UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
PENTECH INTERNATIONAL INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2),
or item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $.01 per share
(2) Aggregate number of securities to which transaction
applies:
12,571,258 shares of Common Stock
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
$1.40
(4) Proposed maximum aggregate value of transaction:
$17,599,761.20
(5) Total fee paid:
$3,519.95
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
PENTECH INTERNATIONAL INC.
195 CARTER DRIVE
EDISON, NEW JERSEY 08817
June , 2000
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders (the "Meeting") of Pentech International Inc. (the
"Company"), which will be held on July__, 2000 at 10:00 A.M., local
time, at the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway,
Sixteenth Floor, New York, NY 10019-4315.
At the Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement of Merger, dated as of
May 22, 2000 (the "Merger Agreement"), a copy of which is attached
as Appendix A to the enclosed Proxy Statement, pursuant to and
subject to the terms and conditions of which JAKKS Acquisition II,
Inc. ("Merger Sub"), a Delaware corporation and a wholly-owned
subsidiary of JAKKS Pacific, Inc., a Delaware corporation
("Parent"), will be merged with and into the Company (the
"Merger"). Upon consummation of the Merger, the Company will
become a wholly-owned subsidiary of Parent, and each outstanding
share of the Company's Common Stock will be canceled and converted
into the right to receive $1.40 in cash, without interest. The
affirmative vote of the holders of a majority of the shares of the
Company's Common Stock is required for the approval and adoption of
the Merger Agreement.
In connection with the execution of the Merger Agreement,
Norman Melnick, Chairman of the Company, and David Melnick,
President and a director of the Company, and their wives
(collectively the "Melnick Family"), and Richard S. Kalin,
Secretary and a director of the Company, and his wife, entered into
a Voting and Lock-Up Agreement with Parent, dated as of May 22,
2000 (the "Voting Agreement"). Pursuant to the Voting Agreement,
among other things, the Melnick Family and Mr. Kalin and his wife
agreed to vote all of their shares (representing approximately
30.4% of the outstanding shares of the Company's Common Stock) in
favor of the approval and adoption of the Merger Agreement.
The Merger Agreement provides that the Merger shall be
consummated as soon as practicable following the satisfaction or
waiver of the closing conditions pertaining to the Merger,
including approval by the requisite vote of the Company's
stockholders and receipt of all regulatory approvals.
The Board of Directors of the Company has received an opinion
from its financial advisor, Business Valuation Services, Inc., to
the effect that, on the date of such opinion, and based on
assumptions made, procedures followed, matters considered and
limitations on the review undertaken, as set forth in such opinion,
the Merger Consideration pursuant to the Merger Agreement was fair
from a financial point of view to the holders of shares of the
Company's Common Stock.
THE BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED AND APPROVED
THE PROPOSED MERGER AND THE MERGER AGREEMENT AS BEING IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. THE BOARD OF
DIRECTORS, BY THE UNANIMOUS VOTE OF ALL DIRECTORS, RECOMMENDS THAT
THE STOCKHOLDERS OF THE COMPANY VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE MEETING.
Stockholders of the Company are entitled to statutory
appraisal rights under Section 262 of the Delaware General
Corporation Law ("Section 262"). Stockholders selecting such
rights must carefully follow the procedures set forth in Section
262. See "PROPOSAL ONE--THE MERGER--Appraisal Rights." These
steps include, but are not limited to, such stockholder not voting
in favor of the Merger and delivering to the Company a written
demand for statutory appraisal.
The accompanying Proxy Statement provides a detailed
description of the proposal regarding the Merger. You are urged to
read the accompanying materials so that you may be informed about
the business to come before the Meeting.
Please sign, date and return the enclosed proxy card in the
envelope provided. You may vote by signing the enclosed proxy
card, whether or not you plan to attend the Meeting. If you attend
the Meeting, you may vote in person, even if you have previously
mailed in your proxy.
We look forward to seeing you at the Meeting.
Sincerely,
NORMAN MELNICK
Chairman
PRELIMINARY COPY
This Proxy Statement is dated June __, 2000, and is first
being mailed to stockholders on or about June __, 2000.
[LOGO OF PENTECH INTERNATIONAL INC.]
195 CARTER DRIVE
EDISON, NEW JERSEY 08817
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY __, 2000
To the Stockholders of Pentech International Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (together with
any adjournment(s) or postponement(s) thereof, the "Meeting") of
the stockholders (the "Stockholders") of Pentech International
Inc., a Delaware corporation (the "Company"), will be held on July
__, 2000 at 10:00 A.M., local time at the offices of Camhy
Karlinsky & Stein LLP, 1740 Broadway, Sixteenth Floor, New York, NY
10019-4315.
The Meeting is being held for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt the Agreement of Merger, dated as of May 22, 2000 (the
"Merger Agreement"), a copy of which is attached as Appendix A to
the accompanying Proxy Statement, providing for the merger (the
"Merger") of JAKKS Acquisition II, Inc. ("Merger Sub"), a Delaware
corporation and a wholly-owned subsidiary of JAKKS Pacific, Inc.,
a Delaware corporation ("Parent"), with and into the Company and
which, among other things, provides that each outstanding share of
the Company's Common Stock (other than shares of Common Stock owned
by Parent or Merger Sub or any direct or indirect subsidiary of
Parent or Merger Sub, or which are held in the treasury of the
Company or by any of its subsidiaries, which will be canceled, or
which are held by dissenting Stockholders) will be canceled and
converted into the right to receive $1.40 per share in cash,
without interest, all as more fully described in the accompanying
Proxy Statement and Appendix A thereto;
2. To grant the Board of Directors of the Company
discretionary authority to postpone or adjourn the Meeting in order
to solicit additional votes to approve the proposal in paragraph 1
above; and
3. To transact such other business as may properly come
before the Meeting or any adjournment or postponement thereof.
Only holders of record of outstanding shares of Common Stock
of the Company at the close of business on June 6, 2000 will be
entitled to notice of, and to vote at, the Meeting or any
adjournments or postponements thereof. A complete list of
Stockholders entitled to vote at the Meeting will be available for
examination by any Stockholder, for any purpose relevant to the
Meeting, on and after June __, 2000 during ordinary business hours
at the offices of Camhy Karlinsky & Stein LLP, 1740 Broadway,
Sixteenth Floor, New York, NY 10019-4315. This list will also be
available at the Meeting.
Your vote is important. To vote your shares, please mark,
sign and date the enclosed proxy card and mail it promptly in the
enclosed return envelope, which requires no postage if mailed in
the United States.
This Proxy is revocable and will not affect your right to vote
in person or change your vote at any time before the Meeting.
The Board of Directors of the Company, by the unanimous vote
of all directors, recommends that Stockholders vote "for" the
proposal to approve and adopt the Merger Agreement.
BY ORDER OF THE BOARD OF DIRECTORS,
RICHARD S. KALIN
Secretary
Edison, New Jersey
June __, 2000
TABLE OF CONTENTS
INTRODUCTION..............................................1
AVAILABLE INFORMATION.....................................5
FORWARD-LOOKING STATEMENTS................................6
QUESTIONS AND ANSWERS ABOUT THE MERGER....................8
SUMMARY...................................................13
The Parties.............................................13
The Meeting; Voting; Vote Required for Approval.........14
The Merger..............................................16
The Voting Agreement....................................16
Background of the Merger; Reasons for the Merger
and Board of Directors' Recommendation.................17
Opinion of Business Valuation Services, Inc.............18
Conflicts of Interest and Interests of Certain
Persons in the Merger..................................18
Financing the Merger ...................................20
Certain Tax Consequences to Stockholders................20
Options.................................................21
Conditions to the Merger................................22
Termination of Merger Agreement.........................23
Termination Fees........................................24
Regulatory Matters......................................25
Price Range of Common Stock.............................25
Appraisal Rights........................................26
Certain Effects of the Merger...........................27
SELECTED FINANCIAL DATA...................................27
CERTAIN INFORMATION REGARDING THE COMPANY.................30
THE MEETING...............................................30
THE MEETING DATE; LOCATION; SOLICITATION ................30
MATTERS CONSIDERED.......................................30
VOTING; REVOCATION OF PROXIES............................31
RECORD DATE; OUTSTANDING SECURITIES; QUORUM;
VOTES REQUIRED...........................................33
PROPOSAL ONE--THE MERGER..................................34
General................................................34
Structure..............................................35
Merger Consideration...................................35
Effective Time.........................................36
Parties................................................36
BACKGROUND OF THE MERGER................................38
REASONS FOR THE MERGER AND BOARD OF DIRECTORS'
RECOMMENDATION.........................................43
OPINION OF BUSINESS VALUATION SERVICES, INC.............48
Income Approach........................................53
Public Market Analysis.................................53
Control Premium Approach...............................54
CONFLICTS OF INTEREST AND INTERESTS OF CERTAIN
PERSONS IN THE MERGER..................................56
FINANCING OF THE MERGER.................................57
CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS................58
THE MERGER AGREEMENT....................................59
Effective Time.........................................59
Certificate of Incorporation and Bylaws................60
Directors and Officers.................................60
Options................................................61
Exchange of Certificates...............................62
Representations and Warranties.........................63
Business of the Company Pending the Merger.............67
Stockholder Meeting....................................69
No Solicitation........................................71
Indemnification of Directors and Officers..............73
Supplemental Services Agreements
and Other Arrangements...............................75
Conditions to Obligations of Each Party................77
Conditions to Obligations of JAKKS and Merger Sub......78
Conditions to Obligations of the Company...............80
Termination............................................81
Termination Fees.......................................82
Fees and Expenses......................................83
Amendment and Waivers..................................84
THE VOTING AGREEMENT....................................85
ACCOUNTING TREATMENT....................................86
REGULATORY MATTERS......................................87
Federal................................................87
PRICE RANGE OF COMMON STOCK; DIVIDENDS..................88
APPRAISAL RIGHTS........................................90
CERTAIN EFFECTS OF THE MERGER...........................97
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND EXECUTIVE OFFICERS AND DIRECTORS.....................97
INDEPENDENT ACCOUNTANTS...................................100
STOCKHOLDER PROPOSALS.....................................100
DOCUMENTS INCORPORATED BY REFERENCE.......................102
OTHER BUSINESS............................................103
MISCELLANEOUS.............................................104
Form of Proxy.............................................
Appendix A Agreement of Merger...........................
Appendix B Opinion of Business Valuation Services, Inc...
Appendix C Section 262 of the Delaware General
Corporation Law..............................
Appendix D Annual Report on Form 10-K for the
Fiscal Year ended September 30, 1999.........
Appendix E Quarterly Report on Form 10-Q
for the Quarter ended March 31, 2000.........
[LOGO OF PENTECH INTERNATIONAL INC.]
195 CARTER DRIVE
EDISON, NEW JERSEY 08817
______________
PROXY STATEMENT FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY __, 2000
______________
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being
furnished to stockholders of Pentech International Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of
Directors") for use at the Special Meeting (together with any
adjournment(s) or postponement(s) thereof, the "Meeting") of the
stockholders of the Company (the "Stockholders") to be held on July
__, 2000 at 10:00 A.M., local time, at the offices of Camhy
Karlinsky & Stein LLP ("Camhy"), 1740 Broadway, Sixteenth Floor,
New York, NY 10019-4315. This Proxy Statement is dated June __,
2000 and is first being mailed to Stockholders along with the
related form of proxy on or about June __, 2000. The mailing
address of the Company's principal executive offices is 195 Carter
Drive, Edison, New Jersey 08817.
Only holders of record of outstanding shares of the Company's
Common Stock, $0.01 par value per share (the "Common Stock"), at
the close of business on June 6, 2000 will be entitled to vote at
the Meeting.
At the Meeting, the Stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Agreement of Merger,
dated as of May 22, 2000 (the "Merger Agreement"), among JAKKS
Pacific, Inc., a Delaware corporation ("JAKKS" or "Parent"), JAKKS
Acquisition II, Inc., a Delaware corporation and a wholly-owned
subsidiary of JAKKS ("Merger Sub"), and the Company providing for
the merger of Merger Sub with and into the Company (the "Merger").
The affirmative vote of the holders of a majority of the shares of
the outstanding Common Stock is required for the approval and
adoption of the Merger Agreement. See "PROPOSAL ONE--THE MERGER."
If the Merger Agreement is approved and adopted, the Merger
will be consummated on the terms and subject to the conditions set
forth in the Merger Agreement. Upon consummation of the Merger,
the Company will become a private company and a wholly-owned
subsidiary of JAKKS, and each outstanding share of Common Stock
(other than shares of Common Stock owned by JAKKS or Merger Sub or
by any direct or indirect subsidiary of JAKKS or Merger Sub or
which are held in the treasury of the Company or by any of its
subsidiaries, all of which will be canceled without any payment, or
which are held by dissenting Stockholders, whose shares will be
subject to their statutory appraisal rights) will be canceled and
converted into the right to receive $1.40 per share in cash,
without interest (the "Merger Consideration").
In connection with the execution of the Merger Agreement,
Norman Melnick, Chairman of the Company, and David Melnick,
President and a director of the Company, and their wives
(collectively, the "Melnick Family"), and Richard S. Kalin,
Secretary and director of the Company, and his wife, entered into
a Voting and Lock-Up Agreement with JAKKS, dated as of May 22, 2000
(the "Voting Agreement"). Pursuant to the Voting Agreement, among
other things, the Melnick Family and Mr. Kalin and his wife have
agreed to vote all of their shares of Common Stock (3,823,465
shares representing approximately 30.4% of the outstanding shares
of Common Stock) in favor of the approval and adoption of the
Merger Agreement. In addition to any compensation Messrs. Norman
Melnick, David Melnick and Kalin are to receive for their services
as employees or consultants under their respective agreements,
pursuant to the Merger Agreement, the Melnick Family and Mr. Kalin
and his wife will receive approximately an aggregate of $5,400,000
for their shares of Common Stock and cancellation of their options
to purchase Common Stock. See "PROPOSAL ONE--THE MERGER--THE
VOTING AGREEMENT" and "--INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
Concurrently with the effectiveness of the Merger or as soon
thereafter as is practicable, JAKKS will pay to the Company's
employees or others who hold stock options ("Options"), including
Options granted under the Company's 1989 Stock Option Plan, 1993
Stock Option Plan and/or 1995 Stock Option Plan (collectively, the
"Option Plans") or otherwise, in cancellation of their respective
Options, an amount in cash (less applicable withholding taxes)
equal to the product of the number of shares of the Common Stock
subject to each such Option multiplied by the excess, if any, of
the Merger Consideration over the exercise price for each share of
the Common Stock subject to such Option. Messrs. Norman Melnick,
David Melnick and Kalin will receive $36,000, $18,000 and $11,850,
respectively, in connection with such cancellation. See "PROPOSAL
ONE--THE MERGER--The Merger Agreement--Options."
Stockholders are entitled to statutory appraisal rights under
Section 262 of the Delaware General Corporation Law ("Section
262"). See "PROPOSAL ONE--THE MERGER--APPRAISAL RIGHTS."
On May 22, 2000, the last full trading day prior to the
announcement of the execution of the Merger Agreement, the closing
bid price per share of Common Stock as reported on the Nasdaq
National Market ("Nasdaq") was $.9375. The highest bid price per
share on such date was $1.0625 and the lowest bid price per share
on such date was $.8125. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
QUOTATIONS FOR THE COMMON STOCK.
A copy of the Merger Agreement is attached to this Proxy
Statement as Appendix A. See "PROPOSAL ONE--THE MERGER--THE MERGER
AGREEMENT."
THE ABOVE MATTERS AND OTHER MATTERS RELATING TO THE MERGER ARE
DISCUSSED IN MUCH GREATER DETAIL IN THE REMAINDER OF THIS PROXY
STATEMENT. THE PROPOSED MERGER IS A COMPLEX TRANSACTION.
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS
PROXY STATEMENT IN ITS ENTIRETY.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other
information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the U.S.
Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a web site that contains
reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically
with the Commission, at http://www.sec.gov.
Following the Merger, the Company will become a wholly-owned
subsidiary of JAKKS, and there will be no public trading of shares
of Common Stock. Accordingly, upon application to the Commission
following the Merger, registration of the Common Stock, and the
Company's obligation to file periodic reports, proxy statements and
other information with the Commission, will be terminated.
FORWARD-LOOKING STATEMENTS
Cautionary Statement for Purposes of
Private Securities Litigation Reform Act of 1995
This Proxy Statement, information included in filings by the
Company with the Commission, and information contained in written
material, press releases and oral statements issued by or on behalf
of the Company contain, or may contain, certain "forward-looking
statements," including statements concerning plans, objectives and
future events or performance, and other statements which are other
than statements of historical fact. Forward-looking statements
also include the information concerning possible or assumed future
results of operations of the Company and JAKKS set forth under
"PROPOSAL ONE--THE MERGER--Background of the Merger," "--Reasons
for the Merger and Board of Directors' Recommendation," "--Opinion
of Business Valuation Services, Inc." and Appendices D and E and
those preceded by, followed by or that include the words
"believes," "expects," "anticipates" or similar expressions. For
those statements, the Company claims protection of the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. It should be understood
that the following important factors, in addition to those
discussed elsewhere in this document and in the documents
incorporated by reference, could affect the future results of the
Company, and could cause those results to differ materially from
those expressed in such forward-looking statements. Factors that
may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are
not limited to, the following: (i) business disruption related to
the Merger (both before and after completion); (ii) litigation
costs and delays; (iii) higher than anticipated costs in completing
the Merger; (iv) unanticipated regulatory delays or constraints or
changes in the proposed transaction required by regulatory
authorities; (v) legislation or regulatory changes which adversely
affect the business in which the Company is engaged; and (vi) other
unanticipated occurrences which may delay or prevent the
consummation of the Merger, increase the costs related to the
Merger or decrease the expected financial benefits of the Merger.
Additional information concerning factors that could cause actual
results to differ materially from those contemplated by forward-looking
statements is contained in Appendix D to this Proxy
Statement, which reproduces the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why am I receiving these materials?
A: The Company agreed to be acquired by JAKKS. As a result of
the Merger, it will become a privately-held company wholly-owned by
JAKKS. The Board of Directors has approved the
Merger Agreement. To accomplish the Merger, the Company needs
to obtain the approval of the holders of a majority of the
outstanding shares of Common Stock as of June 6, 2000.
Q: Who is JAKKS?
A: JAKKS is a multi-line, multi-brand toy company that designs,
develops, produces and markets toys and related products.
Q: What will I receive in the Merger?
A: Upon completion of the Merger, your shares of Common Stock
will be canceled and you will be entitled to receive $1.40 in
cash for each of your shares of Common Stock.
Q: How is JAKKS going to get the money to pay for all of the
shares?
A: JAKKS has represented to us that it has the cash it needs to
buy all of the shares of Common Stock. The cost to it for all
of the shares is approximately $18,000,000.
Q: When do we expect the Merger to be completed?
A: We expect the Merger to be completed shortly following
approval by the Stockholders at the Meeting scheduled for July
___, 2000 and receipt of necessary government approvals.
Q: Does the Board of Directors recommend voting in favor of the
Merger?
A: Yes. After a comprehensive examination of the Company's
business plan and a careful exploration of the Company's
strategic alternatives, the Board of Directors has determined
that the Merger is in the best interests of our Stockholders
and recommends that Stockholders vote FOR approval and
adoption of the Merger Agreement.
Q: What are the tax consequences of the Merger to me?
A: The Merger will be a taxable transaction to you. For United
States federal income tax purposes, you will generally
recognize gain or loss in the Merger in an amount determined
by the difference between the cash you receive and your tax
basis in the Common Stock. Because determining the tax
consequences of the Merger can be complicated, you should
consult your own tax advisor in order to understand fully how
the Merger will affect you.
Q: When and where is the Meeting?
A: The Meeting will be held on July __, 2000 at 10:00 A.M., local
time, at the offices of Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019-4315.
Q: Who can vote on the proposals presented in this Proxy?
A: You are entitled to vote at the Meeting if you owned shares
of Common Stock at the close of business on June 6, 2000, the
record date for the Meeting (the "Record Date"). On that
date, 12,571,258 shares of Common Stock were outstanding.
Q: What vote is required?
A: The Merger Agreement must be approved by the affirmative vote
of over 50% of the outstanding shares of Common Stock. Norman
Melnick, Chairman of the Company, and David Melnick, President
and a director of the Company and Richard S. Kalin, Secretary
and a director of the Company, and their wives, have agreed to
vote their shares of Common Stock in favor of the Merger. As
of the Record Date, these Stockholders own a total of
3,823,465 shares of Common Stock, representing approximately
30.4% of our outstanding shares of Common Stock. (See "The
Voting Agreement").
Q: What rights do I have if I do not want to vote for the Merger?
A: Under Delaware law, you are entitled to what are known as
appraisal rights. The applicable statute is attached as
Appendix C to this Proxy Statement. If you wish to exercise
your appraisal rights you should not vote in favor of the
Merger.
Q: What do I need to do now?
A: Read this Proxy Statement and the attached appendices. Then,
if you choose to vote by proxy, you can complete your proxy
card and indicate how you want to vote. If you decide to vote
by mail, sign and mail the proxy card in the enclosed return
envelope as soon as possible. You should complete, sign and
return your proxy card even if you currently expect to attend
the Meeting and vote in person. Mailing in a proxy card now
will not prevent you from voting in person at the Meeting or
canceling or revoking your proxy right up to the day of the
Meeting, and you will ensure that your shares get voted if you
later find you are unable to attend. If you sign and send in
the proxy card and do not indicate how you want to vote, your
proxy will be voted FOR the approval and adoption of the
Merger Agreement, and FOR the grant of discretionary authority
to the Board of Directors to postpone or adjourn the Meeting.
IF YOU DO NOT VOTE BY SENDING IN YOUR PROXY CARD OR VOTE IN
PERSON AT THE MEETING, IT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THIS IS WHY, IF YOU FAVOR THE MERGER, IT IS VERY IMPORTANT
THAT YOU VOTE BY RETURNING YOUR PROXY CARD, AS SOON AS
POSSIBLE.
Q: If my broker holds my shares in "street name," will my broker
vote my shares for me?
A: Your broker will vote your shares only if you instruct the
broker how to vote. To do so, follow the directions your
broker provides. Without instructions, your broker will not
vote your shares.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is
voted at the Meeting by delivering a signed notice of
revocation, by delivering a later dated signed proxy card to
our corporate secretary, or by attending the Meeting and
voting.
Q: Should I send in my stock certificates at this time?
A: No. Once the Merger is closed you will receive written
instructions from American Stock Transfer & Trust Company
directing you where to deliver your shares to receive payment.
If your shares are held in street name by your broker, your
broker will arrange for you to receive payment for your shares
of Common Stock.
SUMMARY
The following summary is intended to highlight certain
information included elsewhere in this Proxy Statement. This
summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained elsewhere in
this Proxy Statement and the Appendices hereto. Stockholders are
urged to read this Proxy Statement and the Appendices hereto in
their entirety.
The Parties
The Company is a manufacturer and marketer of pens, markers,
pencils, other writing instruments and activity kits, primarily to
major mass market retailers located in the United States, marketed
under the "Pentech" name or licensed trademark brands. The Company
was formed in April 1984 to design and market writing and drawing
instruments and other stationery products. In November 1989, the
Company formed a wholly-owned subsidiary, Sawdust Pencil Co.
("Sawdust"), to manufacture certain of the Company's writing
instruments. Where the context so requires, the "Company" also
includes its wholly-owned subsidiaries.
Consolidated revenues for the Company for the fiscal year
ended September 30, 1999 ("Fiscal 1999") were approximately
$60,949,000 and the Company incurred a net loss of $334,000, or
$.03 per share. Consolidated revenues for the Company for the six
months ended March 31, 2000 were $20,781,000 and the Company
incurred a net loss of $2,596,000, or $.21 per share. The
principal executive offices of the Company are located at 195
Carter Drive, Edison, New Jersey 08817, and its telephone number is
(732) 287-6640.
Merger Sub is a wholly-owned subsidiary of JAKKS that was
formed by JAKKS in May 1999, but has not engaged in any business
except for actions taken to effect the Merger. JAKKS is a multi-line,
multi-brand toy company that designs, develops, produces and
markets toys and related products. The principal executive offices
of JAKKS and Merger Sub are located at 22761 Pacific Coast Highway,
Malibu, California 90265-5064; and its telephone number is (310)
456-7799.
The Meeting; Voting; Vote Required for Approval
The Meeting will be held on July __, 2000 at 10:00 A.M., local
time, at the offices of Camhy, 1740 Broadway, Sixteenth Floor, New
York, NY 10019-4315. At the Meeting, Stockholders will be asked to
consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement; (ii) a proposal to grant the Board of Directors
discretionary authority to postpone or adjourn the Meeting in order
to solicit additional votes to approve the proposal in (i) above;
and (iii) such other matters as may properly come before the
Meeting. See "THE MEETING--Matters Considered."
The Company has fixed the close of business on June 6, 2000 as
the Record Date for determining holders of outstanding shares of
Common Stock who are entitled to notice of and to vote at the
Meeting. As of the Record Date, there were 12,571,258 shares of
Common Stock issued and outstanding, each of which shares is
entitled to one vote. The holders of a majority of the outstanding
shares of Common Stock on the Record Date, which are present in
person or by proxy at the Meeting, will constitute a quorum. The
approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding
shares of Common Stock on the Record Date. Because approval of the
Merger is determined by reference to the number of shares of Common
Stock outstanding on the Record Date rather than on the number of
shares of Common Stock voted at the Meeting, failure to vote your
shares is effectively a vote against the Merger. In addition,
although treated as shares that are present and entitled to vote at
the Meeting for the purposes of determining whether a quorum
exists, abstentions or properly executed broker non-votes will have
the same effect as votes cast against approval of the Merger.
Only record holders or their duly authorized proxies will be
entitled to cast ballots at the Meeting. Proxy holders who wish to
vote by ballot at the Meeting must provide the Secretary of the
Company with evidence of their authority to act at least 30 minutes
prior to the commencement of the Meeting. See "THE MEETING--VOTING; REVOCATION
OF PROXIES."
The Merger
Pursuant to and subject to the terms and conditions set forth
in the Merger Agreement and in accordance with applicable
provisions of the Delaware General Corporation Law ("DGCL"), upon
the effectiveness of the Merger the Company will become a wholly-owned
subsidiary of JAKKS and each outstanding share of Common
Stock (other than shares of Common Stock owned by JAKKS or Merger
Sub or by any direct or indirect subsidiary of JAKKS or Merger Sub
or which are held in the treasury of the Company or by any of its
subsidiaries, all of which will be canceled, or which are held by
dissenting Stockholders) will be canceled and converted into the
right to receive $1.40 per share in cash, without interest. See
"PROPOSAL ONE--THE MERGER."
The Voting Agreement
In connection with the execution of the Merger Agreement,
Norman Melnick, Chairman of the Company, and David Melnick,
President and a director of the Company and their wives
(collectively, the "Melnick Family"), and Richard S. Kalin,
Secretary and a director of the Company, and his wife, entered into
a Voting and Lock-Up Agreement with JAKKS (the "Voting Agreement").
Pursuant to the Voting Agreement, among other things, the Melnick
Family and Mr. Kalin and his wife have agreed to vote all of their
shares of Common Stock (3,823,465 shares, representing
approximately 30.4% of the outstanding shares of Common Stock on
the Record Date) in favor of the approval and adoption of the
Merger Agreement. See "PROPOSAL ONE--THE MERGER--THE VOTING
AGREEMENT."
Background of the Merger; Reasons for the Merger and Board of
Directors' Recommendation
After a comprehensive examination of the Company's business
plan and a careful exploration of the Company's strategic
alternatives (see "PROPOSAL ONE--THE MERGER--BACKGROUND OF THE
MERGER"), the Board of Directors has determined that the Merger,
the Merger Agreement, the Voting Agreement and the transactions
contemplated thereby are in the best interests of the Company and
its Stockholders and has, by the unanimous vote of all directors,
recommended that the Stockholders vote "FOR" the approval and
adoption of the Merger Agreement at the Meeting. In reaching its
decision to approve the Merger Agreement and the Voting Agreement,
as well as the transactions contemplated thereby, and to recommend
that the Stockholders approve and adopt the Merger Agreement, the
Board of Directors considered a number of factors, including the
opinion of Business Valuation Services, Inc. ("BVS"), the Company's
independent financial advisor, that the Merger Consideration was
fair to the Stockholders from a financial point of view. See
"PROPOSAL ONE--THE MERGER--REASONS FOR THE MERGER AND BOARD OF
DIRECTORS' RECOMMENDATION."
Opinion of Business Valuation Services, Inc.
BVS has delivered its written opinion to the Board of
Directors, dated May 31, 2000, to the effect that, on the date of
such opinion, and based on assumptions made, procedures followed,
matters considered and limitations on the review undertaken, as set
forth in the opinion, the Merger Consideration pursuant to the
Merger Agreement was fair from a financial point of view to the
Stockholders. See "PROPOSAL ONE--THE MERGER--OPINION OF BUSINESS
VALUATION SERVICES, INC." BVS' written opinion dated May 31, 2000
is attached as Appendix B to this Proxy Statement. The
Stockholders are urged to, and should, read the BVS opinion
carefully and in its entirety.
Conflicts of Interest and Interests of Certain Persons in the
Merger
In considering the recommendations of the Board of Directors
that the Stockholders approve and adopt the Merger Agreement,
Stockholders should be aware that certain officers and directors of
the Company have certain interests in the Merger that are different
from, or in addition to, the interests of the Stockholders. In
particular, Stockholders should be aware that Norman Melnick,
Chairman of the Company, and David Melnick, President and Chief
Executive Officer and a director of the Company, and Richard S.
Kalin, Secretary and a director of the Company, who each
participated extensively in the negotiations with JAKKS with
respect to the terms and conditions of the Merger Agreement, will
be compensated by JAKKS following consummation of the Merger
pursuant to a Supplemental Services Agreement or a Consulting
Services Agreement. As a condition to the Merger, JAKKS (i) will
enter into the Supplemental Services Agreements with each of
Messrs. Norman Melnick and David Melnick providing for the payment
to them of an aggregate of $125,000 and $216,000, respectively, for
various consulting services and a covenant not to compete with
JAKKS, and (ii) will enter into the Consulting Services Agreement
with Mr. Kalin providing for the payment of $109,000 for various
consulting services. In addition, Options which have been granted
to them will be cashed out in connection with the consummation of
the Merger. The Melnick Family and Mr. Kalin and his wife
beneficially own an aggregate of 3,823,465 shares of Common Stock,
representing approximately 30.4% of the outstanding shares of
Common Stock on the Record Date. See "PROPOSAL ONE--THE MERGER--THE MERGER
AGREEMENT--Options." In addition to any compensation
Messrs. Norman Melnick, David Melnick and Kalin are to receive for
their services as employees or consultants under their respective
agreements, pursuant to the Merger Agreement, the Melnick Family
and Mr. Kalin and his wife will receive approximately an aggregate
of $5,400,000 for their shares of Common Stock and cancellation of
their Options. In addition, it is expected that Messrs. Norman
Melnick and David Melnick will each continue at the Effective Date
(defined below) as employees of the Company at their current
salaries of $150,000 per year. See "PROPOSAL ONE--THE MERGER
CONFLICTS OF INTEREST AND INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
Financing of the Merger
At the closing of the Merger, JAKKS or Merger Sub expects to
pay an aggregate purchase price of approximately $18,000,000 to the
holders of shares of Common Stock and the holders of Options,
assuming no Stockholders exercise the dissenter's statutory
appraisal rights explained in this document. In addition, the
parties anticipate that JAKKS or Merger Sub will require
approximately $500,000 to pay other expenses and costs relating to
the Merger, and up to $13,000,000 to refinance or repay
indebtedness of the Company and to finance other general corporate
purposes for a total cost of $31,500,000. JAKKS has represented to
the Company that it has the cash it needs to complete the Merger
and related transactions. See "PROPOSAL ONE--THE MERGER--FINANCING
OF THE MERGER."
Certain Tax Consequences to Stockholders
The receipt of cash in exchange for Common Stock pursuant to
the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount
equal to the difference between such Stockholder's adjusted tax
basis in such Stockholder's Common Stock and the Merger
Consideration received by such Stockholder. Such gain or loss will
be a capital gain or loss if such Common Stock is held as a capital
asset and will be long-term capital gain or loss if, at the
effectiveness of the Merger, such Common Stock has been held for
more than one year. EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER
OR ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR OTHER
TAX LAWS. See "PROPOSAL ONE--THE MERGER--CERTAIN TAX CONSEQUENCES
TO STOCKHOLDERS."
Options
Concurrently with the effectiveness of the Merger or as soon
thereafter as is practicable, each Option issued, awarded or
granted pursuant to the Plans or otherwise to purchase shares of
Common Stock will be canceled by the Company, and each holder of a
canceled Option will be entitled to receive from JAKKS in
consideration for the cancellation of such Option an amount in cash
(less applicable withholding taxes) equal to the product of (i) the
number of shares of Common Stock previously subject to such Option,
and (ii) the excess, if any, of the Merger Consideration over the
exercise price per share of Common Stock previously subject to such
Option. See "PROPOSAL ONE--THE MERGER--THE MERGER AGREEMENT--Options."
Conditions to the Merger
The consummation of the Merger is subject to a number of
conditions, including, but not limited to, the following:
(a) the approval of the Merger Agreement by the
requisite vote of the Stockholders shall have been obtained and be
in effect;
(b) the waiting period under the Hart-Scott-Rodino
Antitrust improvements Act of 1976, as amended (the "HSR Act"),
shall have expired or been terminated;
(c) there shall have been no law enacted or injunction
or other order entered which (i) makes illegal or prohibits
continuation of the Merger or (ii) would have a Material Adverse
Effect (defined below);
(d) except for filing of the Certificate of Merger in
accordance with the DGCL, each consent of or notice to any
governmental authority required for the consummation of the Merger
and for the Merger Sub to conduct the Company's business, including
without limitation any order or other action by the New Jersey
Department of Environmental Protection and Energy ("NJDEPE") under
the New Jersey Environmental Cleanup Responsibility Act ("ECRA"),
shall have been obtained or given; and
(e) Messrs. Norman Melnick and David Melnick shall have
entered into a Supplemental Services Agreement and Mr. Kalin shall
have entered into the Consulting Services Agreement.
See "PROPOSAL ONE--THE MERGER--THE MERGER AGREEMENT--Conditions to
Obligations of Parent and Merger Sub," "--Conditions
to Obligations of the Company" and "--Conditions to Obligations of
Each Party."
Termination of Merger Agreement
The Merger Agreement may be terminated at any time prior to
the effectiveness of the Merger whether before or after the
approval by the Stockholders if any of the following occurs:
(a) by the mutual agreement of JAKKS and the Company;
(b) if the Merger is not consummated on or before
November 30, 2000, or such later date to which JAKKS and the
Company may agree upon written notice to such effect to the other;
(c) by JAKKS or the Company at any time after the
Meeting if the requisite approval of the Stockholders is not
obtained at the Meeting;
(d) by JAKKS, if (i) there shall be any material breach
of any representation or warranty by, or any failure to perform any
material covenant or other obligation of, the Company, and, unless
such breach or failure is incapable of being cured within a period
of 30 days after the giving of written notice thereof to the
breaching or defaulting party, JAKKS gives such notice to such
party and such breach or failure shall not be cured within 30 days
of the giving of such notice, upon written notice of termination to
the Company; or (ii) an Alternative Action (defined below in
"PROPOSAL ONE -- THE MERGER -- THE MERGER AGREEMENT --
Termination") shall have been taken; or
(e) by the Company, if (i) there shall be any material
breach of any representation or warranty by, or any failure to
perform any material covenant or other obligation of, JAKKS or
Merger Sub, and, unless such breach or failure is incapable of
being cured within a period of 30 days after the giving of written
notice thereof to the breaching or defaulting party, the Company
gives such notice to such party and such breach or failure shall
not be cured within 30 days of the giving of such notice, upon
written notice of termination to JAKKS; or (ii) an Alternative
Action shall have been taken and the Termination Fee is paid.
Termination Fees
The Company has agreed to pay JAKKS a termination fee of
$1,000,000 in the event of a termination of the Merger Agreement
under certain circumstances. See "PROPOSAL ONE--THE MERGER--THE
MERGER AGREEMENT--Termination Fees."
Regulatory Matters
Under the HSR Act, and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be
consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust
Division of the Department of Justice and specified waiting period
requirements have been satisfied. The Company and JAKKS filed
their respective notification and report forms under the HSR Act on
June 9, 2000 and jointly requested early termination of the waiting
period. See "PROPOSAL ONE--THE MERGER--REGULATORY MATTERS."
Price Range of Common Stock
The Common Stock is traded in the over-the-counter market on
the Nasdaq National Market System under the symbol "PNTK". During
the period between October 1, 1997 and May 22, 2000, the highest
bid price per share was $3.125 and the lowest bid price per share
was $.59375. On May 22, 2000, the last full trading day prior to
the announcement of the execution of the Merger Agreement, the
closing sales price per share of Common Stock as reported by Nasdaq
was $.9375. The highest bid price per share on such date was
$1.0625, and the lowest bid price per share on such date was
$.8125. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR
THE COMMON STOCK. See "PROPOSAL ONE--THE MERGER--PRICE RANGE OF
COMMON STOCK; DIVIDENDS."
Appraisal Rights
Stockholders of the Company are entitled to statutory
appraisal rights under Section 262. The text of Section 262 is
reprinted in its entirety as Appendix C to this Proxy Statement.
Under Section 262, Stockholders who follow the procedures set
forth in Section 262 and who have not voted in favor of the Merger
will be entitled to have their shares of Common Stock appraised by
the Court of Chancery of the State of Delaware and to receive,
instead of the Merger Consideration, an amount determined by such
court to be the "fair value" of their shares of Common Stock,
exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of
interest. This right is known as an "appraisal right." If a
Stockholder wishes to exercise his or her statutory appraisal
right, he or she must not vote in favor of the Merger and must meet
certain other conditions. These conditions are set out in full in
Appendix C. Delaware law requires that the Company notify
Stockholders not less than 20 days prior to the Meeting that they
have a right of appraisal and provide Stockholders with a copy of
Section 262. This Proxy Statement constitutes that notice. If a
Stockholder does not follow the procedures set out below and in
Appendix C, he or she will lose his or her statutory appraisal
right and if the Merger occurs, will receive the Merger
Consideration in respect of his or her shares of Common Stock. See
"PROPOSAL ONE--THE MERGER--APPRAISAL RIGHTS."
Certain Effects of the Merger
If the Merger is consummated, holders of shares of Common
Stock will not have an opportunity to continue their common equity
interest in the Company as an ongoing operation and therefore will
not have the opportunity to share in its future earnings and
potential growth, if any. If the Merger is consummated, the
Company plans to take all necessary actions (i) to de-register
shares of its Common Stock under the Exchange Act and (ii) to
terminate inclusion of the shares of its Common Stock in Nasdaq.
See "PROPOSAL ONE--THE MERGER--CERTAIN EFFECTS OF THE MERGER."
SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial
information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited consolidated financial
statements contained in the Company's Annual Reports on Form 10-K
for the fiscal years ended September 30, 1999, 1998, 1997 and 1996
(the "Form 10-Ks"), and the unaudited consolidated financial
statements contained in the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2000 (the "Form 10-Q").
More comprehensive financial information is included in the Form
10-Ks, the Form 10-Q and other documents filed by the Company with
the Commission. The financial information that follows is
qualified in its entirety by reference to such reports and other
documents, including the financial statements and related notes
contained therein. Such reports and other documents may be
examined and copies may be obtained from the offices of the
Commission in the manner set forth above under "AVAILABLE
INFORMATION."
OPERATIONS DATA
($000 OMITTED, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
MARCH 31, FISCAL YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996 1995
Net sales $20,781 $60,949 $57,485 $60,806 $61,679 $54,892
Net (loss) income (2,596) (334) (3,504) 600 (5,317) (1,059)
Basic and diluted net
(loss) income per share (.21) ($.03) ($.28) $.05 ($.51) ($.10)
Weighted average number
of shares outstanding 12,571 12,570 12,537 12,297 10,497 10,661
Dividends - - - - - -
BALANCE SHEET DATA
($000S OMITTED)
March 31, SEPTEMBER 30,
2000 1999 1998 1997 1996 1995
Working capital $ 9,886 $11,971 $12,883 $15,452 $13,676 $16,928
Total assets 30,519 36,094 41,583 42,503 48,189 44,518
Notes and bankers'
acceptances payable
(included in current
liabilities) 11,695 13,882 18,618 17,238 22,841 17,011
Long-term debt 1,400 1,500 2,000 2,300 2,300 -
Shareholders' equity 11,217 13,985 14,758 17,591 16,028 21,345
CERTAIN INFORMATION REGARDING THE COMPANY
Information regarding the Company's (i) business, (ii)
properties, (iii) legal proceedings, (iv) financial statements for
the three fiscal years ended September 30, 1999, and the six months
ended March 31, 2000, and (iv) management's discussion and analysis
of such financial statements, are contained in Appendix D to this
Proxy Statement, which reproduces the Company's Annual Report on
Form 10-K for Fiscal 1999, and in Appendix E to this Proxy
Statement, which reproduces the Form 10-Q for the fiscal quarter
ended March 31, 2000.
THE MEETING
THE MEETING DATE; LOCATION; SOLICITATION
Each copy of this Proxy Statement mailed to a Stockholder is
accompanied by a form of proxy solicited by the Board of Directors
for use at the Meeting. The Meeting will be held at the offices of
Camhy, 1740 Broadway, Sixteenth Floor, New York, NY 10019-4315, on
July __, 2000 at 10:00 A.M. local time. All expenses associated
with soliciting proxies will be borne by the Company.
MATTERS CONSIDERED
At the Meeting, Stockholders will consider and vote upon the
following matters:
1. A proposal to approve and adopt the Merger Agreement.
See "PROPOSAL ONE--THE MERGER."
2. A proposal granting the Board of Directors discretionary
authority to postpone or adjourn the Meeting in order to
solicit additional votes to approve the matter set forth
in proposal one.
3. Such other matters as may properly come before the
Meeting.
The Board of Directors has carefully considered the terms of
the proposed Merger and believes that the Merger, the Merger
Agreement and the transactions contemplated thereby are fair to and
in the best interests of the Company and its Stockholders. THE
BOARD OF DIRECTORS, BY THE UNANIMOUS VOTE OF ALL DIRECTORS,
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "PROPOSAL
ONE--THE MERGER--REASONS FOR THE MERGER AND BOARD OF DIRECTORS'
RECOMMENDATION."
VOTING; REVOCATION OF PROXIES
Voting by those present at the Meeting will be by ballot.
Only holders of record on the Record Date or their duly authorized
proxies will be entitled to cast ballots at the Meeting. Proxy
holders who wish to vote by ballot at the Meeting must provide the
Secretary of the Company with evidence of their authority to act at
least 30 minutes prior to the commencement of the Meeting.
If a proxy in the accompanying form is properly executed and
submitted to the Company no later than 30 minutes prior to the
commencement of the Meeting and is not revoked prior to the time it
is exercised, the shares represented by the proxy will be voted in
accordance with the directions specified therein for the matters
listed on the proxy card. Unless the proxy specifies that it is to
be voted against or that voting authority is to be withheld on a
proposal, proxies will be voted FOR approval of Proposal One
regarding the approval and adoption of the Merger Agreement, FOR
approval of Proposal Two regarding granting the Board of Directors
discretionary authority to postpone or adjourn the Meeting in order
to solicit additional votes to approve the matter set forth in
Proposal One, and otherwise in the discretion of the proxy holders
as to any other matter that may come before the Meeting. See
"PROPOSAL ONE--THE MERGER."
The persons named as proxies may propose and vote for one or
more adjournments or postponements of the Meeting; provided,
however, that no proxy that is voted against the proposal to
approve and adopt the Merger Agreement will be voted in favor of
any such adjournment or postponement unless specific authority is
granted to vote in favor of such adjournment or postponement.
Any Stockholder who is entitled to vote at the Meeting and who
has given a proxy has the power to revoke such proxy at any time
before it is voted by (i) filing a written revocation with Richard
S. Kalin, Secretary of the Company, at 195 Carter Drive, Edison,
New Jersey 08817, (ii) executing a later-dated proxy relating to
the same shares and delivering it to the Secretary of the Company
at the address set forth above or, if on the day of the Meeting, at
the Meeting no later than 30 minutes prior to the commencement of
the Meeting, or (iii) appearing at the Meeting and voting in
person. Attendance at the Meeting will not in and of itself
constitute the revocation of a proxy.
The inspectors of the Meeting will canvass the Stockholders
present at the Meeting, count their votes and count the votes
represented by proxies which have been submitted to the Secretary
of the Company no later than 30 minutes prior to the commencement
of the Meeting. Abstentions and broker non-votes will be counted
for purposes of determining the number of shares represented at the
Meeting, but will be deemed not to have voted on any proposal.
Broker non-votes occur when a broker nominee (which has voted on
one or more matters at the Meeting) does not vote on one or more
other matters at the Meeting because it has not received
instructions to so vote from the beneficial owner of the shares and
does not have discretionary authority to vote such shares. Because
approval of the Merger is determined by reference to the number of
shares of Common Stock outstanding on the Record Date rather than
on the number of shares of Common Stock voted at the Meeting, such
abstentions and non-votes are equivalent to a vote against the
approval and adoption of the Merger Agreement.
RECORD DATE; OUTSTANDING SECURITIES; QUORUM; VOTES REQUIRED
The Company has fixed the close of business on June 6, 2000 as
the Record Date for determining holders of outstanding shares of
Common Stock who are entitled to notice of and to vote at the
Meeting. As of the Record Date, there were 12,571,258 shares of
Common Stock issued and outstanding, each of which shares is
entitled to one vote.
The holders of a majority of the outstanding shares of Common
Stock, which are present in person or by proxy at the Meeting, will
constitute a quorum. Any shares held in treasury or by a
subsidiary of the Company are not considered to be outstanding for
the purposes of determining a quorum. The approval and adoption of
the Merger Agreement requires the affirmative vote of the holders
of a majority of the outstanding shares of Common Stock.
Accordingly, failure to vote your shares is effectively a vote
against the Merger.
The Stockholders have dissenters' statutory appraisal rights
in connection with the proposal to approve and adopt the Merger
Agreement. See "PROPOSAL ONE--THE MERGER--APPRAISAL RIGHTS."
PROPOSAL ONE--THE MERGER
GENERAL
The Board of Directors has carefully considered and approved
the Merger and the Merger Agreement as being in the best interests
of the Company and the Stockholders and has, by the unanimous vote
of all directors, recommended that the Stockholders vote "FOR" the
approval and adoption of the Merger Agreement at the Meeting. This
section of the Proxy Statement describes the proposed Merger, the
Merger Agreement and certain other related matters.
Structure
Pursuant to and subject to the terms and conditions of the
Merger Agreement, and in accordance with applicable provisions of
the DGCL, at the Effective Time (as defined below), Merger Sub will
merge with and into the Company, whereupon the separate corporate
existence of Merger Sub will cease and the Company will continue as
the surviving corporation in the Merger (the "Surviving
Corporation") and as a wholly-owned subsidiary of JAKKS.
Merger Consideration
At the Effective Time, by virtue of the Merger and without any
action on the part of JAKKS, Merger Sub, the Company, the
Stockholders or holders of any shares of capital stock of Merger
Sub, each share of Common Stock that is issued and outstanding
prior to the Effective Time (other than shares of Common Stock
owned by JAKKS or Merger Sub or by any direct or indirect
subsidiary of JAKKS or Merger Sub or which are held in the treasury
of the Company or by any of its subsidiaries, all of which will be
canceled, or which are held by dissenting Stockholders) will be
canceled and converted into the right to receive $1.40 in cash,
without interest thereon (the "Merger Consideration").
Effective Time
Pursuant to the Merger Agreement, the Merger will be
consummated through the filing of a certificate of merger (the
"Certificate of Merger"), in accordance with the requirements of
the DGCL, as promptly as practicable after satisfaction or waiver
(to the extent permitted by the Merger Agreement) of all conditions
to each party's obligations to consummate the Merger contained in
the Merger Agreement. The Merger will be effective at such time as
the Certificate of Merger is duly filed with the Secretary of State
of the State of Delaware in accordance with the DGCL or at such
later time agreed to by the parties as specified in the Certificate
of Merger (the "Effective Time"). The date on which the Effective
Time will occur is referred to herein as the "Effective Date."
Parties
The Company. The Company is a manufacturer and marketer of
pens, markers, pencils, other writing instruments and activity
kits, primarily to major mass market retailers located in the
United States, under the "Pentech" name or licensed trademark
brands. The Company was formed in April 1984 to design and market
writing and drawing instruments and other stationery products. In
November 1989, the Company formed a wholly-owned subsidiary,
Sawdust Pencil Co. ("Sawdust"), to manufacture certain of the
Company's writing instruments. The Company and its wholly-owned
subsidiaries are collectively referred to herein as the "Company."
Consolidated revenues for the Company for Fiscal 1999 were
approximately $60,949,000 from which the Company incurred a net
loss of $334,000, or $.03 per share. Consolidated revenues for the
six months ended March 31, 2000 were $20,781,000 from which the
Company incurred a net loss of $2,596,000, or $.21 per share. The
principal executive offices of the Company are located at 195
Carter Drive, Edison, New Jersey 08817, and its telephone number is
(732) 287-6640.
JAKKS and Merger Sub. The principal executive offices of
JAKKS and Merger Sub are located at 22761 Pacific Coast Highway,
Malibu, California 90265-5064, and their telephone number is (310)
456-7799.
JAKKS is a multi-line, multi-brand toy company that designs,
develops, produces and markets toys and related products. JAKKS'
principal products are (1) action figures and accessories featuring
licensed characters, principally from the World Wrestling
Federation, (2) Flying Colors molded plastic activity sets, clay
compound playsets and lunch boxes, (3) Road Champs die-cast
collectible and toy vehicles, (4) Remco toy vehicles, role-play
toys and accessories, (5) Child Guidance infant and pre-school
electronic toys, toy foam puzzle mats and blocks, activity sets and
outdoor products, and (6) fashion and mini dolls and related
accessories. JAKKS is also a party to a joint venture that, under
an exclusive license, develops, manufactures and markets video
games based on World Wrestling Federation characters and themes.
JAKKS focuses its business on evergreen brands, which are well-recognized
trademarks or corporate, trade or brand names with long
product histories, and relatively simple and inexpensive toy lines.
JAKKS sells its products through its own in-house sales force and
a network of independent commissioned sales representatives
primarily to major U.S. toy and mass-market retail store chains,
department stores, toy specialty stores, wholesalers, hobby shops
and corporate accounts. Merger Sub is a wholly-owned subsidiary of
JAKKS that was formed by JAKKS in May 1999, but has not engaged in
any business except for actions taken to effect the Merger.
BACKGROUND OF THE MERGER
In late October 1999, Mr. Dan Topper of Goodrich Capital
International (United States) L.P. ("Goodrich") contacted Mr.
Norman Melnick to inquire whether the Company would have any
interest in a transaction with JAKKS. After receiving a positive
response, Mr. Topper contacted Mr. Jack Friedman, Chairman and
Chief Executive Officer of JAKKS, by letter to see if JAKKS would
have any interest in a transaction with the Company.
On December 18, 1999, the Company formally engaged Goodrich to
act as its investment banker in connection with a transaction with
JAKKS. On January 3, 2000, Mr. William Visone, Executive Vice
President - Strategic Planning and Chief Financial Officer of the
Company, wrote to Mr. Friedman answering some general questions Mr.
Friedman had about the Company. He explained various aspects of
the Company's plans to increase its gross profit margins by the
establishment of a joint venture in China to manufacture products
for the Company and by reducing its manufacturing operations
conducted in the United States.
On February 8, 2000, Messrs. Topper, Norman Melnick, David
Melnick, Visone, Friedman, Stephen G. Berman, President and Chief
Operating Officer of JAKKS, and Mike Bianco, Vice President of
JAKKS, met in Goodrich's New York offices for an exploratory
meeting to introduce the parties and describe their respective
businesses.
On February 10, 2000, at a meeting of the Board of Directors,
the idea of a potential transaction with JAKKS was briefly
discussed. The Board authorized Messrs. Norman Melnick, David
Melnick and Visone to proceed having preliminary discussions with
representatives of JAKKS regarding a potential transaction. It
also ratified the Company's engagement of Goodrich as the Company's
investment banker in connection with a transaction with JAKKS.
On February 14, 2000, a second exploratory meeting was held
with the same participants as the February 8, 2000 meeting. At
that meeting, a possible business combination was proposed.
Following this meeting, Messrs. Visone and Friedman had several
telephone conversations further discussing the possibility of a
business combination.
On February 29, 2000, Messrs. David Melnick and Visone visited
with Messrs. Friedman, Berman, Joel M. Bennett, Chief Financial
Officer of JAKKS, and Bianco at JAKKS' main offices in Malibu,
California, to discuss their respective businesses.
On March 14, 2000, the Company and JAKKS entered into a
standstill letter granting JAKKS 14 days to conduct its due
diligence and make a formal proposal to the Company during which
period the Company agreed it would not seek a proposal from a third
party. On March 20, 2000, Messrs. Bennett and Jack McGrath, Vice
President-Operations of JAKKS, met at the offices of the Company to
conduct on-site due diligence of the Company on behalf of JAKKS.
On April 26, 2000, Mr. Murray Skala, counsel for and a
director of JAKKS, contacted Mr. Kalin, counsel, Secretary and a
director of the Company, to discuss a formal proposal for JAKKS to
enter into a business combination with the Company. Messrs. Skala
and Kalin met on May 1, 2000, to further discuss such a proposal.
During the balance of the first week of May 2000, representatives
of JAKKS, the Company and Goodrich had various conversations
leading to JAKKS presenting the Company with the basis of a
proposal for a wholly-owned subsidiary of JAKKS to merge with and
into the Company for a merger consideration of $1.40 per share of
Common Stock. As a result of such conversations, a preliminary
understanding was reached, and JAKKS directed its counsel to draft
a merger agreement. From May 8 through May 22, 2000, the parties
and their advisors negotiated the Merger Agreement and the related
documents and prepared the applicable schedules and exhibits.
During April 2000, the Company, anticipating that it may
complete a business combination with JAKKS, identified BVS as a
reputable independent business valuation and financial consulting
firm.
On May 12, 2000, as the negotiations between the Company and
JAKKS were nearing completion, the Company formally engaged BVS to
render an opinion with respect to the value of the aggregate
consideration to be received in the Merger, from a financial point
of view, to the holders of the outstanding equity interests of the
Company.
On May 22, 2000 the Board of Directors met in New York with
representatives of Camhy, its outside counsel, to discuss the
Merger. At that meeting, a detailed presentation was given by
management. Counsel reported on the significant terms of the
transaction, including the structure, the non-solicitation
provision, the conditions to closing, the termination fee, the
Voting Agreement and the applicable regulatory requirements.
Counsel also explained that since the fairness opinion was not yet
received, the Merger Agreement provided that the Company had the
right to terminate the Merger Agreement if the Company did not
receive before July 31, 2000 a fairness opinion to the effect that
the Merger Consideration is, as of May 22, 2000, fair from a
financial point of view to the holders of outstanding shares of
Common Stock (the "Fairness Opinion"). Counsel also reported on
the results of JAKKS legal due diligence. Counsel advised the
directors as to their duties in considering a transaction such as
the Merger. Counsel also highlighted the various termination
provisions including the Board of Directors "fiduciary out".
Following this presentation, the Board of Directors approved the
Merger Agreement and the Merger Agreement was executed later that
day.
On May 31, 2000, the Board of Directors again met in New York.
At this meeting, in addition to representatives of Camhy, the Board
met with Mr. David Fuller, a principal of BVS. Counsel for the
Company reiterated to the Board of Directors that while the Company
had entered into the Merger Agreement on May 22, 2000, the Merger
Agreement was subject to the receipt by the Company by July 31,
2000 of a Fairness Opinion in form acceptable to the Board of
Directors. Counsel also advised the directors as to their duties
in considering whether to accept the Fairness Opinion.
At this meeting, Mr. Fuller delivered written copies of the
Fairness Opinion to the members of the Board of Directors. He
reviewed with the Board of Directors his background and
qualifications. He then summarized BVS' analytical process which
culminated in its opinion that, as of May 31, 2000, the aggregate
consideration to be received in the Merger was fair from a
financial point of view, to the holders of the outstanding equity
interests in the Company. After discussion amongst the Board of
Directors and its advisors, the Board of Directors accepted the
Fairness Opinion at its May 31, 2000 Meeting. See "PROPOSAL ONE--THE
MERGER--OPINION OF BUSINESS VALUATION SERVICES, INC." The
Board of Directors has given unqualified approval to the Merger
Agreement.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes that the terms of the Merger
with JAKKS are fair from a financial point of view to, and in the
best interest of, the Stockholders. The Board of Directors has
unanimously approved the Merger, the Merger Agreement and the grant
of discretionary authority to the Board of Directors to postpone or
adjourn the Meeting.
In reaching its determination to approve the Merger Agreement
and the transactions contemplated by it, the Board of Directors
considered the information presented to it by its management and
its professional advisors. The principal factors considered by the
Board of Directors are summarized below:
- Structure of the Merger; Terms of the Merger Agreement.
The Board of Directors considered the terms of the Merger
Agreement and its legal, financial and tax implications,
including the requirement that the Merger be submitted to
a vote of the Stockholders and the Board of Directors'
inability to terminate the Merger Agreement other than to
accept a superior proposal. It also considered the
Voting Agreement entered into by the Melnick Family and
Mr. Kalin and his wife;
- Merger Consideration. The Board of Directors considered
the amount of Merger Consideration to be received by the
Stockholders in the Merger, the premium over market
represented thereby, and the volatility of the market
price of the Common Stock on Nasdaq;
- Continuing Business Risks. The Board of Directors
considered the risks associated with a continuation of
the Company's strategic plan or a variation thereof and
other uncertainties with respect to the Company's ability
to achieve and maintain substantial profitability in the
future, including the on-going consolidation of the
writing instrument industry, intensifying competition,
deficiency in the Company's management information
systems, the need for additional capital to finance
expansion, and the Company's recent unsatisfactory
results of operations;
- Recent Financial Results. The Board of Directors
considered the Company's results of operations for the
six months ended March 31, 2000 and management's
projection with respect to the profitability of the
Company during the near and longer term;
- Limited Liquidity of Common Stock. The Board of
Directors considered the relative lack of liquidity and
low trading volume of the Common Stock and the possible
difficulty in maintaining inclusion of the Common Stock
on Nasdaq which requires the Common Stock to maintain a
trading price of at least $1.00, and the further decline
in liquidity that failure to remain included in Nasdaq
could cause.
- Limited Banking Resources. The Board of Directors
considered the limited availability under the Company's
current line of credit, the existence of past defaults
and the prospects for future defaults under this line of
credit requiring modification of covenants contained in
the line of credit and the limited access to other
sources of capital (such as public or private equity or
debt, strategic alliances or other financing plans); and
- Opinion of Financial Advisor. The Board of Directors
also considered the opinion of BVS, the Company's
financial advisor in the Merger, which delivered its
written opinion to the Board of Directors, dated May 31,
2000, to the effect that, as of the date of such opinion
and based upon and subject to the assumptions,
limitations and qualifications set forth therein, the
consideration to be issued in the Merger was fair, from
a financial point of view, to the holders of the
outstanding equity interests in the Company;
- Counterveiling Considerations. The Board of Directors
also considered certain factors which may be
characterized as counterveiling considerations,
including:
- The possibility that a public sale or auction
process might have resulted in a higher per share
price than a Merger Consideration of $1.40 per
share (which was significantly offset by the risk
that the conduct of such a public sale or auction
could have materially and adversely affected the
Company's continued operations);
- The fact that the Stockholders will have no equity
interest in the combined entity and therefor will
not benefit from the potential synergies of the
Merger; and
- The fact that the Merger will result in a taxable
transaction to the Stockholders.
The foregoing discussion of the information and factors
considered by the Board of Directors is not intended to be
exhaustive but is believed to include all material factors
considered. In reaching its determination to approve the Merger
Agreement and the transactions contemplated by it, the Board of
Directors did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given
differing weights to differing factors.
FOR THE REASONS DESCRIBED ABOVE, AND TAKING INTO CONSIDERATION
THE INFORMATION AND FACTORS SET FORTH ABOVE, THE BOARD OF
DIRECTORS, BY THE UNANIMOUS VOTE OF ALL DIRECTORS, APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF BUSINESS VALUATION SERVICES, INC.
To assist the Board of Directors and management in connection
with evaluating the fairness of the Merger Consideration, the
Company retained BVS to render an opinion as to the fairness from
a financial point of view of the Merger Consideration.
The Company selected BVS for this purpose based on its
qualifications and reputation as a nationally recognized appraisal
and valuation consulting firm, advising and providing valuation
services to clients in connection with a wide range of
transactions, litigation proceedings and tax matters. BVS has had
no material prior relationship with the Company or any of its
respective affiliates. BVS has received two minor engagements from
JAKKS on unrelated matters and rendered a fairness opinion in
connection with a transaction involving another client of a law
firm engaged by JAKKS. BVS does not believe these activities
result in any conflict of interest. As compensation for its
services, the Company has agreed to pay BVS a fee of $25,000, and
to reimburse it for expenses in the amount not expected to exceed
$5,000. No portion of BVS's compensation was contingent upon the
results of its valuation analysis, its opinion, or the successful
completion of the Merger.
At a Special Meeting of the Company's Board of Directors on
May 31, 2000, a representative of BVS presented a detailed summary
of BVS' Fairness Opinion and the underlying analysis. BVS' opinion
assumed that the aggregate payments to be made to the Stockholders
would be approximately $18,000,000. Based on its analysis, BVS
advised the Board of Directors that in its opinion the aggregate
consideration to be received in the Merger was fair from a
financial point of view to the holders of the outstanding equity
interests of the Company. On May 31, 2000, during this meeting,
BVS delivered to the Company and the Board of Directors, written
copies of its opinion and the underlying report.
BVS' engagement was limited solely to rendering its opinion
with respect to the fairness from a financial point of view of the
Merger Consideration. The Company did not request BVS to, and BVS
did not, participate in any negotiations between the parties to the
Merger; advise the Company with respect to the determination of the
Merger Consideration or any other term or condition of the Merger
or any related transaction; formulate, assess or advise the Company
with respect to any other business plan or strategy or any other
type of transaction involving the sale of the Company or any of its
assets; or seek any alternative suitor or proposal for the sale of
the Company or any of its assets.
The full text of BVS' Fairness Opinion (excluding the exhibits
thereto), which sets forth the matters considered, the procedures
employed, the assumptions made and the limitations on its review,
is attached hereto as Appendix B. The Company urges you to read the
Fairness Opinion carefully in its entirety. BVS' FAIRNESS OPINION
WAS DIRECTED TO THE BOARD OF DIRECTORS ONLY FOR THE LIMITED
PURPOSES SPECIFIED THEREIN AND RELATES ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW. BVS' FAIRNESS
OPINION (AND THE DISCUSSION OF ITS UNDERLYING ANALYSES INCLUDED
HEREIN) DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE AN ENDORSEMENT OF
THE MERGER OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO
VOTE AT THE SPECIAL MEETING.
In arriving at its opinion, BVS (a) reviewed the terms of the
Merger Agreement, (b) reviewed certain business and historical
financial information relating to the Company, (c) reviewed certain
financial forecasts and other data provided to it by management of
the Company relating to the businesses and prospects of the
Company, (d) conducted discussions with members of the senior
management of the Company with respect to the businesses and
prospects of the Company, (e) reviewed publicly available financial
and stock market data with respect to certain other companies in
lines of business it believed to be generally comparable to the
Company's, (f) reviewed the terms of certain recent acquisition
transactions, including business combinations, which it believed to
be generally comparable to the Merger, (g) reviewed current market
conditions, including the markets for securities comparable to
those of the Company, and (h) conducted such other financial
studies, analyses and investigations, and considered such other
information as it deemed necessary or appropriate. BVS relied on
the accuracy and completeness of the financial and other
information regarding the Company provided to it and did not
independently verify any such information. BVS assumed that the
financial forecasts presented to it by the Company had been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as to
the Company's future financial performance. BVS did not make any
independent evaluation or appraisal of any of the Company's assets
or liabilities (contingent or otherwise), and its opinion was based
on economic, monetary and market conditions existing on the date of
its opinion.
In connection with its opinion, BVS performed a variety of
financial and comparative analyses, including those described
below. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those
methods to the particular circumstances. Therefore, such an opinion
is not necessarily susceptible to summary description.
Furthermore, in arriving at its opinion, BVS did not attribute any
particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Accordingly, BVS believes
that its analyses must be considered as a whole and that
considering any portion of such analyses and the factors
considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying
the preparation of the Fairness Opinion. In performing its
analyses, BVS made numerous assumptions with respect to industry
performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. Any
estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than such
estimates. Any theoretical or implied values derived from these
analyses are not necessarily indicative of actual fair market
values, which may be, significantly more or less favorable than as
set forth therein. In addition, BVS did not conduct an appraisal
of any assets of the Company, and its analyses relating to the
value of businesses do not purport to be appraisals or to reflect
the prices at which the Company's businesses or assets may actually
be sold.
BVS' opinion and related financial analyses were only one of
several factors considered by the Board of Directors in its
evaluation of the Merger and should not be considered as
determinative of the Board of Director's decision to approve and
recommend the Merger.
The following is a summary of the analyses conducted by BVS as
a basis for its opinion of the fairness of the Merger Consideration
from a financial point of view, and does not purport to be a
complete description of such analyses.
Income Approach
The income approach involves determining the present worth of
anticipated future net cash flows generated by a business. BVS
employed a discounted cash flow analysis, which is based on the
premise that the value of the business enterprise is the value of
the future economic income to be derived by the owners of the
business, and involves an analysis of revenues, expenses,
depreciation, capital spending and residual value. The net cash
flows are forecast for an appropriate period, based on various
factors influencing revenues, expenses and capital investment, and
then discounted to present value using an appropriate discount
rate. BVS determined that the discounted cash flow analysis
implied a control value of the Company of between $15 and $18
million.
Public Market Analysis
This approach, involves identifying and analyzing historical
financial data relating to comparable securities in the public
markets in order to determine the relationships among certain
operating and financial ratios and applying such ratios to
determine the implied market value of the Company. BVS conducted
an historical financial analysis and pricing study of six companies
(including the Company) in the writing instrument and art supply
markets and derived market minority interest multiples and
controlling interest multiples for the Company as follows:
Market Minority Interest
Multiplies Implied by Implied Controlling
Actual Stock Price Interest Multiple
Price/Revenue ...... .39 .51(1)
Price/EBITDA........ 24.73 9.0 (1)
Price/EBIT.......... NMF 10.4 (1)
(1) Based on updated FY2000 projections furnished to BVS by the
Company.
Control Premium Approach
This approach involves a determination of the premium that an
acquiror might be willing to pay over the public market price to
achieve control of the Company. Since the public market price of
securities reflects the value of such security as held by minority
interests that lack the ability to control the management or
operation of the Company, a potential acquiror typically would be
willing to pay a price in excess of the public market price for the
control of the Company gained through the acquisition of all or a
majority of the outstanding securities. BVS performed the following
procedures to determine the range of the control premium that might
apply in the Merger.
(a) BVS analyzed the historic market price and volatility of
the Common Stock; and
(b) BVS compared the proposed acquisition premium to be paid
by JAKKS in the Merger to the average premiums paid for (i) all
acquisitions of public companies in 1999; and (ii) acquisitions of
companies in the miscellaneous manufacturing industry in 1999.
Based on these procedures, BVS concluded that the proposed
premium in the Merger exceeds the premiums paid in the other
classes of transactions analyzed.
Average Premium Two Week Four Week
All acquisitions of public
companies in 1999........................ NA 43%
Acquisitions of companies in the
miscellaneous manufacturing industry
in 1999.................................. NA 30%
Current Transaction...................... 40% 49%
CONFLICTS OF INTEREST AND INTERESTS OF CERTAIN PERSONS IN THE
MERGER
In considering the recommendation of the Board of Directors
that the Stockholders approve and adopt the Merger Agreement,
Stockholders should be aware that certain officers and directors of
the Company have certain interests in the Merger that are different
from, or in addition to, the interests of the Stockholders. In
particular, Stockholders should be aware that as a condition to the
Merger, JAKKS (i) will enter into a Supplemental Services Agreement
with each of Messrs. Norman Melnick and David Melnick providing for
the payment of an aggregate of $125,000 and $216,000, respectively,
for various consulting services and a covenant not to compete with
JAKKS, and (ii) will enter into a Consulting Services Agreement
with Mr. Kalin providing for the payment of $109,000 for various
consulting services. Messrs. Norman Melnick, David Melnick and
Kalin will be paid for their services in approximately three equal
installments, the first at the closing of the Merger, the second on
December 31, 2000 and the third on December 31, 2001. Messrs.
Norman Melnick and David Melnick are each also expected to continue
at the Effective Date as employees of the Company at an annual
salary of $150,000 per year.
Pursuant to the Supplemental Services Agreement with Mr.
Norman Melnick, JAKKS canceled and forgave any and all indebtedness
of Mr. Norman Melnick or any other person to the Company on account
of loans made by the Company to fund insurance premiums payable on
the life insurance policy of Mr. and Mrs. Norman Melnick (the
"Policy"). Mr. Norman Melnick, on behalf of himself and his wife,
agreed and acknowledged that any obligation that the Company had
with respect to the making of such loans terminated and the Company
agreed and acknowledged that Mr. Norman Melnick and his wife may
make any amendment or rider to the Policy to remove the Company as
a beneficiary entitled to receive any portion of the proceeds of
the Policy.
The Melnick Family and Mr. Kalin and his wife beneficially
own an aggregate of 3,823,465 shares of Common Stock, representing
approximately 30.4% of the outstanding shares of Common Stock on
the Record Date. In addition to any compensation Messrs. Norman
Melnick, David Melnick and Kalin are to receive for their services
as employees or consultants under their respective agreements,
pursuant to the Merger Agreement, the Melnick Family and Mr. Kalin
and his wife will receive, approximately an aggregate of $5,400,000
for their shares of Common Stock and cancellation of their Options.
Pursuant to the agreement between the Company and Goodrich,
Goodrich is entitled to a fee at the closing of the Merger equal to
1.5% of the aggregate Merger Consideration plus the bank debt
assumed upon completion of the Merger.
FINANCING OF THE MERGER
The total amount of funds required by JAKKS or Merger Sub to
pay the aggregate Merger Consideration due to Stockholders and
Option holders of the Company at the closing of the Merger,
assuming there are no dissenting Stockholders, is expected to be
approximately $18,000,000. In addition, JAKKS or Merger Sub will
require approximately $500,000 to pay other expenses and costs
relating to the transactions and up to $13,000,000 to refinance or
repay indebtedness of the Company and for other general corporate
purposes for a total cost of $31,500,000. The Company's
outstanding indebtness is expected to be refinanced or repaid.
JAKKS has represented to the Company that it has reserved
cash sufficient to pay the Merger Consideration.
CERTAIN TAX CONSEQUENCES TO STOCKHOLDERS
The following is a summary of the material United States
federal income tax consequences of the Merger to Stockholders.
The receipt of cash in exchange for Common Stock pursuant to
the Merger will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount
equal to the difference between such Stockholder's adjusted tax
basis in such Stockholder's Common Stock and the Merger
Consideration received by such Stockholder. Such gain or loss will
be a capital gain or loss if such Common Stock is held as a capital
asset and will be long-term capital gain or loss if, at the
Effective Time, such Common Stock has been held for more than one
year.
The foregoing discussion may not apply to Stockholders who
acquired their Common Stock pursuant to the exercise of employee
stock options, who are not citizens or residents of the United
States or who are otherwise subject to special tax treatment. EACH
STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
EFFECTS OF APPLICABLE, STATE, LOCAL OR OTHER TAX LAWS.
THE MERGER AGREEMENT
The description of the Merger Agreement contained in this
Proxy Statement does not purport to be complete and is qualified in
its entirely by reference to the Merger Agreement, a copy of which
is attached hereto as Appendix A.
Effective Time
Pursuant to the Merger Agreement, the closing of the Merger,
at which the Certificate of Merger will be filed in accordance with
the requirements of the DGCL, will be held on the earliest
practicable date, and in any event on or before the second business
day after the satisfaction (or waiver) of all conditions to closing
provided in the Merger Agreement (other than a condition which, by
its terms, is to be satisfied at the closing). The closing shall
be held at the offices of Feder, Kaszovitz, Isaacson, Weber, Skala
& Bass LLP, 750 Lexington Avenue, New York, NY 10022 or at such
other place or on such other date, and at such time, as the
Company, JAKKS and Merger Sub may agree.
Certificate of Incorporation and Bylaws
The Merger Agreement provides that the Certificate of
Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation unless and until amended. The Merger
Agreement further provides that the bylaws of Merger Sub will
become the bylaws of the Surviving Corporation unless and until
revoked or amended.
Directors and Officers
The two directors of Merger Sub at the Effective Time, from
and after the Effective Time, will become the directors of the
Surviving Corporation until their successors have been duly elected
or appointed and qualified or until their death, resignation or
removal in accordance with the Surviving Corporation's Certificate
of Incorporation and bylaws. The directors of Merger Sub currently
are Messrs. Friedman and Berman. At the Effective Time, all
incumbent directors of the Company shall resign. The officers of
Merger Sub at the Effective Time from and after the Effective Time,
shall become the initial officers of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of
Incorporation and bylaws. At the Effective Time, all incumbent
officers of the Company shall resign (or be removed).
Options
Concurrently with the effectiveness of the Merger, or as
soon thereafter as is practicable, each Option issued, awarded or
granted pursuant to the Plans or other stock options granted by the
Company to purchase shares of Common Stock, will be canceled by the
Company, subject to obtaining the consents, if necessary, of
directors, officers and other holders discussed below, and each
holder of a canceled Option will be entitled to receive from JAKKS
in consideration for the cancellation of such Option an amount in
cash (less applicable withholding taxes) equal to the product of
(i) the number of shares of Common Stock previously subject to such
Option and (ii) the excess, if any, of the Merger Consideration
over the exercise price per share of Common Stock previously
subject to such Option. At or prior to the closing of the Merger,
the Company will deliver to JAKKS agreements (in a form reasonably
acceptable to JAKKS) executed by each holder of an Option
acknowledging that the payment described above is being made in
full satisfaction of such individual's right under the applicable
Option.
Exchange of Certificates
The Merger Agreement provides that the exchange of shares of
Common Stock for the Merger Consideration will be effected as
follows:
(a) Prior to the Effective Time, JAKKS will designate
American Stock Transfer & Trust Company to act as paying agent (the
"Paying Agent") in effecting the exchange for the Merger
Consideration of certificates that, prior to the Effective Time,
represented shares of Common Stock (the "Certificates"). Upon the
surrender of each such Certificate, together with a properly
completed letter of transmittal, the Paying Agent will pay the
holder of such Certificate the Merger Consideration multiplied by
the number of shares of Common Stock formerly represented by such
Certificate, in exchange thereof, and such Certificate will
forthwith be canceled. Until so surrendered and exchanged, each
such Certificate (other than Certificates representing shares of
Common stock owned by JAKKS or Merger Sub or by any direct or
indirect subsidiary of JAKKS or Merger Sub or which are held in the
treasury of the Company or by any of its subsidiaries, all of which
will be canceled, or which are held by dissenting Stockholders)
will represent solely the right to receive the Merger
Consideration. No interest will be paid or accrue on the Merger
Consideration. If the Merger Consideration (or any portion
thereof) is to be delivered to any person other than the person in
whose name the Certificate surrendered in exchange therefor is
registered, it will be a condition to such exchange that the
Certificate so surrendered will be properly endorsed or otherwise
be in proper form for transfer and that the person requesting such
exchange will pay to the Paying Agent any transfer or other taxes
required by reason of the payment of the Merger Consideration to a
person other than the registered holder of the Certificate
surrendered, or will establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable.
(b) Prior to the Effective Time, JAKKS or Merger Sub will
deposit, or cause to be deposited, in trust with the Paying Agent
for the benefit of the Stockholders and the Option holders, the
aggregate Merger Consideration to which Stockholders or
Optionholders will be entitled at the Effective Time.
(c) Promptly after the Effective Time, the Paying Agent will
mail to each record holder of a Certificate a form of a letter of
transmittal and instructions for use in surrendering such
Certificates and receiving the Merger Consideration in exchange
therefor.
Representations and Warranties
The Merger Agreement includes various representations and
warranties of the parties thereto. The Merger Agreement includes
representations and warranties by the Company (except as disclosed)
as to, among other things: (i) the organization, existence and
standing of the Company; (ii) the corporate power, authority,
execution, delivery, performance and enforceability of the Merger
Agreement and the transactions contemplated thereby; (iii) the
engagement of BVS to render a Fairness Opinion; (iv) the Board of
Directors has determined that the Merger is advisable and in the
best interests of the Company and the Stockholders, approved it and
adopted resolutions recommending that the Stockholders approve the
Merger; (v) the absence of the need (except as specified) for
governmental or other filings or actions with respect to the Merger
Agreement and the transactions contemplated thereby; (vi) the
absence of pending or threatened litigation which would have a
Material Adverse Effect on the Company and the absence of any writ,
order, judgement, injunction or decree which would have a Material
Adverse Effect on the Company; (vii) the capital structure of the
Company; (viii) the organization, existence and standing of each of
the Company's subsidiaries; (ix) documents having been filed by the
Company with the Commission and the Company's financial statements
and the accuracy of information contained therein since January
1997; (x) the absence of certain changes or events since September
30, 1999 which would have a Material Adverse Effect (defined below)
on the Company; (xi) the ownership of property of the Company;
(xii) the existence of no material breaches by the Company of any
agreement to which it is a party; (xiii) that the Company's
inventory consists solely of merchandise usable or salable in the
ordinary course of its business; (xiv) that the accounts receivable
of the Company result from bona fide sales to nonaffiliates of the
Company; (xv) the existence of government approvals necessary to
operate the business; (xvi) intellectual property matters; (xvii)
the real property utilized by the Company; (xviii) the use of
hazardous materials; (xix) the filing of tax returns, payment of
taxes and other matters; (xx) the terms, existence, operations,
liabilities and compliance with applicable laws of the Company's
benefits plans and certain other matters relating to the Employee
Retirement Income Security Act of 1974, as amended; (xxi) labor and
union matters; (xxii) the existence of severance rights of any
employee or knowledge of any employee intending to terminate his or
her employment relationship with the Company; (xxiii) memberships
in entertainment facilities or automobile leases; (xxiv) the sales
or purchases from the Company's ten largest customers and
suppliers; (xxv) insurance matters; (xxvi) the existence of no
broker other than Goodrich; and (xxvii) the accuracy of the
representations of the Company contained in the Merger Agreement.
As used in this Proxy Statement, the term "Material Adverse
Effect" means a material adverse effect in the business of the
Company, or the operations, financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
As used in this Proxy Statement, "Person" includes without
limitation a natural person, corporation, joint stock company,
limited liability company, partnership, joint venture, association,
trust, governmental authority or any group of the foregoing acting
in concert.
The Merger Agreement also includes representations and
warranties by JAKKS as to, among other things: (i) the
organization, existence and standing of JAKKS and Merger Sub; (ii)
the corporate power, authority, execution, delivery, performance
and enforceability of the Merger Agreement and the transactions
contemplated thereby; (iii) the absence of the need (except as
specified) for governmental or other filings or actions with
respect to the Merger Agreement and the transactions contemplated
thereby, the absence of pending or threatened litigation affecting
JAKKS or Merger Sub in which an unfavorable order would prohibit,
invalidate or make unlawful the Merger Agreement or carrying out
the provisions thereof or the transactions contemplated thereby;
(v) the existence of no broker engaged by JAKKS or Merger Sub; (vi)
the reservation by JAKKS of sufficient funds to pay the Merger
Consideration; and (vii) the accuracy of the representations of
JAKKS contained in the Merger Agreement or made to the Company for
use in a related document including, but not limited to, this Proxy
Statement.
Business of the Company Pending the Merger
From the date the Company executed the Merger Agreement
until the closing of the Merger, except as JAKKS may otherwise
consent (which consent may not be unreasonably withheld), the
Company has agreed with JAKKS that the Company and its subsidiaries
shall:
(a) conduct their business in the ordinary course;
(b) use commercially reasonable best effects to preserve
the business and assets of the Company and maintain their
respective relationships with customers and other Persons with
which they have material business dealings;
(c) not enter into any agreement restricting their ability
to conduct business activities;
(d) not (i) sell, lease, transfer or dispose of any material
asset of the Company other than sales of merchandise from inventory
in the ordinary course of business or the disposal of defective,
obsolete or otherwise unusable assets or (ii) terminate any
material contract except upon expiration of the term thereof as
provided therein;
(e) use commercially reasonable best efforts to maintain all
required governmental permits and consents and to comply with all
applicable orders to which the Company or its subsidiaries is
subject;
(f) use commercially reasonable best efforts to maintain in
full force and effect (or to replace on substantially equivalent
terms) all currently applicable insurance;
(g) except as required under any agreement applicable to
the Company or a subsidiary or in the ordinary course of business
consistent with its past practices, not increase the compensation
or other employment benefits payable to or for the benefit of any
employee, or enter into, adopt or modify any Plan or other
agreement, plan, commitment or arrangement to provide to any
employee or other Person any deferred compensation, retirement,
severance or other similar payment or benefit;
(h) not make any loan or advance or otherwise extend any
credit to any director or officer of the Company or a subsidiary of
the Company or any affiliate of any such director or officer;
(i) not amend the Company's Certificate of Incorporation or
Bylaws;
(j) not merge or consolidate with any other Person or
purchase or otherwise acquire any securities of, or other equity
interest or participation in, any Person (other than a subsidiary
of the Company);
(k) other than pursuant to the Company's current credit
facility, not incur or assume any indebtedness in an amount in
excess of $250,000;
(l) not purchase or otherwise acquire any securities of, or
make any other investment in, any Person or enter into or create
any joint venture;
(m) not acquire (other than in the ordinary course of
business) the business or assets, substantially as a whole, of any
other Person, or make any capital expenditure in excess of
$250,000;
(n) not declare, set aside or pay any dividend or make any
other distribution in cash, securities or other property, on or in
respect of any capital stock (other than a cash dividend or
distribution by any subsidiary of the Company or any other
subsidiary);
(o) not split or reverse-split the Common Stock or effect
any other recapitalization or capital reorganization, or issue or
reserve for issuance any Common Stock, other than upon the exercise
of an Option in accordance with the terms thereof, or issue or
grant any option, warrant or right to purchase, or security or
instrument convertible into or exercisable for the Common Stock or
any other capital stock of the Company; or
(p) enter into, adopt or assume any agreement, commitment
or arrangement which obligates the Company or any subsidiary of the
Company to act or to refrain from acting in violation of, or in a
manner inconsistent with, any of the foregoing.
Stockholder Meeting
The Meeting will be held on July __, 2000 at 10:00 A.M.,
local time, at the offices of Camhy, 1740 Broadway, Sixteenth
Floor, New York, NY 10019-4315. At the Meeting, Stockholders will
be asked to consider and vote upon (i) a proposal to approve and
adopt the Merger Agreement; (ii) a proposal to grant the Board of
Directors authority to postpone or adjourn the Meeting in order to
solicit additional votes to approve and adopt the Merger Agreement;
and (iii) such other matters as may properly come before the
Meeting or any adjournment or postponement thereof. See "THE
MEETING--MATTERS CONSIDERED."
The Company has fixed the close of business on June 6, 2000
as the Record Date for determining holders of outstanding shares of
Common Stock who are entitled to notice of and to vote at the
Meeting. As of the Record Date, there were 12,571,258 shares of
Common Stock issued and outstanding, each of which shares is
entitled to one vote. The holders of a majority of the outstanding
shares of Common Stock, which are present in person or by proxy at
the Meeting, will constitute a quorum. The approval and adoption
of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock.
Accordingly, failure to vote your shares is effectively a vote
against approval and adoption of the Merger Agreement.
Only record holders of shares of Common Stock or their duly
authorized proxies will be entitled to cast ballots at the Meeting.
Proxy holders who wish to vote by ballot at the Meeting must
provide the Secretary of the Company with evidence of their
authority to act at least 30 minutes prior to the commencement of
the Meeting. See "THE MEETING--VOTING; REVOCATION OF PROXIES."
No Solicitation
Except as set forth below, none of the Company, any
subsidiary of the Company, the Melnick Family, Mr. Kalin, any
affiliate thereof, any director, officer, employee or other agent
or representative of any of them, shall, directly or indirectly,
accept or solicit any inquiry, offer or proposal from any Person
other than JAKKS with respect to any transaction involving any sale
or other disposition of the Company (other than in the ordinary
course of business) or any Common Stock or any subsidiary of the
Company. The Company has agreed to promptly advise JAKKS of the
receipt of any such inquiry, offer or proposal and the material
terms thereof.
The Company shall not be subject to this restriction with
respect to any bid, offer or other proposal relating to an
Alternative Transaction (defined below) (an "Alternative Proposal")
that (a) is made in writing, (b) the Board of Directors determines
in good faith in the exercise of its business judgement is
reasonably capable of being completed on the terms proposed and if
so completed would result in an Alternative Transaction that, from
a financial point of view, would be superior and more beneficial to
the Stockholders than the Merger, and (c) the Board of Directors
determines in good faith that its failure to consider such
Alternative Proposal or to withdraw, modify or qualify its approval
or recommendation of the Merger would cause it to violate its
fiduciary duties under the DGCL (a "Superior Proposal"). Prior to
entering into any negotiations or discussions with any other Person
with respect to, or furnishing confidential information or
otherwise responding to, any Superior Proposal, Pentech shall enter
into a confidentiality agreement with such Person (which agreement
may not include any provision granting to such Person an exclusive
right to negotiate with the Company with respect to an Alternative
Transaction).
Subject to the Company's compliance with these conditions
prior to obtaining the Stockholder Approval, the Board of Directors
may withdraw its approval or recommendation of the Merger, or
modify or qualify such approval or recommendation, or approve or
recommend a Superior Proposal if the Company shall give to JAKKS at
least five days prior written notice of this. Unless the Merger
Agreement is terminated in accordance with its terms prior to the
Meeting, notwithstanding the Company's receipt of any Alternative
Proposal or any Alternative Action (defined below), the Company
shall hold the Meeting and call for a vote of the Stockholders for
the approval and adoption of the Merger Agreement.
As used in this Proxy Statement, the term "Alternative
Transaction" shall mean (a) any merger, consolidation or other
business combination or reorganization pursuant to which a
substantial portion of the business or the assets of the Company
are sold or otherwise transferred to, or combined with that or
those of, another Person; (b) a transaction as a result of which
any Person (other than the Company or a subsidiary of the Company)
becomes the holder, directly or indirectly, of securities of the
Company having 30% or more of the voting power of all voting
securities of the Company; or (c) the acquisition, directly or
indirectly, by another Person of control of the Company, in each
case, other than the Merger. As used in this Proxy Statement, the
term "Alternative Action" means any action (a) by the Board of
Directors (i) to withdraw its approval or recommendation of the
Merger, (ii) to modify or to qualify such approval or
recommendation in a manner adverse to JAKKS or which would prevent,
impede or delay the consummation of the Merger or (iii) to accept
or recommend an Alternative Proposal; or (b) by the Company, the
Melnick Family or Mr. Kalin or his wife to enter into any contract,
letter of intent, agreement in principle or similar agreement
relating to any Alternative Transaction.
Indemnification of Directors and Officers
From and after the Effective Time, JAKKS shall cause the
Company, as the Surviving Corporation, to, and the Company, as the
Surviving Corporation, shall, subject to any condition or
limitation provided by Section 145 of the DGCL, indemnify each
Person who at any time prior to the Effective Time shall have been
a director or officer of the Company or a subsidiary of the Company
and hold each such Person harmless from and against any loss,
liability, or obligation, damage or expense, including reasonable
attorneys' fees and disbursements, which any of them may suffer or
incur in connection with any claim or proceeding against any of
them based upon or resulting from any act or omission occurring at
or prior to the Effective Time, including any acts or omissions in
connection with the Merger Agreement or the Merger, in the same
manner and to the same extent as is provided in the Certificate of
Incorporation, Bylaws and any indemnification agreement of the
Company or a subsidiary of the Company, as applicable, on the date
of the Merger Agreement; cause the Company's Bylaws at all times
during the six-year period following the Effective Time to include
a provision for such indemnification and a provision regarding the
elimination or limitation of liability of all such Persons in the
manner and to the extent provided in the Certificate of
Incorporation, or the Bylaws of the Company or a subsidiary of the
Company, as applicable; and cause to be maintained throughout such
six year period directors' and officers' liability insurance
substantially equivalent to that provided to such Persons by the
Company on the date of the Merger Agreement.
Supplemental Services Agreements and Other Arrangements
Prior to the Effective Time, the Board of Directors will
adopt such resolutions or take such other actions as are required
to (i) effect the transactions described in "--Options" above and
(ii) with respect to any stock option, stock appreciation or other
stock benefit plan of the Company or any of its Subsidiaries not
addressed by the preceding clause (i), ensure that, following the
Effective Time, no participant therein will have any right
thereunder to acquire any capital stock of the Surviving
Corporation or any subsidiary thereof.
As a condition to the Merger Agreement, JAKKS will enter
into a Supplemental Services Agreement with each of Messrs. Norman
Melnick and David Melnick providing for the payment to them of an
aggregate of $125,000 and $216,000, respectively. Pursuant to
these agreements, Messrs. Norman Melnick and David Melnick shall
perform until December 31, 2001 such consulting services as the
Company may from time to time request with respect to the
integration of the Company's business with JAKKS, which services
shall not exceed more than five hours per month and shall not
require either of them to travel more than 30 miles from their
principal residence. In addition, Messrs. Norman Melnick and David
Melnick each agreed for 30 months from the Effective Time or the
first anniversary of the date of termination of their employment by
JAKKS or a subsidiary thereof, whichever is later, not to directly
or indirectly (a) own, control, manage, operate, participate or
invest in, or otherwise be connected with, in any manner, any
business activity, venture or enterprise which is engaged in any
toy or stationery business in the United States in which JAKKS (or
any subsidiary thereof) is engaged during the term of his
employment; or (b) for himself or on behalf of any other person,
employ or engage any person who shall have been at any time within
the preceding six month period an employee of JAKKS (or a
subsidiary thereof) or contact any supplier, customer or employee
of JAKKS (or a subsidiary thereof) for the purpose of soliciting or
diverting any supplier, customer or employee from JAKKS (or such
subsidiary). In addition, it is expected that Messrs. Norman
Melnick and David Melnick will each continue at the Effective Date
as employees of the Company at their current salary of $150,000 per
year.
Pursuant to the Supplemental Services Agreement with Mr.
Norman Melnick, JAKKS canceled and forgave any and all indebtedness
(the principal amount of which was approximately $174,000) of Mr.
Norman Melnick or any other person to the Company on account of
loans made by the Company to fund insurance premiums payable on the
life insurance policy of Mr. and Mrs. Norman Melnick (the
"Policy"). Mr. Norman Melnick, on behalf of himself and his wife,
agreed and acknowledged that any obligation that the Company had
with respect to the making of such loans terminated and the Company
agreed and acknowledged that Mr. Norman Melnick and his wife may
make any amendment or rider to the Policy to remove the Company as
a beneficiary entitled to receive any portion of the proceeds of
the Policy.
In addition, as a condition to the Merger Agreement, JAKKS
will enter into the Consulting Services Agreement with Mr. Kalin
providing for the payment to Mr. Kalin of $109,000. Pursuant to
this agreement, Mr. Kalin shall perform until December 31, 2001
such consulting services (other than legal services) as JAKKS may
from time to time request with respect to the integration of the
Company's business with JAKKS, which services shall not exceed more
than five hours per month and shall not require him to travel more
than 30 miles from his principal residence.
Payments to Messrs. Norman Melnick, David Melnick and Mr.
Kalin under their Supplemental Services Agreement or Consulting
Services Agreement with JAKKS shall be made in three approximately
equal installments, the first at the closing of the Merger, the
second on December 31, 2000 and the final payment on December 31,
2001.
Conditions to Obligations of Each Party
The respective obligations of the Company, on the one hand,
and JAKKS and Merger Sub, on the other hand, to consummate the
Merger are further subject to the satisfaction or waiver, at or
prior to the Effective Time, of each of the following conditions:
(a) the Stockholders shall have approved and adopted the Merger
Agreement (the "Company Stockholder Approval"); (b) the waiting
period under the HSR Act shall have expired or been terminated; (c)
no order or law shall be in effect which (i) makes illegal or
prohibits consummation of the Merger or (ii) would have a Material
Adverse Effect, and no proceeding which could result in the
enactment or adoption of any such law or the issuance of any such
order shall be pending; (d) except for the filing of the
Certificate of Merger, each consent of, or notice to, any
governmental authority required for the consummation of the Merger
and for the Surviving Corporation to conduct the business,
including without limitation any order or other action by the
NJDEPE under ECRA, shall have been obtained or given; and (e) the
Supplemental Services Agreements and the Consulting Services
Agreement shall have been executed and delivered by the respective
parties thereto.
Conditions to Obligations of JAKKS and Merger Sub
The obligations of JAKKS and Merger Sub under the Merger
Agreement to consummate the Merger are subject to the satisfaction
(or waiver) by JAKKS, at or prior to the Effective Time, of each of
the following conditions: (a) each of the representations and
warranties made by the Company as to Material Adverse Effect shall
be true, and each of the representations and warranties made by the
Company in the Merger Agreement that is not so qualified shall be
true in all material respects, at and as of the Effective Time; (b)
the Company shall have, in all material respects, performed
obligations and conditions to be performed or complied with by it
under the Merger Agreement at or prior to the Effective Time; (c)
since the date of the Merger Agreement, no event shall have
occurred and no circumstances shall have existed which has had or
would have a Material Adverse Effect; (d) each holder of an Option
that does not by its terms or pursuant to the terms under which it
is granted terminate at the Effective Time shall have executed and
delivered to JAKKS an agreement terminating such Option at the
Effective Time; (e) JAKKS shall have received environmental audit
report(s) from environmental engineering or consulting firm(s)
reasonably satisfactory to JAKKS and Pentech (i) confirming that
there is no material likelihood that the aggregate cost of
environmental site remediation or clean-up at any real property
utilized by the Company or other facility or site (including
without limitation for the treatment, storage or disposal of
Hazardous Materials and underground storage tanks) located in the
State of New Jersey would exceed $75,000, and (ii) not indicating
that there is any other material environmental liability associated
with any such real property or other facility or site; (f) JAKKS
shall have received an opinion of Grotta, Glassman & Hoffman, P.A.,
in form and substance reasonably satisfactory to JAKKS, to the
effect that the Company has complied in all material respects with
applicable laws relating to ERISA, labor and employment matters and
confirming in substance the Company's representations and
warranties in respect thereto; and (g) the Company and its
subsidiaries shall execute and/or deliver at the Closing the
documents so to be executed and/or delivered by them and take all
other actions at the closing required to be taken by them pursuant
to the Merger Agreement.
Conditions to Obligations of the Company
The obligations of the Company under the Merger Agreement to
consummate the Merger are subject to the satisfaction or waiver by
the Company, at or prior to the Effective Time, of the following
conditions: (a) the representations and warranties of JAKKS and the
Merger Sub shall be true in all material respects at and as of the
Effective Time; (b) JAKKS shall have, in all material respects,
performed and complied with all obligations and conditions to be
performed or complied with by it pursuant to the Merger Agreement;
(c) JAKKS shall have obtained the consent of Bank of America, N.A.,
as required under the Company's current credit facility or shall
have satisfied and discharged all outstanding monetary obligations
under such facility; and (d) JAKKS and Merger Sub shall execute
and/or deliver at the Closing all the documents so to be executed
and/or delivered by them and take all other actions at the Closing
required to be taken by them pursuant to the Merger Agreement.
Termination
The Merger Agreement may be terminated at any time prior to
the closing of the Merger Agreement:
(a) by the mutual agreement of JAKKS and the Company;
(b) by any party, if the Merger shall have not occurred on
or before November 30, 2000, or such later date to which JAKKS and
the Company may agree upon written notice to such effect to the
other;
(c) by any party, at any time after the Meeting if, the
Company Stockholder Approval is not obtained;
(d) by JAKKS if (i) there shall be any material breach of
any representation or warranty by, or any failure to perform any
material covenant or other obligation of, the Company, and, unless
such breach or failure is incapable of being cured within a period
of 30 days after the giving of written notice thereof to the
breaching or defaulting party, JAKKS gives such notice to such
party and such breach or failure shall not be cured within 30 days
of the giving of such notice, upon written notice of termination to
the Company; or (ii) an Alternative Action shall have been taken;
and
(e) by the Company if (i) there shall be any material breach
of any representation or warranty by, or any failure to perform any
material covenant or other obligation of JAKKS or Merger Sub, and,
unless such breach or failure is incapable of being cured within a
period of 30 days after the giving of written notice thereof to the
breaching or defaulting party, the Company gives such notice to
such party and such breach or failure shall not be cured within 30
days of the giving of such notice, upon written notice of
termination to JAKKS; or (ii) an Alternative Action shall have been
taken with respect to a Superior Proposal and the Company shall
have paid the Termination Fee (defined below) to JAKKS.
Termination Fees
If (a) the Merger Agreement is terminated by JAKKS at any
time after the Meeting, if the Company Stockholder Approval is not
obtained because the Melnick Family or Mr. Kalin and his wife have
failed to vote their shares of Common Stock in favor of the Merger
at the Meeting or otherwise made any material misrepresentation or
failed in any material respect to comply with his or her
obligations pursuant to the Voting Agreement, or because an
Alternative Action shall have been taken; or (b) the Company
terminates the Merger Agreement because an Alternative Action shall
have been taken with respect to a Superior Proposal, the Company
shall pay to JAKKS a termination fee in the amount of $1,000,000
(the "Termination Fee") within 15 days of such termination. The
Termination Fee, if applicable, shall constitute liquidated damages
to JAKKS in respect of all losses, liabilities, damages and
expenses suffered or incurred by JAKKS by reason of the termination
of the Merger Agreement or the failure of the Company to close the
Merger and shall be in lieu of any other remedy or relief otherwise
available to JAKKS by reason thereof.
Fees and Expenses
Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger will be paid by the
party incurring such fees and expenses. The Company will pay JAKKS
the Termination Fee under certain circumstances (See "Termination
Fees").
Estimated fees and expenses to be incurred by the Company or
JAKKS in connection with the Merger are as follows:
Fairness Opinion Fee and Disbursement.................$30,000.00
Investment Banking Fee................................$
SEC Filing Fees.......................................$ 3,519.95
HSR Filing Fees.......................................$45,000.00
Legal Fees and Expenses...............................$
Printing and Mailing Expenses.........................$
Paying Agent Fees.....................................$
Miscellaneous (including fees of environmental
consultants, license transfer fees, if any,
early payment premium on credit facility, if any,
and other transaction costs).........................$
Total...............................................$
Amendment and Waivers
At any time prior to the Effective Time and notwithstanding
that the Company Stockholder Approval has been obtained, JAKKS and
the Company may amend the Merger Agreement, if such amendment is
authorized and approved by the respective Boards of Directors of
JAKKS and the Company; provided that, after the Company Stockholder
Approval is obtained, no such amendment may be made which is
prohibited or which would require further action by the
Stockholders, pursuant to Section 251(d) of the DGCL or other
applicable law; and provided further that no such amendment shall,
unless the Melnick Family, Mr. Kalin or his wife agrees or
otherwise consents in writing thereto, impose any additional
obligation on such Stockholder, as such, or deprive such
Stockholder of any right, power or privilege, other than as
provided in the Merger Agreement prior to such amendment. No
amendment of the Merger Agreement shall be valid or effective,
unless in writing and signed by or on behalf of JAKKS and the
Company.
No course of dealing or omission or delay on the part of any
party to the Merger Agreement in asserting or exercising any right
thereunder shall constitute or operate as a waiver of any such
right. No waiver of any provision thereof shall be effective,
unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver
or waiver in respect of any other or subsequent breach or default,
unless expressly so stated in writing.
THE VOTING AGREEMENT
In connection with the execution of the Merger Agreement,
the Company and the Melnick Family and Mr. Kalin and his wife,
entered into the Voting Agreement. Pursuant to the Voting
Agreement, the Melnick Family and Mr. Kalin and his wife, have each
agreed to vote their shares of Common Stock at every meeting of the
Stockholders from the date of the Voting Agreement to the
termination of the Voting Agreement, as provided therein (i) to
adopt the Merger Agreement and to approve the Merger in favor of
any other action that could reasonably be expected to facilitate
the Merger, and (ii) against any action or proposal that could
reasonably be expected to result in the failures of any of the
conditions to the obligations of the parties to the Merger
Agreement with respect to the Merger or otherwise prevent,
interfere or delay with the consummation of the Merger.
At the Record Date, the shares of Common Stock owned by the
Melnick Family and Mr. Kalin and his wife, including their minor
children, were 3,823,465, representing approximately 30.4% of the
voting power of the outstanding Common Stock.
Pursuant to the terms of the Voting Agreement, the Melnick
Family and Mr. Kalin and his wife have each agreed without the
prior written consent of JAKKS, not to (a) sell, assign, pledge or
otherwise transfer or dispose of any shares of Common Stock or
create or suffer to exist any lien upon any shares of Common Stock
owned by any of them; (b) agree or consent to relinquish or limit
any right which any of them have or may exercise to vote or to
direct the manner of voting of any shares of Common Stock; or (c)
enter into any agreement, commitment or arrangement by which any
other person would acquire any right to vote or to direct the
manner of voting any shares of Common Stock.
The Voting Agreement will terminate upon the earlier to
occur of such date and time as (i) the Merger shall become
effective in accordance with the provisions of the Merger Agreement
or (ii) the termination of the Merger Agreement in accordance with
its terms (see "--The Merger Agreement--Termination").
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase under
generally accepted accounting principles. Under this method of
accounting, all identifiable assets and liabilities of the Company
will be adjusted to fair value at the effective date of the Merger
and any excess of the Merger Consideration over the fair value of
the underlying net assets of the Company will be recorded as
goodwill. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate
the purchase price to the assets acquired and the liabilities
assumed.
REGULATORY MATTERS
Federal
Under the HSR Act, and the rules promulgated thereunder by
the FTC, the Merger may not be consummated until notifications have
been given and certain information has been furnished to the FTC
and the Antitrust Division of the Department of Justice and
specified waiting period requirements have been satisfied. The
Company and JAKKS filed their respective notification and respect
forms under the HSR Act on June 9, 2000 and jointly requested early
termination of the waiting period.
Federal and state antitrust enforcement authorities
frequently scrutinize the legality under the antitrust laws of
mergers such as the Merger. At any time before or after the
effectiveness of the Merger, and notwithstanding that the HSR Act
waiting period has expired, any such agency could take any action
under the antitrust laws that it deems to be in the public
interest. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of business of
the Company and JAKKS acquired as a result of the Merger. Private
parties may also file legal actions under the antitrust laws under
certain circumstances.
Based on information available to it, the Company believes
that the Merger can be effected in compliance with federal and
state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds
will not be made or that, if such a challenge were made, the
Company and JAKKS would prevail or would not be required to accept
certain conditions in order to consummate the Merger.
PRICE RANGE OF COMMON STOCK; DIVIDENDS
The Common Stock is traded in the over-the-counter market on
the Nasdaq National Market System under the symbol "PNTK." The
following table sets forth the range of high and low bid prices for
the Common Stock for each of the periods indicated as reported on
Nasdaq. Quotations represent prices between dealers and do not reflect
retail mark-up, mark-downs or commissions.
HIGH LOW
October 1, 1996 through December 31, 1996..... $1.25 $0.6875
January 1, 1997 through March 31, 1997........ $1.6875 $1.125
April 1, 1997 through June 30, 1997........... $2.25 $1.375
July 1, 1997 through September 30, 1997....... $3.125 $2.4375
HIGH LOW
October 1, 1997 through December 31, 1997..... $3.125 $2.5625
January 1, 1999 through March 31, 1998........ $3.00 $1.125
April 1, 1998 through June 30, 1998........... $2.1875 $1.25
July 1, 1998 through September 30, 1998....... $2.00 $0.9375
October 1, 1998 through December 31, 1998..... $1.3125 $0.9375
January 1, 1999 through March 31, 1999........ $1.375 $0.65625
April 1, 1999 through June 30, 1999........... $0.875 $0.59375
July 1, 1999 through September 30, 1999....... $2.09375 $0.75
October 1, 1999 through December 31, 1999..... $1.25 $0.625
January 1, 2000 through March 31, 2000........ $2.1875 $0.59375
April 1, 2000 through May 22, 2000........... $1.3125 $0.65625
There were an aggregate of 382 holders of record of the
Common Stock as of June 6, 2000. The Company has not paid any
dividends on its Common Stock since its inception. The Company is
prohibited from declaring or paying dividends to its Stockholders
without the consent of Bank of America, N.A. under its credit
agreement. Whether or not the Merger is consummated, the Company
does not intend to pay any cash dividends in the foreseeable
future. Rather, the Company intends to retain its earnings, if
any, to provide for the continued operation and expansion of its
business.
On May 22, 2000, the last full trading day prior to the
announcement of the execution of the Merger Agreement, the closing
sales price per share of Common Stock as reported on the NASDAQ
National Market System was $.90625. The highest bid price per
share on such date was $.96875, and the lowest bid price per share
on such date was $.8125.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR THE
COMMON STOCK.
APPRAISAL RIGHTS
Stockholders are entitled to statutory appraisal rights
under Section 262. The following discussion is not a complete
statement of the law pertaining to statutory appraisal rights under
the DGCL, but rather is only a guide for a Stockholder who wishes
to exercise his or her statutory appraisal right, and is qualified
in its entirety by reference to the full text of Section 262 which
is reprinted in its entirety as Appendix C to this Proxy Statement.
Under Section 262, Stockholders who follow the procedure set
forth in Section 262 and who have not voted in favor of the Merger
will be entitled to have their shares of Common Stock appraised by
the Court of Chancery of the State of Delaware and to receive,
instead of the Merger Consideration, an amount determined by such
court to be the "fair value" of their shares of Common Stock,
exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of
interest. This right is known as an "appraisal right." If a
Stockholder wishes to exercise his or her statutory appraisal right
he or she must not vote in favor of the Merger and must meet
certain conditions. These conditions are set out in full in
Appendix C. Delaware law requires that the Company notify
Stockholders not less than 20 days prior to the Meeting that they
have a right of appraisal and provide Stockholders with a copy of
Section 262. This Proxy Statement constitutes that notice. If a
Stockholder does not follow the procedures set out below and in
Appendix C, he or she will lose his or her statutory appraisal
right.
ALL REFERENCES IN THIS SUMMARY AND IN SECTION 262 TO A
"STOCKHOLDER" OR TO A "HOLDER" OF SHARES OF COMMON STOCK ARE TO
THE RECORD HOLDER OF THE SHARES OF COMMON STOCK AS TO WHICH A
STATUTORY APPRAISAL RIGHT IS ASSERTED. A PERSON HAVING A BENEFICIAL INTEREST
IN SHARES OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER
PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND
IN A TIMELY MANNER TO PERFECT HIS OR HER STATUTORY APPRAISAL RIGHT.
A Stockholder wishing to exercise his or her statutory
appraisal right must deliver to the Company, before the vote on the
Merger at the Meeting, a written demand for appraisal of his or her
shares of Common Stock and must either (i) abstain from voting with
respect to the Merger and not consent thereto in writing, or (ii)
vote against the Merger. Because a fully executed proxy which does
not contain voting instructions will, unless revoked, be voted for
the Merger, a holder of shares of Common Stock who voted by proxy
and who wishes to exercise his or her statutory appraisal right
must mark his or her proxy to (i) vote against the Merger, or (ii)
abstain from voting on the Merger. A vote against the Merger, in
person or by proxy, will not in and of itself constitute a written
demand for appraisal satisfying the requirement of Section 262, and
a separate written demand for appraisal is required. In addition,
a Stockholder wishing to exercise his or her statutory appraisal
right must be the record holder of such shares on the date the
written demand for appraisal is made and must continue to hold such
shares of record until the Effective Time.
A demand for appraisal should be executed by or on behalf of
the holder of record, fully and correctly, as his or her name
appears on his or her stock certificate, and must state that the
Stockholder intends thereby to demand appraisal of his or her
shares of Common Stock in connection with the Merger. If the
shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares are owned of record by
more than one person, as in a joint tenancy and tenancy in common,
the demand should be executed by or on behalf of all joint owners.
An authorized agent, including two or more joint owners, may
execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the
agent is agent for such owner or owners. A record holder such as
a broker who holds shares of Common Stock as nominee for several
beneficial owners may exercise statutory appraisal rights with
respect to the shares held for one or more beneficial owners while
not exercising such rights with respect to the shares held for
other beneficial owners; in such case, however, the written demand
should set forth the number of shares as to which appraisal is
sought and where no number of shares is expressly mentioned the
demand will be presumed to cover all shares of Common Stock held in
the name of the record owner. Any Stockholder who holds his or her
shares of Common Stock in brokerage accounts or other nominee forms
and who wishes to exercise statutory appraisal rights is urged to
consult with his or her brokers to determine the appropriate
procedures for the making of a demand for appraisal by such a
nominee.
All written demands for appraisal pursuant to Section 262
should be sent or delivered to the Company at 195 Carter Drive,
Edison, NJ 08817, Attn.: Richard S. Kalin, Secretary. Written
demands for appraisal pursuant to Section 262 must be received by
Company before the taking of the vote on the Merger, scheduled for
July __, 2000.
Within ten days after the Effective Time, the Surviving
Corporation must notify each Stockholder who has complied with
Section 262 and has not voted in favor of or consented to the
Merger of the date that the Merger has become effective. Within
120 days after the Effective Time, but not thereafter, the
Surviving Corporation or any Stockholder who has so complied with
Section 262 and is entitled to a statutory appraisal right under
Section 262 may file a petition in the Court of Chancery of the
State of Delaware demanding a determination of the fair value of
his or her shares of Common Stock. The Surviving Corporation will
have no obligation to file such a petition, and neither the Company
nor JAKKS has any present intention to cause the Surviving
Corporation to file such a petition. Accordingly, it is the
obligation of the Stockholder who has complied with Section 262 to
initiate all necessary action to perfect his or her statutory
appraisal right within the time prescribed in Section 262.
Any Stockholder who has complied with the requirements for
exercise of his or her statutory appraisal rights will be entitled,
upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Common
Stock not voted in favor of the Merger and with respect to which
demands for appraisal have been received and the aggregate number
of holders of such shares.
If a petition for an appraisal is timely filed by a
Stockholder, the Court of Chancery is empowered to conduct a
hearing on such petition to determine those Stockholders who have
complied with Section 262 and who have become entitled to statutory
appraisal rights thereunder. The Court of Chancery may require the
Stockholders who demanded appraisal of their shares to submit their
stock certificates to the Register in Chancery for notation thereon
of the pendency of the appraisal proceeding; and if any Stockholder
fails to comply with such direction, the Court of Chancery may
dismiss the proceedings as to such Stockholder.
After determining the holders entitled to appraisal, the
Court of Chancery will appraise the "fair value" of their shares of
Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair
rate of interest, if any, to be paid upon the amount determined to
be the fair value. Stockholders considering seeking appraisal
should be aware that the fair value of their shares of Common Stock
as determined in an appraisal proceeding under Section 262 could be
more than, the same as or less than the Merger Consideration they
would receive pursuant to the Merger if they did not seek appraisal
of their shares, and that investment banking opinions as to
fairness from a financial point of view are not necessarily
opinions as to fair value for purposes of Section 262. The
Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in
the financial community and otherwise admissible in court" should
be considered in the appraisal proceeding. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a dissenter's exclusive
remedy. The Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by
persons whose shares of Common Stock have been appraised.
The costs of the appraisal action may be determined by the
Court and taxed upon the parties as the Court deems equitable.
Each party must bear his or her own other expenses of the
proceeding, although the Court may order that all or a portion of
the expenses incurred by any Stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged against the value of all the shares of
Common Stock entitled to be appraised.
Any Stockholder who duly demands appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to
vote his or her shares of Common Stock for any purpose or be
entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to
holders of record as of a record date prior to the Effective Time).
If any Stockholder who demands appraisal of his or her
shares of Common Stock under Section 262 fails to perfect, or
effectively withdraws or loses, his or her statutory right to
appraisal, the shares of such Stockholder will be converted into
the right to receive the Merger Consideration pursuant to the
Merger Agreement as described herein (without interest). A
Stockholder will fail to perfect, or will effectively lose or
withdraw, his or her statutory right to appraisal if no petition
for appraisal is filed within 120 days after the Effective Time, or
if the Stockholder delivers to the Surviving Corporation a written
withdrawal of his or her demand for appraisal and an acceptance of
the Merger, except that any such attempt to withdraw made more than
60 days after the Effective Time will require the written approval
of the Surviving Corporation and, once a petition for appraisal is
filed, the appraisal proceeding may not be dismissed as to any
holder absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR
PERFECTING STATUTORY APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF
SUCH RIGHTS.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Stockholders will not have
an opportunity to continue their common equity interest in the
Company as an ongoing operation and therefore will not have the
opportunity to share in its future earnings and potential growth,
if any. If the Merger is consummated, the Company plans to take
all necessary actions (i) to de-register shares of Common Stock
under the Exchange Act and (ii) to terminate inclusion of the
shares of Common Stock in the Nasdaq National Market System.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with
regard to the beneficial ownership of the Common Stock as of June
6, 2000 by (i) each Stockholder who is known by the Company to
beneficially own in excess of five percent of the outstanding
shares of Common Stock; (ii) each director; (iii) each executive
officer of the Company; and (iv) all executive officers and
directors as a group. Except as otherwise indicated, each
Stockholder listed below has sole voting and investment power with
respect to shares of Common Stock beneficially owned by him or her.
The shares of Common Stock listed under Messrs. Norman Melnick,
David Melnick and Kalin below are covered by the terms of the
Voting Agreement.
Name and Address Shares (1) Percent
Roy L. Boe 108,500(2)(3) (4)
Richard S. Kalin 843,339(3)(5) 6.68%
One Penn Plaza, Suite 1425
New York, NY 10119
David Melnick 2,018,098(3)(6) 15.95%
195 Carter Drive
Edison, New Jersey 08817
Norman Melnick 1,177,428(3)(7) 9.24%
195 Carter Drive
Edison, New Jersey 08817
Robert Semel 15,000(3) (4)
William Visone 175,000(3) (4)
Heartland Advisors
789 North Water Street
Milwaukee, WI 53202 749,900(8) 5.96%
All executive officers 4,624,179(2)(3)(5) 35.03%
and directors as a group (6)(7)
(eight persons)
(1) All shares of Common Stock are owned directly, unless
otherwise noted.
(2) Includes 80,000 shares owned by his wife, Betty Boe, as to
which he disclaims beneficial ownership.
(3) Includes 160,000, 80,000, 50,000, 120,000, 16,000, 10,000
and 627,000 shares for Messrs. Norman Melnick, David
Melnick, Kalin, Visone, Boe, Semel and all executive
officers and directors as a group, respectively, that are
issuable upon exercise of options.
(4) Less than one percent.
(5) Includes 319,064 shares owned by his wife, Noelle Makenzie,
and 87,000 shares owned by his minor child, as to which he
disclaims beneficial ownership. Includes 120,000 shares
held in his retirement account.
(6) Includes 869,228 shares owned by his wife, Dana Melnick, and
236,550 shares owned by his minor children, as to which he
disclaims beneficial ownership.
(7) Includes 363,300 shares owned by his wife, Libby Melnick, as
to which he disclaims beneficial ownership.
(8) Based on information furnished to the Company by Heartland
Advisors, Inc. on Amendment No. 1 to Schedule 13G, dated
January 27, 2000.
Other than the Voting Agreement and the Merger Agreement,
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.
INDEPENDENT ACCOUNTANTS
The firm of Ernst & Young LLP has served as the Company's
independent accounts since August 31, 1993. The consolidated
financial statements of the Company for Fiscal 1999, incorporated
herein by reference to the Company's Annual Report on Form 10-K,
have been audited by Ernst & Young LLP, independent accountants, as
stated in its report appearing therein. It is expected that
representatives of Ernst & Young LLP will be present at the
Meeting, both to respond to appropriate questions of Stockholders
and to make a statement if they so desire.
STOCKHOLDER PROPOSALS
If the Merger is consummated, there will be no public
Stockholders and no public participation in any future meeting of
Stockholders. However, if the Merger is not consummated, the
Stockholders will continue to be entitled to attend and participate
in the Company's Stockholder meetings. Pursuant to Rule 14a-8
promulgated by the Commission, any Stockholder who wishes to
present a proposal at the next Annual Meeting of Stockholders (in
the event the Merger is not consummated), and who wishes to have
such proposal included in the Company's proxy statement for that
meeting must deliver a copy of such proposal to the Company at 195
Carter Drive, Edison, NJ, 08817, Attention: Corporate Secretary,
within a reasonable time before the Company delivers its proxy
statement to Stockholders for that meeting in order for such
proposal to be considered by the Board of Directors for inclusion
in the proxy statement.
In order for a Stockholder to bring other business before a
Stockholder meeting, timely notice must be received by the Company
within a reasonable time before the Company delivers its proxy
statement to Stockholders for that Stockholder meeting. Such
notice must include a description of the proposed business, the
reasons therefor, and other specific matters. These requirements
are separate from and in addition to the requirements a Stockholder
must meet to have a proposal considered for inclusion in the
Company's proxy statement. In each case, the notice must be given
to the Secretary of the Company at the address listed above. Any
Stockholder desiring a copy of the Company's Bylaws will be
furnished one without charge upon request to the Secretary.
DOCUMENTS INCORPORATED BY REFERENCE
The Commission allows the Company to "incorporate by
reference" information into its Proxy Statement, which means that
the Company can disclose important information by referring you to
another document filed separately with the Commission. The
following documents are incorporated by reference in this Proxy
Statement and are deemed to be part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999; and
(2) The Company's Quarterly Report on Form 10-Q for the fiscal
quarter March 31, 2000.
Any statement contained in a document incorporated by
reference shall be deemed to be modified or superseded for all
purposes to the extent that a statement contained in this Proxy
Statement modifies or replaces such statement.
The Company also incorporates by reference the information
contained in all other documents the Company files with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Proxy Statement and before the
Meeting. The information contained in any such document will be
considered part of this Proxy Statement from the date the document
is filed and will supplement or amend the information contained in
this Proxy Statement.
The Company undertakes to provide by first class mail,
without charge and within one business day of receipt of any
request, to any person to whom a copy of this Proxy Statement has
been delivered, a copy of any or all of the documents referred to
above which have been incorporated by reference in this Proxy
Statement, other than those contained in Appendices to this Proxy
Statement. The Company's Annual Report on Form 10-K for Fiscal
1999, attached hereto as Appendix D, is accompanied by a list
briefly describing all the exhibits not contained therein. The
Company will furnish any of these exhibits upon the payment of a
specified reasonable fee, which fee will be limited to the
Company's reasonable expenses in furnishing such exhibit. Request
for such copies should be directed to Corporate Secretary, Pentech
International Inc., 195 Carter Drive, Edison, New Jersey 08817;
telephone (732)287-6640.
OTHER BUSINESS
The Board of Directors does not know of any other matters to
be presented for action at the Meeting other than as set forth in
this Proxy Statement. If any other business should properly come
before the Meeting, the persons named in the accompanying form of
proxy intend to vote thereon in accordance with their judgment
unless they are directed by a proxy to do otherwise.
MISCELLANEOUS
The Company will bear the cost of preparing, assembling and
mailing the proxy, this Proxy Statement and other material that may
be sent to Stockholders in connection with this solicitation. The
Company may reimburse persons holding shares in their names or in
the names of nominees for their reasonable expenses in sending
proxy material to their principals.
By Order Of The Board Of Directors,
RICHARD S. KALIN
Secretary
PROXY
PENTECH INTERNATIONAL INC.
[LOGO]
195 Carter Drive
Edison, New Jersey 08817
The undersigned, revoking all previous proxies, hereby
appoints 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 Special Meeting of Stockholders
of the Company to be held on July [ ], 2000 at 10:00 A.M., at the
offices of Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor,
New York, New York 10019-4315 and any adjournments thereof, upon
the matters set forth in the Notice of Special Meeting.
The undersigned acknowledges receipt of the Proxy Statement
of the Company dated June [ ], 2000 (the "Proxy Statement").
A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE
BOARD OF DIRECTORS.
1. Proposal to approve and adopt the Agreement of Merger dated
May 22, 2000, a copy of which is attached as Appendix A to
the Proxy Statement, providing for the merger of JAKKS
Acquisition II, Inc. ("Merger Sub"), a wholly-owned
subsidiary of JAKKS Pacific, Inc. ("JAKKS"), with and into
the Company, and which, among other things, provides that
each outstanding share of the Company's Common Stock (other
than shares of Common Stock owned by JAKKS or Merger Sub or
by any direct or indirect subsidiary of JAKKS or Merger Sub,
or which are held in the treasury of the Company or by any
of its subsidiaries, all of which will be canceled, or which
are held by dissenting stockholders of the Company, whose
shares will be subject to their statutory appraisal rights)
will be canceled and converted into the right to receive
$1.40 per share in cash, without interest, all as more fully
described in the Proxy Statement and Appendix A thereto.
FOR AGAINST ABSTAIN
2. To grant to the Board of Directors of the Company
discretionary authority to postpone or adjourn the Special
Meeting in order to solicit additional votes to approve
Proposal No. 1.
FOR AGAINST ABSTAIN
3. In their discretion, on such other matters as may
properly come before the Special Meeting.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE.
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 and 2.
Date: , 2000
(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 additional copies of proxy materials should be
addressed to Shareholder Relations, Pentech International Inc., 195
Carter Drive, Edison, NJ 08817. This material will be furnished
without charge to any stockholder requesting it.
