PROXY
PENTECH INTERNATIONAL, INC.
[LOGO]
195 Carter Drive
Edison, New Jersey 08817
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned, revoking all previous proxies, hereby
appoints John W. Linster, David Melnick and Richard S. Kalin, and
each of them, proxies with power of substitution to each, for and
in the name of the undersigned to vote all shares of Common Stock
of Pentech International, Inc. (the "Company") which the
undersigned would be entitled to vote if present at the Annual
Meeting of Shareholders of the Company to be held on March 19, 1997
at 10:00 A.M. in the Holiday Inn, 195 Davidson Avenue, Somerset,
New Jersey 08873, and any adjournments thereof, upon the matters
set forth in the Notice of Annual Meeting.
The undersigned acknowledges receipt of the Notice of Annual
Meeting, Proxy Statement and the Company's 1996 Annual Report.
1. ELECTION OF DIRECTORS
FOR all nominees listed Withhold Authority to vote
below (except as marked for all nominees listed
to the contrary below) below
(Instruction: To withhold authority to vote for an individual
nominee strike a line through such nominee's name from the list
below.)
ROY L. BOE, RICHARD S. KALIN, JOHN F. KUYPERS, JOHN W.
LINSTER, DAVID MELNICK, NORMAN MELNICK, JERRY DELLA
FEMINA AND ROBERT K. SEMEL.
2. APPROVAL OF THE SALE OF THE COMPANY'S COSMETICS DIVISION
TO A COMPANY CONTROLLED BY AFFILIATES OF THE COMPANY.
FOR AGAINST
3. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.
FOR AGAINST
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE.<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS and when properly executed will be voted as directed herein.
If no direction is given, this Proxy will be voted FOR Proposals 1, 2 and
3.
Date: , 1997
(Signature)
(Signature, if held jointly)
Where stock is registered in the names
of two or more persons ALL should sign.
Signature(s) should correspond exactly
with the name(s) as shown above. Please
sign, date and return promptly in the
enclosed envelope. No postage need be
affixed if mailed in the United States.
Requests for copies of proxy materials, the Company's Annual
Report for its fiscal year ended September 30, 1996 or the
Company's Annual Report for its fiscal year ended September 30,
1996 on Form 10-K should be addressed to Shareholder Relations,
Pentech International, Inc., 195 Carter Drive, Edison, New Jersey
08817. This material will be furnished without charge to any
shareholder requesting it.
<PAGE>
PENTECH INTERNATIONAL, INC.
(a Delaware corporation) [LOGO]
NOTICE OF 1997 ANNUAL
MEETING OF SHAREHOLDERS TO BE
HELD AT 10:00 A.M. ON MARCH 19, 1997
To the Shareholders of
PENTECH INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of
Shareholders (the "Meeting") of PENTECH INTERNATIONAL, INC. (the
"Company") will be held on March 19, 1997 at 10:00 A.M. in the
Holiday Inn, 195 Davidson Avenue, Somerset, New Jersey, to consider
and vote on the following matters described under the corresponding
numbers in the attached Proxy Statement:
1. The election of eight directors;
2. Approval of the sale of the Company's Cosmetics Division
to a company controlled by affiliates of the Company; and
3. Such other matters as may properly come before the
Meeting.
The Board of Directors has fixed February 5, 1997 at the close
of business, as the record date for the determination of
shareholders entitled to vote at the Meeting, and only holders of
shares of Common Stock of the Company of record at the close of
business on that day will be entitled to vote. The stock transfer
books of the Company will not be closed.
A complete list of shareholders entitled to vote at the
Meeting shall be available for examination by any shareholder, for
any purpose germane to the Meeting, during ordinary business hours
from February 20, 1997 until the Meeting at the offices of the
Company. This list will also be available at the Meeting.
Whether or not you expect to be present at the Meeting, please
fill in, date, sign and return the enclosed Proxy, which is
solicited by management. The Proxy is revocable and will not
affect your right to vote in person in the event you attend the
Meeting.
By Order of the Board of Directors
Richard S. Kalin, Secretary
Date: February 10, 1997
<PAGE>
PENTECH INTERNATIONAL, INC.
195 Carter Drive
Edison, New Jersey 08817
[Logo]
PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON MARCH 19, 1997
The enclosed proxy is solicited by the management of PENTECH
INTERNATIONAL, INC. (the "Company") in connection with the 1997
Annual Meeting of Shareholders (the "Meeting") to be held on
March 19, 1997 at 10:00 A.M. in the Holiday Inn, 195 Davidson
Avenue, Somerset, New Jersey 08873 and any adjournment thereof.
The Board of Directors has set February 5, 1997 at the close of
business as the record date for the determination of shareholders
entitled to vote at the Meeting. A shareholder executing and
returning a proxy has the power to revoke it at any time before it
is exercised by filing a later proxy with, or other communication
to, the Secretary of the Company or by attending the Meeting and
voting in person. The proxy will be voted in accordance with your
directions as to:
(1) The election of the eight persons listed herein as
directors of the Company;
(2) Approval of the sale of the Company's Cosmetics Division
to a company controlled by affiliates of the Company; and
(3) Such other matters as may properly come before the
Meeting.
In the absence of direction, the proxy will be voted in favor
of these proposals.
The entire cost of soliciting proxies will be borne by the
Company. The cost of solicitation, which represents an amount
believed to be normally expended for a solicitation relating to an
uncontested election of directors, will include the cost of
supplying necessary additional copies of the solicitation materials
and the Company's Annual Report to Shareholders for its fiscal year
ended September 30, 1996 (the "Annual Report") to beneficial owners
of shares held of record by brokers, dealers, banks, trustees, and
their nominees, including the reasonable expenses of such
recordholders for completing the mailing of such materials and
Annual Report to such beneficial owners.
Only shareholders of record of the Company's 12,496,758 shares
of Common Stock (the "Common Stock") outstanding at the close of
business on February 5, 1997 will be entitled to vote. Each share
of Common Stock is entitled to one vote. Holders of a majority of
the outstanding shares of Common Stock must be represented in
person or by proxy in order to achieve a quorum. The proxy
statement, the attached notice of meeting, the enclosed form of
proxy and the Annual Report are being mailed to shareholders on or
about February 10, 1997. The mailing address of the Company's
principal executive offices is 195 Carter Drive, Edison, New Jersey
08817.
1. ELECTION OF DIRECTORS
Eight directors are to be elected by a majority of the votes
cast at the Meeting, each to hold office until the next Annual
Meeting of Shareholders and until his respective successor is
elected and qualified. The persons named in the accompanying proxy
have advised management that it is their intention to vote for the
election of the following nominees as directors unless authority is
withheld:
o Roy L. Boe
o Richard S. Kalin
o John F. Kuypers
o John W. Linster
o David Melnick
o Norman Melnick
o Jerry Della Femina
o Robert K. Semel
Management has no reason to believe that any nominee will be
unable to serve. In the event that any nominee becomes
unavailable, the proxies may be voted for the election of such
person or persons who may be designated by the Board of Directors.
Information Regarding Officers, Directors and Nominees for Election
The following is certain information regarding nominees,
current directors and executive officers of the Company:
Position with Year became
Name Age the Company Officer or Director
Norman Melnick 65 Chairman 1984
John W. Linster 52 President, Chief 1996
Executive Officer
and Director
<PAGE>
Position with Year became
Name Age the Company Officer or Director
David Melnick 38 Chief Operating 1984
Officer and
Director
John F. Kuypers 38 Executive Vice 1991
President-Marketing
and Director
Richard S. Kalin 42 Secretary and 1984
Director
Roy L. Boe 66 Director 1994
Jerry Della Femina 60 Director 1994
Robert K. Semel 59 Nominee -
William Visone 33 Treasurer, Chief 1992
Financial Officer
Norman Melnick. Mr. Norman Melnick, a founder of the Company,
has been Chairman of the Company since its inception in April 1984.
He was Chief Executive Officer ("CEO") until November 1995. Mr.
Norman Melnick is Mr. David Melnick's father.
John W. Linster. Mr. John Linster was elected President and
CEO of the Company in November 1996 and to the Board of Directors
of the Company in April 1996. Prior to that, from July 1973 to
March 1995, he was employed at Avery Dennison Corp. in various
positions including Vice President, General Manager Mass Market.
During his career at Avery Dennison, he founded the Mass Market
business and built it into a profitable $110 million business.
David Melnick. Mr. David Melnick, a founder of the Company,
has been a Director of the Company since its inception in April
1984. He was President until November 1995, when he was elected
Chief Operating Officer.
John F. Kuypers. Mr. Kuypers has been employed by the Company
since September 1991 as Executive Vice President - Marketing.
Richard S. Kalin. Mr. Kalin has been Secretary and Director
of the Company since its inception in April 1984. He is Chairman,
Secretary and Director of Micronetics Wireless, Inc., a
manufacturer of wireless network components and Secretary and
Director of Wanderlust Interactive, Inc., an interactive
entertainment company. He has been engaged in the private
practice of law since November 1983 and currently is a founding
partner of Kalin & Banner, a New York-based law firm.
Roy L. Boe. Mr. Boe has been President of the Worcester
Icecats, Inc. since its inception in 1994. The Worcester Icecats
are an American Hockey League ice hockey team located in Worcester,
MA. He has also been President of the North American Sports Group
(the "Group") since its inception in December 1987. The Group
advises universities and city governments on matters relating to
the acquisition, promotion and development of athletic facilities,
teams and franchises within the United States. He is also a
director of Micronetics Wireless, Inc.
Jerry Della Femina. Mr. Della Femina is an owner and the CEO
of Jerry & Ketcham Inc., an advertising organization founded in
December 1992. He also operates several restaurants and a food
market. From 1967 to June 1992, Mr. Della Femina was an owner and
chief executive officer of Della Femina Travisano & Partners (which
become Della Femina McNamee) which he sold in 1986.
Robert K. Semel. Mr. Semel, since January 1995, has been
President and Chief Operating Officer of Uniflex, Inc., a designer,
manufacturer and marketer of a broad line of customized plastic
packaging. In addition, Mr. Semel has been a Director of Uniflex,
Inc. since December 1990 and Secretary since April 1993. Mr.
Semel's prior position with Uniflex, Inc. includes Executive Vice
President from December 1990 to January 1995.
William Visone. Mr. Visone has been employed by the Company
since January 1992 initially as Controller and presently as Chief
Financial Officer. In April 1992, Mr. Visone was elected
Treasurer.
During the fiscal year ended September 30, 1996 ("Fiscal
1996"), the Board of Directors met on nine occasions. (Mr. Della
Femina did not attend five of the meetings.) In addition, the
Board of Directors acted once by unanimous consent. The Company
has an Executive and Audit Committee (the "Executive Committee")
consisting of Messrs. Linster, David Melnick and Kalin, which is
authorized to make major decisions affecting the Company. The
Company also has a Stock Option-Compensation Committee (the
"Compensation Committee") consisting of Messrs. Boe, Della Femina
and Kalin, which determines compensation and awards stock options.
Each of the Executive and Compensation Committees met once during
Fiscal 1996.
<PAGE>
Executive Compensation
The following table sets forth for Fiscal 1996 and its fiscal
years ended September 30, 1995 and 1994, information relating to
compensation received by the Company's CEO and by each of the
Company's executive officers whose Fiscal 1996 compensation was
more than $100,000 per year:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name and
Principal Fiscal Option
Position Year Salary($) Grants
Norman Melnick, 1996 225,000 -
Chairman 1995 247,500 -
1994 275,000 -
John W. Linster, 1996 207,000 120,000(2)
President and
CEO
David Melnick, 1996 157,500 -
Chief Operating 1995 157,500 -
Officer 1994 175,000 -
John F. Kuypers, 1996 250,000 -
Executive Vice 1995 250,000 -
President-Marketing 1994 250,000 160,000
William Visone, 1996 102,000 -
Treasurer and Chief
Financial Officer
(1) Hired in November 1995.
(2) Exchanged options for 200,000 shares for these options at a
reduced option exercise price.
The aggregate amount of other compensation for each of Messrs.
Norman Melnick, Linster, David Melnick, Kuypers and Visone did not,
in any case, exceed the lesser of $50,000 or ten percent of the
total compensation.
Mr. Linster's employment agreement with the Company commenced
in November 1995 and terminates in November 2003. His agreement
provides for current annual compensation of $262,500. It also
provides for a Company-supplied automobile, a life insurance policy
in the amount of $500,000, and an option to purchase an aggregate
of 200,000 (reduced to 120,000 as a result of the Option Exchange
(defined below)) shares of Common Stock of the Company, exercisable
40,000 shares per year commencing November 17, 1997. Mr. Kuypers'
employment agreement with the Company commenced in September 1991
and terminates in September 1999. His agreement provides for
current annual compensation at a present rate of $257,500. Both
agreements contain a one year restrictive covenant relating to
competition upon termination of employment and provides for the
payment of benefits similar to those paid executives of similarly-
situated companies.
Profit Sharing Plan
During the fiscal year ended September 30, 1987, the Company
established a non-contributory profit sharing plan and trust (the
"Profit Sharing Plan") which covers all eligible employees,
including officers of the Company, who are at least twenty and one-
half years of age and have completed one year of service with the
Company. In April 1993 the Profit Sharing Plan was converted into
a contributory plan (hereinafter the "401(k) Plan") which is
qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"). All money in the Profit Sharing
Plan was rolled over into the 401(k) Plan. Each participant's
interest for contributions made by the Company vests at the rate of
20% after two years of service, 40% after three years of service,
60% after four years of service, 80% after five years of service,
and 100% after six years of service. The retirement age under the
Plan is 65 or after the sixth year of credited service, whichever
is later on. The Company contributed $16,941 to the 401(k) Plan in
Fiscal 1996. The 401(k) Plan also includes certain death benefits
and disability benefits. Messrs. N. Melnick and D. Melnick each
are fully vested under the 401(k) Plan, Messrs. Kuypers and Visone
each have five years of service and are 80% vested and Mr. Linster
has one year of service and is 20% vested.
Stock Option Plans
The Company currently has three active stock option plans.
The 1989 Stock Option Plan was adopted by the Board of Directors on
January 5, 1989 and was approved by the shareholders of the Company
on April 6, 1989 (the "1989 Plan"). The 1993 Stock Option Plan was
adopted by the Board of Directors on January 5, 1993 and was
approved by the shareholders of the Company on April 12, 1993 (the
"1993 Plan"). The 1995 Stock Option Plan was adopted by the Board
of Directors on March 15, 1995 and approved by the shareholders of
the Company on May 9, 1995 (the "1995 Plan") (the 1989 Plan, the
1993 Plan and the 1995 Plan are collectively referred to as the
"Plans"). Stock options granted under the Plans are intended to
qualify as "incentive stock options" within the meaning of Section
422A of the Code ("Incentive Options"). The Plans also allow the
granting of non-qualified stock options ("Non-Qualified Options")
(Incentive Options and Non-Qualified Options are collectively
referred to as "Options"). The 1989 Plan additionally allows the
granting of limited stock appreciation rights. Under the 1989
Plan, Incentive Options may be granted to the Company's officers
and employees. Under the 1993 Plan and the 1995 Plan, Incentive
Options may be granted to the Company's employees, consultants,
advisors to the Board of Directors and qualified directors.
The Plans are administered by the Compensation Committee,
which has the authority to determine the person to whom Options may
be granted, the number of shares of Common Stock to be covered by
each Option, the time or times at which the Options may be granted
or exercised and for the most part, the terms and provisions of the
Options. The exercise price of Options granted under the Plans may
not be less than the fair market value of the shares of Common
Stock on the date of grant (110% of the fair market value if
granted to a person owning in excess of ten percent of the
Company's securities). Options granted under the 1989 Plan may not
be exercised more than ten years from the date of grant (five years
if granted to a person owning in excess of ten percent of the
Company's securities). Options granted under the 1993 Plan may not
be exercised more than five years from the date of grant. The 1989
Plan terminates on January 5, 1999. The 1993 Plan terminates on
January 4, 2003. The 1995 Plan terminates on January 4, 2005.
During Fiscal 1996, in connection with his employment
agreement, Mr. Linster was granted an option for 200,000 shares of
Common Stock (later reduced to 120,000 shares pursuant to the
Option Exchange Program). On November 17, 1996, the Board of
Directors adopted an Option Exchange Program pursuant to which
certain employees and consultants were given the one-time option to
amend their options so that, as amended, the revised options would
have a new three year vesting period, commencing one third November
17, 1997, and additional one thirds each of the next two yearly
anniversaries thereof, for 60% of the previous number of shares
covered by the options, exercisable at $.75 per share, the market
price on the date the Option Exchange Program was approved.
Messrs. Norman Melnick, Linster, David Melnick, Kuypers, Kalin,
Visone and Boe each were given the right and did participate in the
Option Exchange Program.
<PAGE>
The following is cumulative information relating to
outstanding options owned by the Company's executive officers.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Unexercised
Number of Unexercised In-the-Money Options/
Options at FY-End(#) SARs at FY-End($)
Exercisable/ Exercisable/
Name Unexercisable(1) Unexercisable(1)
Norman Melnick 100,000/60,000 0/34,500
John W. Linster 0/150,000 0/93,750
David Melnick 50,000/30,000 0/17,250
Richard S. Kalin 25,000/15,000 0/9,375
John F. Kuypers 0/144,000 0/90,000
William Visone 0/30,000 0/18,750
Roy L. Boe 0/6,000 0/3,750
(1) Represents options after effectiveness of Option Exchange
Program at fair market value of Common Stock at January 10,
1997 of $1.375 as reported by NASDAQ, less the exercise price.
Additional Information with Respect to Compensation
The compensation for each executive officer is determined by
the Compensation Committee. Members of the Compensation Committee
deliberated in determining compensation and unanimously agreed on
the compensation to be awarded each executive officer.
In reaching its determination, the Committee considers the
recommendations of the President and such factors such as
performance of the individual and performance of the Company, as a
whole, as well as comparable compensation paid to executives at
other similarly situated companies. The Committee also considers
stock price, cash flow, revenues, net income and other factors in
arriving at its compensation determinations. The Committee
believes that compensation should be structured so as to provide
incentives to the Company's officers to enhance the long-term
profitability of the Company. It is the Committee's view that
increases in revenues, net income, cash flow and market share
improve shareholder market value. As a result, in making its
compensation determinations, the Committee attempts to align the
financial interests of the Company's officers with those of its
shareholders. Based on these factors, during Fiscal 1996,
executive officers received increases of less than an average of
five percent (5%). In addition, the Company established a
Management By Objective ("MBO") program for these executives to
determine if any of them become eligible for bonuses during the
current fiscal year.
Options to purchase Common Stock are also a key element in the
Company's compensation program. Since options granted under the
Plans generally provide for at least a one-year waiting period
before options may be exercised and an exercise price of the
Company's Common Stock at fair market value as of the date of
grant, officers benefit from options only when the share price
increases. As a result, options help to motivate executives by
providing incentives tied to shareholder goals. No new options
were granted to any executive officer during Fiscal 1996, but in
November 1996 many employees were given the opportunity to
participate in the Option Exchange Program. Also, in December
1996, Mr. Linster was granted a new option to purchase 30,000
shares exercisable 15,000 shares on November 17, 2000 and 15,000
shares on November 17, 2001, at an exercise price of $.75 per
share.
<PAGE>
Performance Graph
Description: The performance graph was prepared by the Center
for Research in Security Prices. This line graph
illustrates a comparison of five year-cumulative
total returns for Pentech International, Inc.,
NASDAQ Stock Market (U.S. Companies) and NASDAQ
Stocks (SIC 5000-5099 U.S. and Foreign) wholesale
trade-durable goods from September 30, 1991 to
September 30, 1996.
<PAGE>
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of Common
Stock beneficially owned, directly or indirectly, as of the date
hereof, by each of the directors of the Company, by all persons
known by the Company to be beneficial owners of more than five (5%)
percent of the outstanding shares of Common Stock, and by all
officers and directors as a group:
Name and Address Shares (1) Percent
Norman Melnick 1,734,028(2)(3) 13.8%
195 Carter Drive
Edison, New Jersey 08817
John W. Linster 150,000(3) 1.2%
195 Carter Drive
Edison, New Jersey 08817
David Melnick 1,870,098(3)(5) 14.9%
195 Carter Drive
Edison, New Jersey 08817
Richard S. Kalin 756,089(3)(6) 6%
757 Third Avenue
New York, NY 10017
John F. Kuypers 122,400(3) (4)
5555 Odana Road
Madison, WI 53719
William Visone 50,000(3) (4)
195 Carter Drive
Edison, NJ 08817
Roy L. Boe 5,000(7) (4)
410 North Cedar Road
Fairfield, CT 06430
Jerry Della Femina 5,000(7) (4)
640 Fifth Avenue
New York, NY 10019
David L. Babson & Co., Inc. 1,087,300(8) 8.7%
One Memorial Drive
Cambridge, MA 02142-1300
All officers and 4,692,615(2)(3)(5) 37%
directors as a group (6)(7)
(eight persons)
(1) All shares of Common Stock are owned directly, unless
otherwise noted.
(2) Includes 664,200 shares owned by his wife, Libby Melnick, and
12,100 shares owned by his minor child, as to which he
disclaims beneficial ownership.
(3) Includes 100,000, 50,000, 25,000 and 175,000 shares for
Messrs. N. Melnick, D. Melnick, Kalin and all officers and
directors as a group, respectively, that are issuable upon
exercise of options. Does not include 60,000, 150,000,
30,000, 144,000, 15,000, 30,000 and 441,000 shares issuable
upon exercise of options for Messrs. Norman Melnick, Linster,
David Melnick, Kuypers, Kalin, Visone and for all officers and
directors as a group, which are not exercisable within 60
days.
(4) Less than one percent.
(5) Includes 869,228 shares owned by his wife, Dana Melnick, and
52,550 shares owned by his minor children, as to which he
disclaims beneficial ownership.
(6) Includes 345,064 shares owned by his wife, Noelle Makenzie,
and 46,000 shares owned by his minor child, as to which he
disclaims beneficial ownership. Includes 110,000 shares held
in his retirement account.
(7) Does not include options to purchase 6,000 shares which are
not exercisable within 60 days.
(8) Based on information furnished to the Company on Form 13G,
dated January 11, 1996. David L. Babson & Co., Inc.
("Babson") has shared voting and dispositive power with
respect to 317,000 of these shares. Babson is an Investment
Advisor registered under Section 203 of the Investment
Advisors Act.
The Company is unaware of any arrangement, the operation of
which, at a subsequent date, may result in a change in control of
the Company.
Compliance with Section 16(a) of the Exchange Act
The Company believes that during the preceding fiscal year its
executive officers and directors complied with all Section 16
filing requirements.
Certain Transactions
In December 1996 and January 1997, due to unforeseen,
potentially devastating events that occurred during Fiscal 1996,
the Company conducted a private offering of its securities (the
"Private Offering"). The terms of the Private Offering were
determined by a Special Committee of the Board of Directors
comprised of Messrs. Boe and Della Femina, outside directors of the
Company (the "Special Committee"). The Special Committee engaged
the law firm of Aron, Twomey, Hoppe & Gallanty, New York, New York,
to advise it on the appropriateness of the Private Offering. In
reaching the conclusion that the terms of the Private Offering were
fundamentally fair to the Company, the Special Committee considered
(i) the current market price for the Common Stock in the NASDAQ
market, (ii) the current liquidity crisis brought on by the adverse
multi-million dollar patent infringement judgment against the
Company (the "Paradise Judgment"), (iii) the work-out status of the
Company's loans with its former principal lenders (the "Former
Banks"),(iv) the recent net losses of the Company, (v) the funding
requirements required by the settlement of the Paradise Judgment
(the "Paradise Settlement"), (vi) the difficulty and delays that
would be encountered in attempting to proceed with a publicly-
registered offering of securities of the Company, (vii) the general
status of the Company at the time of the Private Offering and
(viii) the urgent need for additional equity in order to fund the
Paradise Settlement, satisfy the Former Banks, obtain new bank
financing and to otherwise attempt to stabilize the Company's
operations.
The terms of the Private Offering provided for the sale of 20
units of 100,000 shares of Common Stock for $50,000 per unit.
Messrs. Linster, N. Melnick, D. Melnick, Kuypers, Kalin, Visone and
all officers and directors as a group invested $75,000, $150,000,
$75,000, $50,000, $150,000, $25,000 and $525,000 in the Private
Offering. The net proceeds of the Private Offering were used
$500,000 to fund the initial payment of the Paradise Settlement
(which was required to be funded by new equity and paid by December
31, 1996) and the balance ($475,000) was used to repay debt and,
under the terms of the Company's restructured loan agreements with
the Former Banks, enabled the Company to use $475,000 for capital
expenditures.
During Fiscal 1996, the Company paid legal fees to, and
reimbursed disbursements of, Kalin & Banner, a law firm of which
Mr. Kalin, a Secretary and Director of the Company, is a partner,
in the aggregate amount of approximately $412,434. Directors not
otherwise employed or engaged by the Company receive a one-time
option grant of 10,000 shares of Common Stock, an annual stipend of
$5,000, and $750 per meeting they attend in person.
In March 1990, the Company verbally agreed with Mrs. Libby
Melnick, the wife of Norman Melnick, Chairman and a Director of the
Company, to loan Mrs. Melnick money to purchase a life insurance
policy (the "Policy"). The Company is a named insured on the
Policy to the extent of premiums paid on the Policy. The proceeds
of the Policy to be paid to the Company will be used to repay the
loan. Through September 30, 1996, the Company has lent Mrs.
Melnick an aggregate of $109,511 toward payment of the premiums on
the Policy. The loan bears interest at the rate of eight percent
(8%) per annum. The loan was approved by the Board of Directors of
the Company.
2. Approval of the Sale of the Company's
Cosmetics Division to a Company
Controlled by Affiliates of the Company.
On January 9, 1997, the Board of Directors, following extended
consideration over several previous meetings, determined to
discontinue its Cosmetics Division and focus its efforts primarily
on its writing instruments business. This was largely the result
of refocusing the Company's business strategy on its core
competency, especially in light of the appointment of Mr. Linster
as the new CEO in Fiscal 1996 and the financial performance of the
Company over the last two years.
The Company has considered several options as to how to
discontinue its Cosmetics Division, including (i) selling the
Division outright to an independent third party, (ii) liquidation
of the Division and (iii) the sale of the Division to a company
controlled by affiliates of the Company, including Mr. N. Melnick,
Chairman of the Company. Any such sale is subject to the consent
of the Company's primary lender. To date, the Company has not been
successful in its efforts at locating an independent third party to
acquire the Cosmetics Division in its present condition on any
advantageous terms.
The financial performance of the Cosmetics Division for Fiscal
1996 and the fiscal year ended September 30, 1995 reflects
significant investment and continuing losses. As a result, the
Company does not believe it would be able to sell the Cosmetics
Division to an independent third party on very advantageous terms,
nor has it been successful in its efforts to do so. The Company
has proceeded to liquidate certain assets of the Cosmetics Division
over the last few months. The Company has now determined, subject
to finalization of a definitive agreement and the consent of its
primary lender, that the most desirous way of benefitting from the
discontinuance of its Cosmetics Division is to sell the Cosmetics
Division to a company controlled by Mr. N. Melnick (which may
include other officers and/or directors of the Company) at its book
value on the date of sale. In the opinion of management of the
Company, continued operation of the Cosmetics Division would
require the investment of considerable financial and human
resources. It was determined that such investment was not in the
best interests of the Company.
Mr. N. Melnick has informed the Company that his proposal to
purchase the Cosmetics Division will be at the book value of the
Cosmetics Division (the value of its assets minus its liabilities)
and will either be subject to financing or will be subject to a
purchase money promissory note for a substantial portion of the
purchase price. Mr. N. Melnick has informed the Company that he
intends to seek to raise capital from personal sources and through
third parties to finance this venture. To the extent the Company
does not receive cash payment for any portion of the Cosmetics
Division, it is contemplated that the Company will receive a first
lien on all of the assets of this company (which the Company
anticipates it will be required to assign to its primary lender).
Mr. Melnick also informed the Company that he believed he could
continue to render services to the Company on a part-time basis at
a reduced rate if he (or a company controlled by him) acquired the
Cosmetics Division.
Following consideration of this proposal, the Board of
Directors, with full disclosure of those who may participate in the
acquisition of the Cosmetics Division, unanimously approved selling
the Cosmetics Division to a company controlled by affiliates of the
Company (primarily Mr. N. Melnick) on terms similar to those
outlined above, subject to the affirmative vote of the shareholders
of the Company, the consent of the Company's primary lender and
entry into a definitive agreement with Mr. N. Melnick's company.
Because of the affiliated nature of this transaction and in order
to avoid the appearance of impropriety, the Board of Directors
decided to present this proposal to the shareholders of the Company
to determine whether the shareholders of the Company would approve
the sale of the Cosmetics Division to a company controlled by Mr.
N. Melnick on the terms outlined above. A vote of a majority of
the shares of Common Stock represented at the Meeting in favor of
this resolution will constitute the affirmative vote of the
shareholders of the Company in favor of this resolution.
If this resolution is approved, there is no assurance this
transaction will be finalized with such company or Mr. N. Melnick,
nor is there any assurances that this transaction will be approved
by the Company's primary lender. If this resolution is not
approved, the Company will attempt to further liquidate the
Cosmetics Division and to orderly discontinue this business if it
is unable to find an independent third party to purchase this
business on terms acceptable to the Company and its primary lender,
which, to date, it has been unable to do.
The Company has engaged the accounting firm of Drucker, Math
& Whitman, P.C., North Brunswick, New Jersey, to review the
financial statements of the Company's Cosmetics Division in order
to determine the book value of that Division (which will form the
basis for the purchase price of such Division to the company
controlled by Mr. N. Melnick). Such report is expected to be
issued before the Meeting and be available at the Meeting. It is
anticipated that a representative of that firm will be present at
the Meeting to answer any questions a shareholder may have with
respect to this proposal.
3. OTHER MATTERS
The Board of Directors has no knowledge of any other matters
which may come before the Meeting and does not intend to present
any other matters. However, if any other matters shall properly
come before the Meeting or any adjournment thereof, the persons
named as proxies will have discretionary authority to vote the
shares of Common Stock represented by the accompanying proxy in
accordance with their best judgment.
Selection of Auditors
The Board of Directors has selected Ernst & Young, L.L.P.
("E&Y") as its independent certified public accountants to audit
the financial statements of the Company for its current fiscal year
ending September 30, 1997. Mr. Bernard Leone, a member of E&Y, is
expected to be present at the Meeting and will be given the
opportunity to make a statement and to answer questions any
shareholder may have with respect to the financial statements of
the Company for Fiscal 1996.
Shareholder's Proposals
Any shareholder of the Company who wishes to present a
proposal to be considered at the next Annual Meeting of
Shareholders of the Company and who wishes to have such proposal
presented in the Company's proxy statement for such Meeting must
deliver such proposal in writing to the Company at 195 Carter
Drive, Edison, New Jersey 08817 on or before November 10, 1997. In
order to curtail controversy as to the date on which the proposal
was received by the Company, it is suggested that proponents submit
their proposals by certified, mail-return receipt requested.
By Order of the Board of Directors,
Richard S. Kalin, Secretary
Dated: February 10, 1997
PTK\Pxy97
