Mr. Castel contributed the 200,000 shares of
Common Stock purchased from the Sabatini IRA to the
capital of Castel Holdings. The 200,000 shares of
PTI's Common stock contributed to the capital of Castel
Holdings were not contributed in exchange for any funds
or other consideration.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT
TO THE ISSUER'S SECURITIES
Neither PTI, John Castel, nor Castel Holdings is a
party to any contract, arrangement, understanding or relationship
with respect to any securities of PTI, including, but not limited
to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any securities of PTI,
joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or
withholding of proxies, consents or authorizations.
<PAGE>
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS
WITH REGARD TO THE TRANSACTION
(a) Mr. John C. Castel is the sole director and
executive officer of PTI. Mr. Castel and Castel
Holdings are the only known affiliates of PTI. Mr.
Castel does not own or hold any of PTI's Common Stock
in his own name and Castel Holdings is the company that
PTI is being merged with and into, pursuant to K.S.A.
Section 17-6703, the Kansas short-form merger statute.
Therefore, there are no executive officers, directors
or affiliates of PTI that will be required to tender or
sell PTI Common Stock or vote PTI Common Stock in
connection with the Merger.
(b) John Castel and Castel Holdings favor and
recommend the Merger for the reasons set forth in Item
7(a) above. They also believe there are no other
realistic means by which PTI's stockholders could
obtain a greater value for their shares.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) Appraisal rights will be provided in
connection with the Merger to dissenting PTI
stockholders, pursuant to K.S.A. Section 17-6712.
Section 17-6712 requires Castel Holdings, within 10
days after the effective date of the Merger, to notify
each stockholder of PTI who objected to the Merger in
writing and whose shares were not entitled to vote on
the Merger that the Merger has become effective. Any
such stockholder, within 20 days after the date of
mailing of the notice, may demand in writing, from
Castel Holdings, payment of the value of the
stockholder's stock on the effective date of the
Merger, exclusive of any element of value arising from
the expectation or accomplishment of the Merger.
If during a period of 30 days following the
20 day period referred to above Castel Holdings and any
such stockholder fail to agree upon the value of PTI's
Common Stock on the effective date of the Merger, any
such stockholder or Castel Holdings may demand a
determination of the value of the stock of all such
stockholders by an appraiser or appraisers to be
appointed by the district court, by filing a petition
with the court within four months after the expiration
of the thirty-day period.
For a more detailed discussion of the
appraisal rights provided to PTI's stockholders in
connection with the Merger, see Exhibit B attached
hereto.
(b) No provision has been made by either PTI,
John Castel or Castel Holdings in connection with the
Merger to allow unaffiliated stockholders of PTI to
obtain access to the corporate files of PTI or Castel
Holdings or to obtain <PAGE> counsel or appraisal services at
the expense of PTI, John Castel or Castel Holdings.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets at June 30, 1995,
June 30, 1996 and March 31, 1997 (Unaudited) F-3
Consolidated Statements of Operations for Years Ended
June 30, 1995 and June 30, 1996, and the Nine
Months Ended March 31, 1996 (Unaudited)
and March 31, 1997 (Unaudited) F-4
Consolidated Statements of Changes in Stockholders' Equity
for Years Ended June 30, 1995 and June 30, 1996 and the
Nine Months Ended March 31, 1997 (Unaudited) F-5
Consolidated Statements of Cash Flows for Years Ended
June 30, 1995 and 1996, and the Nine Months Ended
March 31, 1996 (Unaudited) and March 31, 1997
(Unaudited) F-6
Notes to Consolidated Financial Statements F-7 - F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Physio Technology, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of
Physio Technology, Inc. and Subsidiary as of June 30, 1996 and
1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended June 30,
1996 and June 30, 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, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Physio Technology, Inc. and Subsidiary as
of June 30, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Note 7, there was a change in majority ownership
of the Company with a related party and an agreement for
acquisition of the Company by a third party once certain
conditions are met.
BERBERICH TRAHAN & CO., P.A.
Topeka, Kansas
February 14, 1997 (except for Note 7 which is dated April 4,
1997)
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1995, June 30, 1996 and March 31, 1997
June 30, June 30, March 31,
1995 1996 1997
(Unaudited)
ASSETS
Current assets:
Accounts receivable:
Trade accounts, less
allowance for doubtful
accounts of $ 31,670,
$ 10,000 and $ -0-,
respectively $ 303,685 $ 169,270 $ 215,959
Inventory 229,828 - 2,119
Prepaid expenses 7,087 - 6,452
Total current assets 540,600 169,270 224,530
Note receivable -
related party (Note 7) - - 363,785
Property and equipment:
Office furniture and
equipment, net - - 31,945
Other assets - - 900
$ 540,600 $169,270 $ 621,160
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 39,867 $ 40,349 $ 38,810
Line of credit (Note 3) 311,725 - -
Accounts payable (Note 2) 900,443 959,458 786,958
Accrued expenses (Note 5) 87,362 149,629 402,913
Total current liabilities 1,339,397 1,149,436 1,228,681
Stockholders' equity (Note 7):
Common stock, no par value,
25,000,000 shares authorized,
20,906,842 issued at June 30,
1995, June 30, 1996, and
March 31, 1997,
respectively 9,774,047 9,774,047 9,774,047
Additional paid-in capital
(Note 7) - - 453,189
Accumulated deficit (10,572,844)(10,754,213)(10,834,757)
Total stockholders'
equity (798,797) (980,166) (607,521)
Commitments and contingencies
(Notes 5 and 6) _________ __________ __________
$ 540,600 $ 169,270 $ 621,160
See notes to consolidated financial statements.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30, 1995, Year Ended June 30, 1996 and
the Nine Months Ended March 31, 1996 and 1997
Year Ended Year Ended Nine Months Ended
June 30, June 30, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
Sales, net of
returns and
allowances $2,203,140 $1,405,558 $1,006,480 $1,843,112
Cost of goods
sold 1,637,567 734,645 386,034 842,168
Gross profit 565,573 670,913 620,446 1,000,944
Operating, selling
and administrative
expenses 1,360,846 834,018 670,844 1,116,354
Loss before
other income
(expense) (795,273) (163,105) (50,398) (115,410)
Other income
(expense):
Gain on sale
of assets 321,478 - - -
Interest
expense (97,096) (30,969) (25,987) (5,622)
Other income,
net - 12,705 49,057 40,488
224,382 (18,264) 23,070 34,866
Net Loss $(570,891) $(181,369) $(27,328) $(80,544)
Loss per share $ (.0273) $ (.009) $ (.001) $ (.004)
See notes to consolidated financial statements.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended June 30, 1995 and 1996 and the
Nine Months Ended March 31, 1997
Common Stock
Additional
Paid-In
Shares Amount Capital Deficit Total
Balance,
July 1,
1994 20,906,842 $9,774,047 $ - $(10,001,953) $(227,906)
Net loss - - - (570,891) (570,891)
Balance,
June 30,
1995 20,906,842 9,774,047 - (10,572,844) (798,797)
Net loss - - - (181,369) (181,369)
Balance,
June 30,
1996 20,906,842 9,774,047 - (10,754,213) (980,166)
Additional
paid-in
capital
(unaudited)
(Note 7) - - 453,189 - 453,189
Net loss
(unaudited) - - - (80,544) (80,544)
Balance,
March 31,
1997
(unaudited)
20,906,842 $9,774,047 $453,189 $(10,834,757) $(607,521)
See notes to consolidated financial statements.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995 and 1996 and the Nine Months
Ended March 31, 1996 and 1997
Year Ended Year Ended Nine Months Ended
June 30, June 30, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
Cash flows from
operating activities:
Net loss $(570,891) $(181,369) $(27,328) $(80,544)
Adjustments to
reconcile net
loss to net cash
provided by
operating activities:
Depreciation and
amortization 32,230 - - -
Gain on sale of
assets 321,478 - - -
Changes in assets
and liabilities:
Accounts
receivable 261,616 134,415 221,785 (46,689)
Inventories 241,068 229,710 13,416 (2,120)
Accounts payable
and accrued
expenses 179,060 121,400 83,567 170,189
Prepaid
expenses 60,991 7,087 (651) (6,452)
Net cash
provided by
operating
activities 525,552 311,243 290,789 34,384
Cash flows used for investing activities:
Purchase of office
equipment - - - (31,945)
Increase in other
assets - - - (900)
Net cash used in
investing activities - - - (32,845)
Cash flows from financing activities:
Repayment of debt (546,567) (311,725) (311,725) -
Net increase
(decrease)
in cash (21,015) (482) (20,936) 1,539
Bank overdraft,
beginning of period (18,852) (39,867) (39,867) (40,349)
Bank overdraft,
end of period $(39,867) $(40,349) $(60,803) $(38,810)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
interest $ 97,096 $ 30,969 $ 25,987 $ 5,622
Noncash transaction - During period ended March 31, 1997:
HC, Inc. contributed a note receivable and forgave certain
accounts payable which were treated as additional paid-in
capital in the amount of $ 453,189 (Note 7).
See notes to consolidated financial statements.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS:
Physio Technology, Inc. (the "Company") distributes medical
devices and other health care products primarily in the
United States. Sales are made at both the direct and
wholesale level. The Company has a wholly-owned subsidiary
which is inactive.
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The accompanying consolidated balance sheet at March 31,
1997 and the accompanying unaudited consolidated statements
of operations and cash flows for the nine month periods
ended March 31, 1997 and March 31, 1996 have been prepared
by the Company without an audit. In the opinion of
management, all adjustments considered necessary for a fair
presentation of the results for the interim periods have
been included. All adjustments were of a normal and
recurring nature. Results for interim periods are not
necessarily indicative of the results that may be expected
for a full year.
AFFILIATION:
HC, Inc. (HC) owns 86.7% of the Company's outstanding stock
at June 30, 1995 and 1996. HC is 100% owned by the
principal officer and director of the Company and his wife.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary after
elimination of all significant intercompany accounts and
transactions.
REVENUE RECOGNITION:
Revenue is recognized at the point where title to the goods
passes to the customer, generally upon shipment.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has determined the fair value of its financial
instruments in accordance with Statement of Financial
Accounting Standards No. 107, Disclosures About Fair Value
of Financial Instruments. For financial instruments
including cash and cash equivalents, accounts payable and
accrued expenses, the carrying amounts approximate fair
value because of the short maturity of those instruments.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
LOSS PER SHARE:
Loss per share was determined based on the weighted average
number of common and common equivalent shares outstanding
during each period.
STOCK OPTIONS:
The Company had several stock option plans. As of
February 14, 1997, all options had expired without exercise.
ACCOUNTS PAYABLE:
A substantial portion of the Company's accounts payable were
past due at June 30, 1995 and 1996 (see Note 2).
CONCENTRATIONS OF SUPPLIERS:
A substantial portion of the Company's inventory is
manufactured by two suppliers.
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.
2. RELATED PARTY TRANSACTIONS:
Sales of approximately $ 330,000 were made to a limited
liability company in which HC is a 50% owner during the year
ended June 30, 1996. The company owed this related party
$ 40,000 which is included in accounts payable at June 30,
1996.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTY TRANSACTIONS (CONTINUED):
At July 1, 1994, the Company owed HC $ 432,856 under a line
of credit which also provided for certain royalties to be
paid to HC. During the year ended June 30, 1995, HC forgave
all debts owed it by the Company, including principal,
interest and royalties. In consideration of this
forgiveness, certain inventory, fixed assets, patents and
trademarks were transferred to HC. This transaction
resulted in a book gain of $ 321,478.
Included in accounts payable was approximately $ 150,000 and
$ 200,000 due to the Company's principal officer for travel
and related expenses incurred and not paid at June 30, 1995
and 1996, respectively.
During the year ended June 30, 1994, the Company entered
into negotiations to sell a substantial portion of the net
assets of its Canadian subsidiary. The sale was completed
in 1995 and was to the employees of Medelco, which included
a minority interest to the brother of the principal officer
and director of the Company. The agreement called for a
cash payment of $ 185,000 and the amount of debt owed on a
line-of-credit at the date of closing. The effect of the
sale resulted in a loss of $ 446,955, including the goodwill
associated with the original acquisition of the subsidiary
as well as losses through closing. This loss was recorded
as of June 30, 1994. Sales to unaffiliated customers of
this subsidiary were approximately $ 820,000 for the year
ended June 30, 1994.
3. LINE OF CREDIT:
Lines of credit for short-term borrowings have been
established at First Capital Corporation. Such lines
provide for borrowings at 12.25%. The amount available is
dependent on the Company's accounts receivable and inventory
balances. Collections of the Company's account receivable
balances are received directly by First Capital Corporation,
thus reducing the amount borrowed.
At June 30, 1995, the Company had drawn $ 311,725 on the
line, collateralized by the Company's accounts receivable
and inventory. The line of credit was paid down during
1996.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES:
The Company and its parent, HC, file a consolidated income
tax return.
Because of the change in ownership of the Company in prior
years, the Company's net operating loss as of June 30, 1988
and for the period up to June 5, 1989, is subject to an
annual limitation. This annual limitation, which amounts to
approximately $ 331,000, may be carried forward cumulatively
each year and will expire between 1997 and 2001 if not
utilized. The total amount of net operating loss
carryforwards that could be utilized through 2001 under
these annual limitations is approximately $ 3,200,000. In
addition, the Company has an unrestricted net operating loss
carryforward of approximately $ 1,800,000, representing net
taxable losses from June 5, 1989 to June 30, 1996. These
carryforwards will expire in varying amounts through 2010 if
not utilized.
5. ROYALTY COMMITMENT:
The Company entered into a license agreement in July 1995
with an individual. The agreement allows the Company to
commercialize and exploit a neuromuscular stimulation device
developed by this individual in exchange for royalties.
Royalties are based on sales of products utilizing the
device. The Company has accrued $ 20,000 in accrued
expenses for unpaid royalties at June 30, 1996.
6. LITIGATION:
As of June 30, 1996, the Company is engaged in litigation
with a former supplier. The Company contends that the
supplier has breached its agreement with the Company and as
a result owes the Company money. The supplier is claiming
that it is owed money for goods delivered for which it has
not been paid. Management believes there is a sufficient
provision for the supplier in its accounts payable to cover
the costs derived from the outcome of this case.
7. SUBSEQUENT EVENT:
On April 2, 1997, HC made a distribution to its stockholders
in proportion to their respective stock ownership of all of
the shares of Company common stock held by HC. The
stockholders of HC then contributed the shares of Company
common stock distributed to them to the capital of Castel
Holdings, Inc. (Castel Holdings). As a result, Castel
Holdings became the new parent company of the Company on
April 2, 1997.
<PAGE>
PHYSIO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENT (CONTINUED):
On April 4, 1997, Castel Holdings entered into an agreement
with Sundance Rehabilitation Corporation (Sundance), whereby
Sundance has agreed to acquire certain assets of the Company
in exchange for reimbursement for certain of the Company's
liabilities upon the completion of the merger of the Company
with and into Castel Holdings, pursuant to K.S.A. Section
17-6703, the Kansas short-form merger statute. Prior to any
actions being taken with respect to the merger, the Company
intends to file a Rule 13e-3 Transaction Statement with the
Securities and Exchange Commission. The merger and sale are
expected to be completed about 30 to 60 days after necessary
filings have been made with the Securities and Exchange
Commission.
In December 1996, the Company credited additional paid-in
capital for $ 453,189 in connection with the transfer of a
note receivable by HC in the amount of $ 363,785 and the
forgiveness of certain accounts payable in the amount of
$ 89,404. The note receivable is from the majority
stockholder of HC and bears interest at a 7.55% rate.
Payment of interest shall begin on August 31, 1998 and every
year thereafter until August 31, 2002 when all outstanding
principal and interest shall be due and payable.
<PAGE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) Reference is made to Item 6 above for
information regarding funds to be utilized by PTI in
connection with the Merger. Except as disclosed in
said Item 6, no corporate assets of PTI have been or
will be employed in connection with the Merger and no
officers or employees of PTI will be employed or
utilized specifically in connection with the Merger.
(b) Neither PTI, John Castel, nor Castel
Holdings, nor any person acting on behalf of PTI, John
Castel or Castel Holdings has employed, retained or
compensated any person or class of persons to make
solicitations or recommendations in connection with the
Merger.
ITEM 16. ADDITIONAL INFORMATION
None.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
(a) Loan Agreements: None.
(b) Reports, Opinions or Appraisals: None.
(c) Contracts, Arrangements or Understandings:
None.
(d) Disclosure furnished to security holders: Exhibit A.
(e) Statement describing appraisal rights and
procedures: Exhibit B.
(f) Written Instructions, Forms or Other Materials: None.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Date: November 5, 1997.
PTI, INC.
By: /s/ John C. Castel
Name: John C. Castel
Title: President
/s/ John C. Castel
John C. Castel
CASTEL HOLDINGS, INC.
By: /s/ John C. Castel
Name: John C. Castel
Title: President
EXHIBIT A
LETTER TO STOCKHOLDERS
______________________, 1997
Dear Stockholder:
Although you have not heard from us in a long time, our
records indicate that you are a holder of common stock of PTI,
Inc. (formerly known as Physio Technology, Inc.) ("PTI" or the
"Company") in the amount stated on the label beside your name
below. Enclosed is a report filed with the Securities and
Exchange Commission, which sets forth in some detail further
information concerning a corporate transaction summarized in this
letter.
This transaction will result in your receiving $.01 for
each share of common stock you own of record in PTI. By filing a
notice with the Company prior to _______________, as described on
Pages 21 and 22 of the enclosure, you will have the right to
dissent from this transaction and receive an appraised value for
your stock. That value may be more or less than the $.01 you
will receive if you do nothing. If you do not file a notice of
dissent within such period you will receive, within a few days
after ________________, a check for the value of your shares as
set forth above. Upon receipt of those funds, all interest you
have in the Company will be terminated and it is suggested that
you either destroy your stock certificate(s) or make a notation
on the face that the certificate is no longer valid. Because of
the small amount involved, we are not requiring stockholders to
return their certificates to the Company.
The reason you will receive a cash payment for your
shares is that Castel Holdings, Inc. ("CHI"), which owns 96% of
PTI's outstanding stock, intends to cause PTI to be merged into
CHI pursuant to Kansas law (the "Merger"). Therefore, PTI will
no longer exist as a free standing corporation. The value of
$.01 per share was established by CHI for the reasons stated in
the enclosure. Those reasons can be summarized as follows:
<PAGE>
(1) As of the month end prior to the expected
Merger, PTI had a negative net worth of $_____________.
(2) In 1995, PTI transferred substantially all of
its intellectual property and operating assets (which
had a net book value of only about $111,000) to its
then parent company in exchange for cancellation of
indebtedness of about four times that amount.
(3) PTI has no employees.
(4) Approximately 68% of PTI's annual sales
volume is to one customer, which has other sources
available and provides PTI with all employees and
resources needed to conduct its business.
(5) The most recent arms length sale of any
significant block of stock was $.01 per share.
CHI is a Kansas corporation wholly owned by me and
members of my family. CHI's ownership of 96% of PTI arose
primarily due to purchases of substantial amounts of convertible
debt from the original holder several years ago. At the time of
that purchase, we had hoped to be able to conserve some value not
only for ourselves but for all shareholders. As described in
more detail in the enclosure, however, our efforts were
unsuccessful and more and more PTI's continued existence depended
on my personal financial support given through guarantees of
indebtedness, cash advances and waivers of interest and other
compensation to which I would have been entitled under the terms
of such advances. Throughout this period, PTI continued its
business of designing, assembling and selling electromedical
devices to promote healing, but its sales and market share
declined significantly. Because there was no trading market in
PTI's stock and the entire company had little or no economic
value, I felt there was little or no benefit in preparing reports
to shareholders and making filings with the Securities and
Exchange Commission and did not incur the expense of preparing
those reports and filings.
<PAGE>
In 1995, a company controlled by me (HC, Inc.), which
then owned approximately 90% of PTI's stock, acquired
substantially all of the operating assets of PTI in exchange for
cancellation of indebtedness which totaled about four times the
book value of the assets acquired. That transaction was effected
because HC, Inc. was proposing to invest in a start-up company
which would become a customer of PTI. The venture required a
cash investment of more than $200,000, required the granting of a
security interest to a lender in all of PTI's assets and
guarantees of lines of credit aggregating $1,300,000. Financial
commitments of this magnitude were beyond the capability of PTI,
so HC, Inc. acquired PTI's assets in exchange for the
cancellation of indebtedness as described above and I raised the
cash and provided the guarantees needed for the venture
personally.
In April of 1995, the new venture was sold to a
subsidiary of Sun Healthcare Systems, Inc., a New York Stock
Exchange listed company. The purchaser acquired all of the stock
of HC, Inc., which prior to the transfer distributed all of the
PTI stock to me and my family as HC's sole shareholders. We then
transferred the stock to CHI. As part of the purchase
transaction CHI agreed that it would acquire the remaining few
assets of PTI through a short form merger transaction, transfer
those assets to the purchaser and, in exchange, receive
reimbursement from the purchaser of all of PTI's liabilities,
which still exceed its assets by a large margin.
As indicated above, the Merger provides for the payment
by CHI of $.01 for each share of stock owned by PTI's public
stockholders. We believe that the stock in actuality has no
value; however, as part of a settlement of a dispute with a
relatively large shareholder/supplier, I paid $.01 per share for
approximately 1,000,000 shares. The Merger will provide the same
consideration to the public stockholders.
<PAGE>
Your patience over the years has been appreciated.
After I acquired the major interest in PTI through HC, Inc., I
had hoped to be able to raise additional capital and restore the
company to independent profitable operations. Unfortunately,
that did not work out and there has been no outlet for the
purchase of PTI stock which would enable stockholders to make a
sale to establish their loss. At least with this Merger, the
stockholders will achieve a final resolution of their investment
and, hopefully, move on to better things.
If you have any questions, please feel free to contact
me.
Very truly yours,
EXHIBIT B
STATEMENT DESCRIBING APPRAISAL RIGHTS
AND PROCEDURES PROVIDED TO PTI STOCKHOLDERS
K.S.A. SECTION 17-6712. PAYMENT FOR STOCK OF STOCKHOLDER
OBJECTING TO MERGER OR CONSOLIDATION; DEFINITIONS; NOTICE TO
OBJECTING STOCKHOLDERS; DEMAND FOR PAYMENT; APPRAISAL AND
DETERMINATION OF VALUE BY DISTRICT COURT, WHEN; TAXATION OF
COSTS; RIGHTS OF OBJECTING STOCKHOLDERS; STATUS OF STOCK; SECTION
INAPPLICABLE TO CERTAIN SHARES OF STOCK. (a) When used in this
section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger
or consolidation, within 10 days after the effective date of the
merger or consolidation, shall notify each stockholder of any
corporation of this state so merging or consolidating who
objected thereto in writing and whose shares either were not
entitled to vote or were not voted in favor of the merger or
consolidation, and who filed such written objection with the
corporation before the taking of the vote on the merger or
consolidation, that the merger or consolidation has become
effective. If any such stockholder, within 20 days after the
date of mailing of the notice, shall demand in writing, from the
corporation surviving or resulting from the merger or
consolidation, payment of the value of the stockholder's stock,
the surviving or resulting corporation shall pay to the
stockholder, within 30 days after the expiration of the period of
20 days, the value of the stockholder's stock on the effective
date of the merger or consolidation, exclusive of any element of
value arising from the expectation or accomplishment of the
merger or consolidation.
(c) If during a period of 30 days following the period of
20 days provided for in subsection (b), the corporation and any
such stockholder fail to agree upon the value of such stock, any
such stockholder, or the corporation surviving or resulting from
the merger or consolidation, may demand a determination of the
value of the stock of all such stockholders by an appraiser or
appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration
of the thirty-day period.
(d) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the corporation,
which shall file with the clerk of such court, within 10 days
after such service, a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares
<PAGE>
have not been reached by the corporation. If the petition shall
be filed by the corporation, the petition shall be accompanied by
such duly verified list. The clerk of the court shall give
notice of the time and place fixed for the hearing of such
petition by registered or certified mail to the corporation and
to the stockholders shown upon the list at the addresses therein
stated and notice shall also be given by publishing a notice at
least once, at least one week before the day of the hearing, in a
newspaper of general circulation in the county in which the court
is located. The court may direct such additional publication of
notice as it deems advisable. The forms of the notices by mail
and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall
determine the stockholders who have complied with the provisions
of this section and become entitled to the valuation of and
payment for their shares, and shall appoint an appraiser or
appraisers to determine such value. Any such appraiser may
examine any of the books and records of the corporation or
corporations the stock of which such appraiser is charged with
the duty of valuing, and such appraiser shall make a
determination of the value of the shares upon such investigation
as seems proper to the appraiser. The appraiser or appraisers
shall also afford a reasonable opportunity to the parties
interested to submit to the appraiser or appraisers pertinent
evidence on the value of the shares. The appraiser or
appraisers, also, shall have the powers and authority conferred
upon masters by K.S.A. 60-253 and amendments thereto.
(f) The appraiser or appraisers shall determine the value
of the stock of the stockholders adjudged by the court to be
entitled to payment therefor and shall file a report respecting
such value in the office of the clerk of the court, and notice of
the filing of such report shall be given by the clerk of the
court to the parties in interest. Such report shall be subject
to exceptions to be heard before the court both upon the law and
facts. The court by its decree shall determine the value of the
stock of the stockholders entitled to payment therefor and shall
direct the payment of such value, together with interest, if any,
as hereinafter provided, to the stockholders entitled thereto by
the surviving or resulting corporation. Upon payment of the
judgment by the surviving or resulting corporation, the clerk of
the district court shall surrender to the corporation the
certificates of shares of stock held by the clerk pursuant to
subsection (g). The decree may be enforced as other judgments of
the district court may be enforced, whether such surviving or
resulting corporation be a corporation of this state or of any
other state.
(g) At the time of appointing the appraiser or appraisers,
the court shall require the stockholders who hold certificated
shares and who demanded payment for their shares to submit their
certificates of stock to the clerk of the court, to be held by
the clerk pending the appraisal proceedings. If any stockholder
fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
<PAGE>
(h) The cost of any such appraisal, including a reasonable
fee to and the reasonable expenses of the appraiser, but
exclusive of fees of counsel or of experts retained by any party
shall be determined by the court and taxed upon the parties to
such appraisal or any of them as appears to be equitable, except
that the cost of giving the notice by publication and by
registered or certified mail hereinabove provided for shall be
paid by the corporation. The court, on application of any party
in interest, shall determine the amount of interest, if any, to
be paid upon the value of the stock of the stockholders entitled
thereto.
(i) Any stockholder who has demanded payment of the
stockholder's stock as herein provided shall not thereafter be
entitled to vote such stock for any purpose or be entitled to the
payment of dividends or other distribution on the stock, except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation, unless the appointment of an appraiser
or appraisers shall not be applied for within the time herein
provided, or the proceeding be dismissed as to such stockholder,
or unless such stockholder with the written approval of the
corporation shall deliver to the corporation a written withdrawal
of the stockholder's objections to and an acceptance of the
merger or consolidation, in any of which cases the right of such
stockholder to payment for the stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation
into which the shares of such objecting stockholders would have
been converted had they assented to the merger or consolidation
shall have the status of authorized and unissued shares of the
surviving or resulting corporation.
(k) This section shall not apply to the shares of any class
or series of a class of stock, which, at the record date fixed to
determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders at which the agreement of
merger or consolidation is to be acted on, were either
(1) registered on a national securities exchange, or (2) held of
record by not less than 2,000 stockholders, unless the articles
of incorporation of the corporation issuing such stock shall
otherwise provided; nor shall this section apply to any of the
shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote
of the stockholders of the surviving corporation, as provided in
subsection (f) of K.S.A. 17-6701 and amendments thereto. This
subsection shall not be applicable to the holders of a class or
series of a class of stock of a constituent corporation if under
the terms of a merger of consolidation pursuant to K.S.A. 17-6701
or 17-6702, and amendments thereto, such holders are required to
accept for such stock anything except (i) stock or stock and cash
in lieu of fractional shares of the corporation surviving or
resulting from such merger or consolidation, or (ii) stock or
stock and cash in lieu of fractional shares of any other
corporation, which at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders at which the agreement of merger or
consolidation is to be acted on, were either registered on a
national securities exchange or held of record by not less than
2,000 stockholders, or (iii) a combination of stock or stock and
cash in lieu of fractional shares as set forth in (i) and (ii) of
this subsection.
