SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[X] Filed by the Registrant
[ ] Filed by party other than the Registrant
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6 (e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11 (c) or Rule 14a-12
PTI Holding Inc.
--------------------
Payment of Filing Fee (Check appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
[ ] 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.
<PAGE>
PTI Holding Inc.
15 East North Street
Dover, DE 19901
----
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 19, 1998
------------
To the Stockholders
of PTI Holding Inc.
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
PTI Holding Inc., a Delaware corporation (the "Company"), will be held at 10:00
a.m. local time, on October 19, 1998, at the offices of Protective Technologies
International Inc., One Executive Boulevard, Yonkers, NY 10701 for the following
purposes:
1. To elect five members of the Company's Board of
Directors, two of whom shall each be elected to serve
for a three-year term, two of whom shall each be
elected to serve for a two-year term, and one of whom
shall be elected to serve for a one-year term;
2. To consider and vote upon a proposal to approve the
Company's 1998 Joint Incentive and Non-Qualified
Stock Option Plan;
3. To ratify the reappointment of Arthur Andersen LLP as
the Company's independent certified public
accountants for the fiscal year ending December 31,
1998; and
4. To transact such other business as may properly come
before the Annual Meeting and any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on August 27,
1998 as the record date for determining those stockholders entitled to notice
of, and to vote at, the Annual Meeting. A list of stockholders entitled to vote
at the Annual Meeting may be examined at the offices of the Company situated at
15 East North Street, Dover, DE 19901 and at the offices of the Company's
counsel Akabas & Cohen at 488 Madison Avenue, 11th Floor, New York, NY 10022
during the ten-day period preceding the Annual Meeting.
By order of the Board of Directors,
Warren Schaeffer
Secretary
Dover, Delaware
September 1, 1998
- --------------------------------------------------------------------------------
THIS IS AN IMPORTANT MEETING AND ALL STOCKHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. THOSE STOCKHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY
URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY FORM AS PROMPTLY AS POSSIBLE.
STOCKHOLDERS WHO EXECUTE A PROXY FORM MAY NEVERTHELESS ATTEND THE MEETING,
REVOKE THEIR PROXY, AND VOTE THEIR SHARES IN PERSON. YOUR BOARD RECOMMENDS THAT
YOU VOTE IN FAVOR OF THE NOMINEES FOR DIRECTORS AND FOR THE OTHER PROPOSALS TO
BE CONSIDERED AT THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
<PAGE>
PTI Holding Inc.
15 East North Street
Dover, DE 19901
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 19, 1998
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of PTI Holding Inc., a Delaware corporation (the
"Company"), of proxies from the holders of the Company's common stock, $.01 par
value per share (the "Common Stock"), for use at the 1998 Annual Meeting of
Stockholders of the Company to be held at [10:00] a.m. local time, on October
19, 1998, at the offices of Protective Technologies International Inc.,One
Executive Boulevard, Yonkers, NY 10701 or at any adjournment(s) or
postponement(s) thereof (the "Meeting"), pursuant to the enclosed Notice of
Annual Meeting. The approximate date that this Proxy Statement and the enclosed
form of proxy are first being sent to holders of Common Stock is September 16,
1998. Stockholders should review the information provided herein in conjunction
with the Company's 1997 Annual Report to Stockholders for the fiscal year ended
December 31, 1997, which accompanies this Proxy Statement.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Any stockholder who executes
and delivers a proxy may revoke it at any time prior to its use by (1) giving
written notice of such revocation to the Company, care of the Secretary, PTI
Holding Inc., 15 East North Street Dover, DE 19901; (2) executing and delivering
a proxy bearing a later date to the Secretary of the Company; or (3) appearing
at the Meeting and voting in person.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Stockholders and the enclosed proxy is to be born by
the Company. In addition to the use of mail, employees of the Company may
solicit proxies by telephone, telegram or personal interview. The Company's
employees will receive no compensation for soliciting proxies other than their
regular salaries. The Company has also engaged the services of Corporate Stock
Transfer, Inc. to assist in the tabulation of proxies.
PURPOSES OF THE MEETING
At the Meeting, the Company's stockholders will consider and vote upon the
following matters:
1. To elect five members of the Company's Board of Directors, two
of whom shall each be elected to serve for a three-year term,
two of whom shall each be elected to serve for a two-year
term, and one of whom shall be elected to serve for a one-year
term;
2. To consider and vote upon a proposal to approve the Company's
1998 Joint Incentive and Non-Qualified Stock Option
Plan;
3. To ratify the reappointment of Arthur Andersen LLP as the
Company's independent certified public accountants for the
fiscal year ending December 31, 1998; and
4. To transact such other business as may properly come before
the Annual Meeting and any adjournments or postponements
thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted (a) for the election of the five nominees for director named
below, and (b) in favor of all other proposals described in the Notice of Annual
Meeting. In the event that a stockholder specifies a different choice by means
of the enclosed proxy, his shares will be voted in accordance with the
specification so made.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors has set the close of business on August 27, 1998
as the record date (the "Record Date") for determining stockholders of the
Company entitled to notice of and to vote at the Meeting. As of the Record Date,
4,796,506 shares of Common Stock were issued and outstanding, all of which are
entitled to be voted at the Meeting. Each share of Common Stock is entitled to
one vote on all matters to be acted upon at the Meeting, and neither the
Company's Certificate of Incorporation nor its Bylaws provides for cumulative
voting rights.
The attendance, in person or by proxy, of the holders of a majority of
the shares of Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum. The affirmative vote of a plurality of the shares of Common
Stock present and voting at the Meeting is required for the election of
Directors. The affirmative vote of a majority of the outstanding shares of
Common Stock present and voting at the Meeting is required to pass upon the
proposals to ratify and approve the Company's 1998 Joint Incentive and
Non-Qualified Stock Option Plan and the reappointment of Arthur Andersen LLP as
independent certified public accountants. Abstentions and broker non-votes
(hereinafter defined) will be counted as present for the purpose of determining
the presence of a quorum. For the purpose of determining the vote required for
approval of matters to be voted on at the Meeting, shares held by stockholders
who abstain from voting will be treated as being "present" and "entitled to
vote" on the matter, and, therefore, an abstention has the same legal effect as
a vote against the matter. However, in the case of a broker non-vote or where a
stockholder withholds authority from his proxy to vote the proxy as to a
particular matter, such shares will not be treated as "present" or "entitled to
vote" on the matter, and, therefore, a broker non-vote or the withholding of a
proxy's authority will have no effect on the outcome of the vote on the matter.
A "broker non-vote" refers to shares of Common Stock represented at the Meeting
in person or by proxy by a broker or nominee where such broker or nominee (1)
has not received voting instructions on a particular matter from the beneficial
owners or persons entitled to vote and (2) the broker or nominee does not have
discretionary voting power on such matter.
As of the Record Date, the directors of the Company owned in the
aggregate 1,113,608 shares of Common Stock constituting approximately 22.6% of
the outstanding shares of Common Stock entitled to vote at the Meeting. The
directors have advised the Company that they intend to vote all of their shares
in favor of each of the proposals to be presented at the Meeting. See "Security
Ownership of Certain Beneficial Owners," "Security Ownership of Management" and
"Election of Directors -- Certain Transactions."
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of September 1, 1998, to the extent
known to the Company, certain information regarding the ownership of the
Company's Common Stock by (i) each person who is known by the Company to own of
record or beneficially more than five percent of the Company's Common Stock,
(ii) each of the Company's directors and executive officers and (iii) all
directors and executive officers as a group. Except as otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
<PAGE>
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
Martin P. Birrittella
One River Street
Hastings on Hudson, NY 552,698(1) 11.3%
Meredith Birrittella
One River Street
Hastings on Hudson, NY 900,198(2) 18.1%
Myles Birrittella
One River Street
Hastings on Hudson, NY 3,910(3) .1%
Robert Fuhrman
One River Street
Hastings on Hudson, NY 2,500 (3) .1%
Gary Kocher
One River Street
Hastings on Hudson, NY -0- -0-
Thomas Coleman
One River Street
Hastings on Hudson, NY 451,125 (4) 9.2%
Warren Schaeffer
One River Street
Hastings on Hudson, NY 207,000 (5) 4.3%
Anthony Costanzo
One River Street
Hastings on Hudson, NY 24,000 (6) .5%
All directors and
officers as a group
( six persons) 1,140,108 (2)(3)(5)(6) 22.4%
</TABLE>
(1) Includes 25,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share,
and 88,320 shares of the Company's Common Stock, which are issuable in respect
of stock options at an exercise price of $4.50.
(2) Includes 100,000 shares of the Company's Common Stock which are
issuable in respect of stock options issued under the Company's 1994 Joint
Incentive and Non-Qualified Stock Option Plan at an exercise price of $1.25 per
share, and 88,320 shares of the Company's Common Stock, which are issuable in
respect of stock options at an exercise price of $4.50.
(3) Includes 2,500 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $8.00 per share.
(4) Includes 50,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share,
and 58,880 shares of the Company's Common Stock which are issuable in respect of
stock options at an exercise price of $4.50 per share.
(5) Includes 75,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share.
Includes 2,000 shares of the Company's Common Stock which are issuable in
respect of stock options vesting as of December 31, 1996, at an exercise price
of $5.38 per share.
(6) Includes 10,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $2.25 per share.
Includes 5,000 shares of the Company's Common Stock which are issuable in
respect of stock options at an exercise price of $5.375 per share. Includes
8,000 shares of the Company's Common Stock which are issuable in respect of
stock options at an exercise price of $8.00 per share.
ITEM I.
ELECTION OF DIRECTORS
Nominees
The Company's Bylaws provide that the number of directors constituting
the Company's Board of Directors shall be fixed by the Board of Directors,
provided that the number of directors shall not be fewer than three nor more
than seven. The Board of Directors has fixed at five the number of directors
that will constitute the Board. Each director elected at the Meeting will serve
until his or her term expires and until his or her successor has been duly
elected and qualified. Meredith W. Birrittella, Myles Birrittella , Warren
Schaeffer, Robert Fuhrman, and Gary J. Kocher have been nominated for election
as directors, and proxies will be voted for such persons absent contrary
instructions.
The Board of Directors has no reason to believe that any nominee will
refuse to act or be unable to accept election; however, in the event that a
nominee for director is unable to accept election or if any other unforeseen
contingency arises, proxies will be voted for the remaining nominees, if any,
and for such other person as may be designated by the Board of Directors, unless
it is directed by a proxy to do otherwise.
Certain information concerning the nominees for election as directors
is as follows:
Meredith W. Birrittella. Mr. Birrittella, age 31, a co-founder of the
Company, has served as an officer and director since the Company's inception,
and is currently Chairman and C.E.O. of the Company.
Myles Birrittella. Mr. Myles Birrittella, age 34, became a director of
the Company in October, 1996. Mr. Birrittella is currently employed by Merrill
Lynch as a financial consultant. For the years 1995 and 1996, prior to his
employment with Merrill Lynch, Mr. Birrittella was a self-employed investor.
From 1992 through 1994, prior to becoming a self-employed investor, Mr.
Birrittella was the National Sales Manager for the Company.
Warren Schaeffer. Mr. Schaeffer, age 40, co-founded Foam the company
acquired by the Company in March, 1994. Since the acquisition, he has served as
the President of the Operating Subsidiary, and in October, 1996, was elected as
a director of the Company. As of December, 1996, Mr. Schaeffer became the
Secretary of the Company. Prior to his employment by the Operating Subsidiary,
Mr. Schaeffer was the President and Director of Foam.
Robert Fuhrman. Mr. Fuhrman, age 69, has been Chairman of Fuhrman
Associates, Inc. since 1972, serving as a managing and marketing consultant for
a wide variety of consumer product companies. During this period, he has also
served from time to time as an executive of client companies, including
positions as President (CEO) of Eggland's Best, Inc., Marketing Vice President
of Beech-Nut Nutrition Inc. (Baby Food) and Senior Vice president of "Totes."
Gary J. Kocher. Mr. Kocher, age 34, became a director of the Company in
1997. Mr. Kocher is a partner in the law firm of Preston, Gates & Ellis, LLP.
Mr. Kocher's practice includes a broad range of corporate finance and
security-related transactions with an emphasis on public and private offerings
of debt and equity and cross-border transactions.
Term and Classification of Board of Directors
If elected, the nominee for director designated as Class A director
will serve until the 1999 Annual Meeting of Stockholders and thereafter Class A
directors elected in 1999 will serve terms of three years; the nominees for
director designated as Class B directors will serve until the 2000 Annual
Meeting of Stockholders and thereafter Class B directors elected in 2000 will
serve terms of three years; and the nominees for director designated as Class C
directors will serve until the 2001 Annual Meeting of Stockholders and
thereafter Class C directors elected in 2001 will serve terms of three years,
and, in each case, until his or her successor shall be dully elected and
qualified or until his or her earlier death, resignation or removal. Mr. Gary J.
Kocher will be a Class A director, Mr. Warren Schaeffer and Mr. Robert Fuhrman
will be Class B directors, and Mr. Meredith Birrittella and Mr. Myles
Birrittella will be Class C directors.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1997, the Company's Board of
Directors acted fourteen times by a unanimous written consent in lieu of a
meeting.
The only two Committees of the board of Directors are the Option
Committee and the Audit Committee, both comprised of Mr. Fuhrman and Mr. Myles
Birrittella. The Company has no executive, nominating, compensation or other
committees. Meredith W. Birrittella and Myles Birrittella are brothers.
<PAGE>
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<S> <C> <C> <C>
Executive
Officer or
Director
Name Age Position Since
- ----------------------- ------ ----------------------------------- ----------
Meredith W. Birrittella 31 Chairman, Director and 3/21/90
Chief Executive officer
Anthony Costanzo 28 Chief Financial Officer 10/1/97
Warren Schaeffer 40 Director, Secretary and President 3/1/94
Protective Technologies International
Inc.
Warren T. Davies 57 President of operating subsidiary 6/1/97
Flents Products Co. Inc.
For further information about the executive officers of the Company, see "--Nominees" above.
</TABLE>
<TABLE>
Executive Compensation
Summary Compensation Table
--------------------------
<S> <C> <C> <C> <C> <C>
Securities Other
Underlying Annual
Name and Principal Position Year Salary Bonus Options Compensation(1)
- --------------------------- ---- -------- ------- ---------- ---------------
Meredith W. Birrittela 1997 $161,539 -0- 25,000 $2,580
Chief Executive Officer 1996 $155,385 -0- 25,000 $2,424
1995 $131,192 -0- 25,000 $2,024
Warren Schaeffer 1997 $161,539 -0- 25,000 $2,580
Secretary, and President 1996 $130,769 -0- 27,000 $2,424
Protective Technologies 1995 $100,000(2) $50,000(3) -0- $0
International Inc.
Anthony Costanzo 1997 $73,154 $15,000 8,000 $2,580
Chief Financial Officer 1996 $60,462 $10,000 5,000 $2,424
1995 $35,583 -0- 10,000 $2,024
Warren T. Davies 1997 $196,691 -0- 40,000 $2,580
President of operating
subsidiary Flents Products Co. Inc.
</TABLE>
(1) Consists exclusively of dental and health insurance premiums and
retirement plan contributions.
(2) $10,000 of the stated amount has been repaid by Mr. Schaeffer to
the Company in retroactive salary adjustments under an employment agreement
between Mr. Schaeffer and the Company commencing January 1,1994 (the "employment
Agreement"). Although the Employment Agreement continues to govern Mr.
Schaeffer's employment with the Company, and remains in full force and effect
with respect to all other provisions, the Board of Directors of the Company has
increased the amount of compensation paid to Mr. Schaeffer pursuant to the
Employment Agreement, as is set forth in the above Summary Compensation Table.
(3) Accrual of a deferred compensation payment of $100,000 paid by the
Company in March 1996, pursuant to the Employment Agreement, as a result of Mr.
Schaeffer's remaining with the Company throughout the fiscal years of 1994 and
1995.
Inside directors of the Company receive no compensation for serving as
a director; however, the Company's outside directors will receive compensation
in the amount of $7,500 per annum. In addition, on the anniversary of each
outside director's appointment to the Board of the Directors, the Company will
grant 2,500 options to purchase the Company's Common Stock to such directors at
an exercise price equal to the closing market price of the Company's Common
Stock on such date.
<TABLE>
Option Grants In Last Fiscal Year
-----------------------------------
<S> <C> <C> <C> <C>
Percent of
Name and Principal Number of Securities Total Grants Exercise Expiration
Position Underlying Options To Employees(1) Price Date
- -------------------- --------------------- --------------- --------- ----------
Anthony Costanzo 8,000 11.3% $8.00 2/20/02
Chief Financial Officer
Warren T. Davies 40,000 56.5% (2) (2)
President of operating
subsidiary, Flents Products Co. Inc.
</TABLE>
(1) Does not include options granted to consultants or directors of the
Company.
(2) Exercise price and vesting dates are as follows: 10,000 shares with
an exercise price of $9.00 per share, vest on December 31, 1997 and expire on
December 31, 2002; 10,000 shares with an exercise price of $10.00 per share vest
on December 31, 1998 and expire on December 31, 2003; 10,000 shares with an
exercise price of $11.00 per share vest on December 31, 1999 and expire on
December 31, 2004; 10,000 shares with an exercise price of $12.00 per share vest
on December 31, 2000 and expire on December 31, 2005.
Employment Agreements
The Company entered into an employment agreement (the "Agreement") in
1997 with Warren T. Davies (the "Employee"). The Agreement provides for
compensation at the rate of not less that $180,000 plus $12,500 per year.
Additionally, the Agreement grants the Employee options to purchase an aggregate
of 40,000 shares of common stock of the Company. The exercise price and vesting
dates are as follows: 10,000 shares with an exercise price of $9.00 per share
vest on December 31, 1997 and expire on December 31, 2002; 10,000 shares with an
exercise price of $10.00 per share vest on December 31, 1998 and expire on
December 31, 2003; 10,000 shares with an exercise price of $11.00 per share vest
on December 31, 1999 and expire on December 31, 2004; 10,000 shares with an
exercise price of $12.00 per share vest on December 31, 2000 and expire on
December 31, 2005. The Agreement provides for a term of four years.
Indemnification
The Company's Certificate of Incorporation eliminates or limits the
personal financial liability of the Company's directors, except in situations
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of the law. In addition, the
Company's By-laws include provisions to indemnify its officers and directors and
other persons against expenses, judgments, fines and amounts paid in settlement
in connection with threatened, pending or completed suits or proceedings against
such persons by reason of serving or having served as officers, directors or in
other capacities, except in relation to matters with respect to which such
persons shall be determined to have acted not in good faith, unlawfully or not
in the best interest of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock. Such officers, directors
and greater than 10% stockholders are required by the SEC's regulations to
furnish to the Company copies of all forms that they file under Section 16(a).
To the Company's knowledge, based solely on review of the copies of
such forms that were furnished to the Company and representations that no other
reports were required, during the fiscal year ended December 31, 1997, the
Company's officers, directors and greater than 10% stockholders complied with
all filing requirements under Section 16(a) applicable to such persons.
Certain Relationships and Related Transactions
Martin Birrittella, (an officer and director of the Company until his
resignation on December 18, 1996), Meredith W. Birrittella, Myles Birrittella
and Thomas Coleman (an officer and director of the Company until his resignation
on November 22, 1996), collectively owned 23,599 shares of the Company's Series
A Preferred Stock. The Series A Preferred Stock carried stock issuance rights
entitling the holder thereof to the issuance of a maximum aggregate amount of 30
shares of Common Stock for each share of Series A Preferred Stock upon the
achievement of certain targets.
In the 1995 fiscal year, the company's net income exceeded $750,000,
thereby entitling holders of Series A Preferred Stock to an issuance of ten
shares of the Company's Common Stock for each share of Series A Preferred Stock.
On such basis, Meredith W. Birrittella, Martin Birrittella and Thomas Coleman
were collectively entitled to a total of 235,520 shares of Common Stock of the
Company pursuant to their Series A Preferred Stock issuance rights. However,
those individuals relinquished all claim to said 235,520 shares of Common Stock
and, in consideration, the Company granted such individuals ten-year options to
purchase 235,520 shares of the Company's Common Stock at the then-current market
price of $4.50. Myles Birrittella did not relinquish his claim to the 470 shares
of Common Stock to which he was entitled, and the Company issued such shares of
Common Stock to him.
In September 1994, the shareholders of the Company approved a stock
option plan, which provided that Mr. Coleman and Mr. Meredith Birrittella would
receive options to purchase 25,000 shares of Common Stock of the Company at
$4.00 per share for each year of service as an executive officer of the Company
from 1994 through and including 1999. However, in May 1995 both Mr. Coleman,
then a director and executive officer of the Company, and Mr. Birrittella waived
all rights to receive these options. In Consideration of such waiver, the
Company granted to Mr. Coleman options (such options not pursuant to the plan)
to purchase 50,000 shares of Common Stock of the Company at $1.25 per share
(such options exercisable for five years from the date of vesting), 25,000 of
which vested on March 31, 1996. In consideration for Mr. Meredith Birrittella's
waiver, the Company granted to him options (pursuant to the plan) to purchase
100,000 shares of Common Stock of the Company at $1.25 per share (such options
exercisable for five years from the date of vesting), of which 25,000 vested on
May 1, 1995, 25,000 vested on March 31, 1996, 25,000 vested on March 31, 1997,
and the remaining 25,000 vested on March 31, 1998.
As the Company's sales increased in the first quarter of 1996 at a
greater rate than its receivables matured, the Company experienced a shortage of
working capital. To meet these working capital needs during the course of the
Company's negotiations with a commercial lender for a line of credit, the
Company obtained bridge financing in the total amount of $1,272,800 from Martin
P. Birrittella, Meredith W. Birrittella and Warren Schaeffer. On May 6, 1996 the
Company signed a line of credit agreement, and drew upon such facility to fully
satisfy its loans from Messrs. M.P. Birrittella, M.W. Birrittella, and
Schaeffer. In connection with this bridge financing, the Company paid a total of
$9,658 of interest to the aforementioned lenders.
At December 31, 1997, Mr. Meredith Birrittella owed the Company
approximately $380,000. Subsequent to December 31, 1997, the Company loaned Mr.
Warren Schaeffer approximately $800,000 of which $400,000 was repaid on April
15, 1998. These loans bear interest at 6% per annum.
For the year ended December 31, 1997, the Company recognized interest
income of approximately $39,000 from loans to Officers/Directors.
ITEM II.
PROPOSAL TO APPROVE THE COMPANY'S 1998 STOCK OPTION PLAN
On June 10, 1998, the Board of Directors of the Company adopted the
Company's 1998 Joint Incentive and Non-Qualified Stock Option Plan (the "1998
Plan"). The 1998 Plan will not become effective, however, unless approved by the
holders of a majority of the shares of Common Stock present or represented and
voting thereon at the Meeting. The text of the 1998 Plan is set forth in Exhibit
A hereto.
The Company has another stock option plan ( the "1994 Plan") but
options for only 62,500 shares remain issuable under the 1994 Plan. The Board of
Directors believes that a stock option program would be of material benefit to
the Company and that it would enable the Company to attract and retain key
employees, directors, consultants and other individuals providing services to
the Company and its subsidiaries. The Board of Directors also believes that the
best interests of the Company and its stockholders require that the Company be
in a position to offer options to present and prospective personnel.
Under the 1998 Plan, options to purchase up to 500,000 shares of Common
Stock may be granted to key employees of the Company and its subsidiaries, and
directors, consultants and other individuals providing services to the Company
through June 21, 2004. Such options may be intended to qualify as "incentive
stock options" with respect to employees within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, or they may be intended not to
qualify under such Section 422 ("non-qualified stock options").
The 1998 Plan will be administered by the Option Committee of the Board
of Directors (the "Committee"). The 1998 Plan allows the Board of Directors of
the Company to designate a committee of at least two non-employee directors to
administer the 1998 Plan for the purpose of complying with Rule 16b-3(d)(1)
under the Securities Exchange Act of 1934, as amended, with respect to future
grants under the 1998 Plan. The Committee will determine the persons who are to
receive options and the number of shares to be subject to each option. In
selecting individuals for options and determining the terms thereof, the
Committee may consider any factors that it deems relevant, including present and
potential contributions to the success of the Company. Because the officers and
the employees of the Company who may participate in the 1998 Plan and the amount
of their options will be determined on a discretionary basis by the Committee or
the full Board of Directors, it is not possible to state the names or positions
of, or the number of options that may be granted to, the Company's officers and
employees. Options granted under the 1998 Plan must be exercised within a period
fixed by the Committee, which may not exceed ten years from the date of grant,
or, in the case of incentive stock options granted to a holder of more than 10%
of the total combined voting power of all classes of stock of the Company, five
years from the date of grant of the option. Options may be made exercisable
immediately or in installments, as determined by the Committee.
Options granted under the 1998 Plan are not transferrable other than by
will or the laws of descent and distribution during the lifetime of the Optionee
and may be exercised only by the Optionee. The 1998 Plan provides that, in the
case of an incentive stock option, the exercise price of an option may not be
less than the fair market value of the Common Stock on the date of grant of the
option, and, if the optionee is a holder of more than 10% of the total combined
voting power of all classes of stock of the Company, the exercise price of an
option may not be less than 110% of the fair market value of the Common Stock on
the date of grant of the option. The exercise price may be paid in cash, shares
of Common Stock owned by the Optionee, or a combination of cash and shares.
Stock options granted under the 1998 Plan may include the right to
acquire a reload option. If a participant pays all or part of the purchase price
of an option with shares of the Company's Common Stock held by the participant
for at least six months, then upon exercise of the option, the participant is
granted a reload option to purchase, at the fair market value as of the date of
grant of the reload option, the number of whole shares used by a participant in
the payment of the purchase price. A reload option is not exercisable until the
earlier of one year from the date of grant or the first day after the expiration
date of the option being exercised.
The 1998 Plan provides that in the event of changes in the corporate
structure of the Company or certain events affecting the Common Stock, the
Board, or the Committee, may, in its discretion, make adjustments with respect
to the number or kind of shares that may be issued under the 1998 Plan or that
may be covered by outstanding options, or in the exercise price per share, or in
the vesting of any options, or any combination of such terms. The 1998 Plan
provides that in connection with any merger or consolidation in which the
Company is not the surviving corporation and that results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options fully vested under the 1998 Plan will become exercisable in full on and
after (i) 15 days prior to the effective date of such merger, consolidation,
sale, transfer or acquisition or (ii) the date of commencement of such tender
offer or exchange offer, as the case may be. In any such situation, the board is
authorized to give option holders the right to immediately exercise all of their
options, whether fully vested or unvested.
For Federal income tax purposes, an optionee will not recognize any
income upon the grant of a non-qualified stock option or an incentive stock
option.
Upon the exercise of a non-qualified stock option, the optionee will
realize ordinary income equal to the excess (if any) of the fair market value of
the shares purchased upon such exercise over the exercise price. The Company
will be entitled to a deduction from income in the same amount and at the same
time as the optionee realizes such income. Upon the sale of shares purchased
upon such exercise, the optionee will realize capital gain or loss measured by
the difference between the amount realized on the sale and the fair market value
of the shares at the time of exercise of the option.
In contrast, upon the exercise of an incentive stock option, an
optionee will not realize income, and the Company will not be entitled to a
deduction relating thereto. However, the difference between the fair market
value of the shares on the date of exercise and the exercise price constitutes
an item of tax preference for purposes of the calculating an alternative minimum
tax, which, under certain circumstances, could cause tax liability as a result
of an exercise. If the optionee retains the shares issued to him upon exercise
of an incentive stock option for more than one year after the date of issuance
of such shares and two years after the date of grant of the option, then any
gain or loss realized on a subsequent sale of such shares will be treated as
long-term capital gain or loss. If, on the other hand, the optionee sells the
shares issued upon exercise within one year after the date of issuance or within
two years after the date of grant of the option, then the optionee will realize
ordinary income, and the Company will be entitled to a deduction from income, to
the extent of the excess of the fair market value of the shares on the date of
exercise or the amount realized on the sale (whichever is less) over the
exercise price. Any excess of the sale price over the fair market value of such
shares on the date of exercise will be treated as capital gain.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR APPROVAL OF THE 1998 STOCK OPTION 1998 PLAN.
ITEM III.
PROPOSAL TO RATIFY THE REAPPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Arthur Andersen LLP
to serve as independent certified public accountants for the Company for the
fiscal year ending December 31, 1998. The firm of Arthur Andersen LLP,
independent certified public accountants, has been the Company's auditors since
September 1997. Although the Board of Directors is not required to submit its
selection of auditors for ratification at the Meeting, such selection is being
submitted to ascertain the views of stockholders. If the selection is not
ratified, the Board of Directors will reconsider its selection. The Board also
reserves the right to make any change in auditors at any time that it deems
advisable or necessary. One or more representatives of Arthur Andersen LLP are
expected to attend the Meeting and will be given an opportunity to make a
statement and are expected to be available to respond to appropriate questions
from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR RATIFICATION OF THE REAPPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER
31, 1998.
OTHER BUSINESS
The Board of Directors of the Company does not know of any other
matters that may be brought before the Meeting. However, if any such other
matters are properly presented for action, it is the intention of the persons
named in the accompanying form of Proxy to vote the shares represented thereby
in accordance with their judgment on such matters.
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of
1934, as amended, a stockholder intending to submit a proposal to be presented
at the 1999 Annual Meeting of Stockholders must deliver a proposal in writing to
the Company's principal executive offices on or before April 24, 1999.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1997 accompanies this Proxy Statement. The Company is
required to file an Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1997 with the Securities and Exchange Commission. Shareholders may
obtain, free of charge, a copy of the Form 10-KSB (without exhibits) by writing
to Anthony Costanzo, Chief Financial Officer, One Executive Boulevard, Yonkers,
NY 10701.
By order of the
Board of Directors
Warren Schaeffer
Secretary
<PAGE>
EXHIBIT A
1998 JOINT INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN OF PTI HOLDING INC.
1. PURPOSE
The purpose of this Plan, which shall be known as the "1998 Joint
Incentive and Non-Qualified Stock Option Plan" (the "Plan"), is to permit PTI
Holding Inc. (the "Company") and its "subsidiary" corporations, as defined
herein, to attract and retain the best available talent and encourage the
highest level of performance in order to continue to serve the best interests of
the Company and its shareholders. By affording key personnel the opportunity to
acquire proprietary interests in the Company and by providing them incentives to
put forth maximum efforts for the success of the business, the Plan is expected
to contribute to the attainment of those objectives. Options under the Plan may
be granted in the form of incentive stock options ("Incentive Options") as
provided in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or in the form of non-qualified stock options ("Non-Qualified
Options"). Unless otherwise indicated, references in the Plan to "options"
include Incentive Options and Non-Qualified Options.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or, at their discretion, by a stock option committee (the
"Committee"), which shall be appointed by the Board of Directors of the Company
and shall consist of not less than two directors of the Board who shall serve at
the pleasure of the Board. Members of the Committee shall be eligible to
participate in the Plan while a member of the Committee except that the Board
may exclusively appoint two or more non-employee directors to the Committee
pursuant to Rule 16b-3(d)(1) under Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Vacancies occurring in the membership of
the Committee shall be filled by appointment by the Board.
The Board or the Committee, as the case may be (hereinafter, the
"Committee" refers to the Board or Committee, as the case may be, unless
otherwise specified), is authorized, subject to the provisions of the Plan, from
time to time, to establish such rules and regulations and to appoint such agents
as they deem appropriate for carrying out the provisions and purposes of the
Plan. The interpretation and construction by the Committee of any provisions of,
and the determination of any questions arising under, the Plan, any such rule or
regulation, or any agreement granting options under the Plan, shall be final and
conclusive and binding on all persons interested in the Plan.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the Committee present at a meeting at which a quorum is present,
or acts approved in writing by all of its members, shall be acts of the
Committee.
3. SHARES SUBJECT TO THE PLAN
Subject to the Plan, options may be granted under the Plan for shares
of the Company's common stock, $.01 par value ("Common Stock"), and may be made
available from either authorized and unissued shares or issued shares held in
the treasury of the Company. The total amount of shares of Common Stock which
may be delivered upon exercise of options granted under the Plan shall not
exceed 500,000 shares, subject to adjustment in accordance with the provisions
of Paragraph 10 hereof. In the event that any option granted under the Plan
shall terminate, expire or, with the consent of the optionee, be canceled as to
any shares of Common Stock, without having been exercised in full, new options
may be granted covering such shares.
4. AWARD OF OPTIONS
Non-Qualified Options under the Plan may be granted to any person,
including but not limited to employees, directors, independent agents and
consultants who, the Committee believes, has contributed, or will contribute to
the success of the Company. Incentive Options under the Plan may be awarded only
to persons who, at the time such Incentive Options are granted, are employees of
the Company or a subsidiary corporation, as defined herein, including any such
employees who may be directors and shareholders thereof. In determining the
persons to whom options shall be granted and the number of shares covered by
each option, the Committee may take into account the nature of the services
rendered by the respective persons, his or her present and potential
contribution to the success of the Company and such other factors as the
Committee, in its sole discretion, shall deem relevant. Because the officers and
the employees of the Company who may participate in the 1998 Plan and the amount
of their options will be determined on a discretionary basis by the Committee or
the full Board of Directors, it is not possible to state the names or positions
of, or the number of options that may be granted to, the Company's officers and
employees.
Any option granted hereunder shall be evidenced by a stock option
agreement authorized by the Committee and executed by a duly authorized officer
of the Company (the "Stock Option Agreement"). Each Stock Option Agreement shall
specify the number of shares covered by such option and the purchase price per
share and shall contain such terms and conditions not inconsistent with the Plan
as the Committee shall deem appropriate (which terms and conditions need not be
the same in each Stock Option Agreement and may be changed from time to time).
The date on which an option shall be granted shall be the date of the Board's or
the Committee's authorization of such grant or such later date as may be
determined by the Committee at the time such grant is authorized (the "Date of
Grant"). Each Stock Option Agreement may require as conditions of exercise that
the optionee provide such investment representations with respect to, and enter
into such agreements concerning the sale and transfer of, the shares receivable
by the optionee upon exercise, as the Committee deems appropriate. Each Stock
Option Agreement for a Non-Qualified Option shall provide for the withholding of
income taxes and employment taxes that the Company determines it is required to
withhold upon the exercise of such option.
Anything herein to the contrary notwithstanding:
(i) The Company may not, in the aggregate, grant Incentive Options
that are first exercisable by any optionee, during any calendar year to the
extent that the aggregate Fair Market Value (within the meaning of Section 422
of the Code and the treasury regulations promulgated thereunder) of the
underlying stock (determined at the time the Incentive Option is granted) of all
of the options first exercisable by such optionee during such calendar year
(under all such plans of the optionee's employer corporation and its "parent"
and "subsidiary" corporations, as those terms are defined in Section 424 of the
Code) exceeds $100,000.
(ii) The purchase price of each share for which a Non-Qualified
Option is granted and the number of shares covered by such option shall be
within the discretion of the Committee based upon the value of the optionee's
services, the number of outstanding shares of Common Stock, the market price of
such Common Stock, and such other factors as the Committee determines are
relevant; provided however, that such purchase price may not be less than the
par value of the Common Stock. The purchase price of each share for which an
Incentive Option is granted under the Plan (the "Incentive Option Shares") shall
not be less than the amount which the Committee determines, in good faith, at
the time such Incentive Option is granted, constitutes 100% (110%, in the case
of an Incentive Option granted to an employee who, immediately before the Date
of Grant, owns more than 10% of the total combined voting power of all classes
of stock of the Company) of the then Fair Market Value of such Incentive Option
Shares.
5. TERM OF PLAN
The Plan shall terminate ten years from the earlier of the date of
adoption of the Plan or the date the Plan is approved by the shareholders of the
Company. No option may be granted after such termination. Termination of the
Plan, however, shall not affect the rights of optionees under options
theretofore granted to them, and all unexpired options shall continue in force
and operation after termination of the Plan except as they may lapse or
terminate by their own terms and conditions.
6. TERM OF OPTIONS
The period during which any option granted hereunder may be exercised
shall be determined in each case by the Board or the Committee, as the case may
be; however, anything herein to the contrary notwithstanding, options granted
hereunder shall only be exercisable during a period not to exceed ten years from
the Date of Grant (except that in the case of an Incentive Option granted to an
employee who owns, immediately before the Date of Grant, more than 10% percent
of the total combined voting power of all classes of stock of the Company, such
options shall only be exercisable during a period not to exceed five years from
the Date of Grant). Each option shall be subject to such other conditions
regarding its exercise or non-exercise as the Committee may determine.
7. PURCHASE OF OPTION BY COMPANY
The Stock Option Agreement with respect to any option at any time
granted under the Plan may contain a provision to the effect that the optionee
(or any persons entitled to act under Paragraph 8 hereof) may, at any time at
which the Fair Market Value of the Company's Common Stock is in excess of the
purchase price of the option and prior to exercising the option, in whole or in
part, request that the Company purchase all or any portion of the option as
shall then be exercisable at a price equal to the difference between (i) an
amount equal to the purchase price multiplied by the number of shares subject to
that portion of the option in respect of which such request shall be made and
(ii) an amount equal to such number of shares multiplied by the Fair Market
Value of the Company's Common Stock on the date of purchase. The Company shall
have no obligation to make any purchase pursuant to such request, but if it
elects to do so, such portion of the option as to which the request is made
shall be surrendered to the Company. The purchase price for the portion of the
option to be so surrendered shall be paid by the Company, at the election of the
Committee, either in cash or in shares of Common Stock (valued as of the date
and in the manner provided above), or in any combination of cash and Common
Stock, which may consist, in whole or in part, of shares of authorized but
unissued Common Stock or shares of Common Stock held in the Company's treasury.
No fractional share of Common Stock shall be issued or transferred and any
fractional share shall be disregarded. Shares covered by that portion of any
option purchased by the Company pursuant hereto and surrendered to the Company
shall not be available for the granting of further options under the Plan. All
determinations to be made by the Company hereunder shall be made by the
Committee.
8. TERMINATION OF EMPLOYMENT
No option or any portion thereof granted to an employee under the Plan
shall be exercisable by such optionee at any time following the termination of
employment, except that the Stock Option Agreement with respect to options
granted by the Board or the Committee may permit an option to be exercised by
such optionee (or his or her legal representative if the optionee dies or
becomes incompetent) within three months after termination, but only to the
extent the Option was exercisable at the date of termination, and may also
provide that in the event of the death or disability (which, in the case of
Incentive Stock Options, shall mean permanent and total disability as defined in
Section 22(e)(3) of the Code) of the optionee, that the option may be exercised
by such optionee's legal representative, executor or administrator or by his or
her distributee to whom the option may have been transferred by will or by the
laws of descent and distribution within a period of not more than one year after
such death or disability, but only to the extent that it was exercisable at the
date of the termination of such optionee's employment. Whether any leave of
absence shall constitute termination of employment for the purposes of any
option granted under the Plan shall be determined in each case by the Committee
in its sole discretion.
9. PAYMENT FOR SHARES
Each Stock Option Agreement shall provide that payment for shares of
Common Stock purchased upon the exercise of an option (or any portion thereof)
granted hereunder shall be made in full in cash at the time of such exercise.
Notwithstanding the previous sentence, payment for shares of Common
Stock made pursuant to Section 11 may be made in shares of Stock owned by the
Optionee having a market value on the date of exercise equal to the aggregate
purchase price. For purposes of this section, the market value per share of
Common Stock shall be the last sale price on the date of reference, or, in case
no sale takes place on such date, the average of the closing high bid and low
asked prices, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
last sale price reported on the National Market System of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") on such
date, or the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market reported on NASDAQ on such date, whichever
is applicable, or if there are no such prices reported on NASDAQ on such date,
as furnished to the Committee by any New York Stock Exchange member selected
from time to time by the Committee for such purpose. If there is no bid or asked
price reported on any such date, the market value shall be determined by the
Committee in accordance with the regulations promulgated under Section 2031 of
the Code, or by any other appropriate method selected by the Committee.
It shall be a condition to the obligation of the Company to issue or
transfer shares of Common Stock upon the exercise of an option, that the
optionee pay to the Company, upon its demand, such amount as may be requested by
the Company for the purposes of satisfying its liability to withhold federal,
state or local income or other taxes incurred by reason of the exercise of such
option or the transfer of such shares upon such exercise or the purchase of such
option by the Company pursuant to Paragraph 7 hereof.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The total number of shares of Common Stock which may be purchased upon
the exercise of options granted under the Plan shall be appropriately adjusted
by the Committee for any increase or decrease in the number of outstanding
shares of Common Stock resulting from a stock dividend, subdivision, combination
or reclassification of shares or any other change in the corporate structure or
shares of the Company; provided, however, in each case, that, with respect to
Incentive Options, no such adjustment shall be authorized to the extent that
such authority would cause the Plan to violate Section 422(b)(1) of the Code. In
the event of the dissolution or liquidation of the Company or upon any merger or
consolidation thereof, the Committee may make such adjustment with respect to
options or take such other action as it deems necessary or appropriate to
reflect or in anticipation of such dissolution, liquidation, merger or
consolidation including, without limitation, the substitution of new options or
the termination of existing options, except in the case of disability of the
optionee resulting in termination of employment, in which case the option may be
exercised by such optionee's legal representative as set forth in Paragraph 8
hereof.
11. RELOAD OPTIONS
If upon the exercise of an option granted under the Plan (the "Original
Option") the Optionee pays the purchase price for the Original Option pursuant
to Section 9 in whole or in part in shares of Common Stock owned by the Optionee
for at least six months, the Company shall grant to the Optionee on the date of
such exercise an additional option under the Plan (the "Reload Option") to
purchase that number of shares of Common Stock equal to the number of shares of
Common Stock so held for at least six months, that shall have been transferred
to the Company in payment of the purchase price in the exercise of the Original
Option. The price at which each share of Common Stock covered by the Reload
Option may be purchased shall be the market value per share of Common Stock (as
specified by Section 9) on the date of exercise of the Original Option. The
Reload Option shall not be exercisable until one year after the date the Reload
Option is granted or after the expiration date of the Original Option. Upon the
payment of the purchase price for a Reload Option granted hereunder in whole or
in part in shares of Common Stock that shall have been held for more than six
months pursuant to Section 9, the Optionee is entitled to receive a further
Reload Option in accordance with this Section 11. Shares of Common Stock covered
by a Reload Option shall not reduce the number of shares of Common Stock
available under the Plan pursuant to Section 3.
12. ACCELERATION OF EXERCISABILITY
In connection with any merger or consolidation in which the Company is
not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all fully vested
outstanding options under the Plan shall become exercisable in full,
notwithstanding any other provision of the Plan or of any outstanding options
granted thereunder, on and after (i) the fifteenth day prior to the effective
date of such merger, consolidation, sale, transfer or acquisition or (ii) the
date of commencement of such tender offer or exchange offer, as the case may be.
In any such situation the board is authorized to give option holders the right
to immediately exercise all of their options, whether fully vested or unvested.
The provisions of the foregoing sentence shall apply to any outstanding options
which are incentive stock options to the extent permitted by Section 422(d) of
the Code and such outstanding options in excess thereof shall, immediately upon
the occurrence of the event described in clause (i) or (ii) of the foregoing
sentence, be treated for all purposes of the Plan as nonstatutory stock options
and shall be immediately exercisable as such as provided in the foregoing
sentence. Notwithstanding the foregoing, in no event shall any option be
exercisable after the date of termination of the exercise period of such option
specified in Sections 6, 8, 10, and 14.
13. NON-TRANSFERABILITY OF OPTIONS
No option granted to an optionee under the Plan shall be transferred by
such optionee otherwise than by will or the laws of descent and distribution. No
transfer of an option by the optionee by will, by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and a copy of the will and/or
such other evidence as the Company may deem necessary to establish the validity
of the transfer and the acceptance by the transferee or transferees of the terms
and conditions of such option. During the lifetime of the optionee, the option
may only be exercised by the optionee, except in the case of disability of the
optionee resulting in termination of employment, in which case the option may be
exercised by such optionee's legal representative as set forth in Paragraph 8
hereof.
14. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN
The Committee may terminate, and at any time and from time to time, in
any respect, amend or modify the Plan, including the designation of a formula
that determines the amount, price and timing for the granting of options in
accordance with Rule 16b-3(c)(ii); provided, however, that no such action of the
Committee without approval of shareholders, may: (A) materially increase the
benefits accruing to participants under the Plan; (B) materially increase the
amount of Common Stock which may be issued under the Plan; or (C) materially
modify the requirements as to eligibility for participation in the Plan. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any option theretofore granted under the Plan without the consent of the
optionee; but it shall be conclusively presumed that any adjustment for changes
as provided in Paragraph 10 does not adversely affect any such option. Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating to
Incentive Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to disqualify
either the Plan or any Incentive Option under Section 422 of the Code.
15. FINALITY OF DETERMINATIONS
Each termination, interpretation, or other action made or taken by the
Committee pursuant to the provisions of the Plan, shall be final and shall be
binding and conclusive for all purposes and upon all persons.
16. EMPLOYMENT
Nothing in the Plan or in any Stock Option Agreement under the Plan,
shall confer on any person the right to become an employee of the Company or on
any employee any right to continue in the employ of the Company or affect in any
way the right of the Company to terminate his or her employment at any time. o
17. HOLDING PERIOD FOR ss.16(b) INTERESTED PARTIES
No option, or its underlying Common Stock, granted to interested (as
defined under Rule 16 of the Securities Exchange Act of 1934) optionees under
the Plan may be disposed of by an optionee at any time before six months have
elapsed from the date of acquisition of the option, unless such disposition was
the result of exercise or conversion of the option, without violating Rule 16b.
The option is not deemed to have been acquired, and the six-month
holding period shall not commence, until the exercise price of the option is
fixed by the Board or Committee pursuant to Section 4.
18. ADDITIONAL PROVISIONS
It is the intent of the Company that this Plan comply in all respects
with the applicable provisions of Rule 16b-3(c) under the Exchange Act in
connection with any grant of options to, or other transaction by, an optionee
under the Plan who is subject to Section 16 of the Exchange Act (except for
transactions exempted under alternative Exchange Act Rules or acknowledged in
writing to be non-exempt by such optionee). Accordingly, if any provision of
this Plan or any Stock Option Agreement does not comply with the requirements of
Rule 16b-3 as then applicable to any transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 so that such optionee shall avoid liability under
Section 16(b). In addition, the per share price of any option shall be not less
than 50% of the Fair Market Value of the Company's Common Stock at the date of
grant of the option, if such pricing limitation is required in order to comply
with Rule 16b-3 at the time of grant of the option.
Anything herein to the contrary notwithstanding, the Committee may, in
its sole discretion, impose more restrictive conditions on the exercise of an
option granted pursuant to the Plan; however, any and all such conditions shall
be specified in the Stock Option Agreement limiting and defining such option.
19. EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date it is approved by the
shareholders of the Company.
<PAGE>
PTI Holding INC.
ANNUAL MEETING OCTOBER 19, 1998
Nominees for Director:
Meredith W.Birrittella
Myles Birrittella
Warren Schaeffer
Robert Fuhrman
Gary J. Kocher
<TABLE>
PROXY VOTING INSTRUCTIONS Please mark choices in blue or black ink.
The Board of Directors unanimously recommends a vote FOR the nominees and FOR proposals (2), (3) and (4).
<S> <C> <C> <C>
FOR WITHHOLD
1. Election of Directors. (see list above)
__ __
FOR ALL EXCEPT
To withhold authority for an individual nominee,
check this space and write the nominee's
name in the following space: __ __
- ----------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve the Company's 1998 Joint
Incentive and Non-Qualified Stock Option Plan. __ __ __
FOR AGAINST ABSTAIN
3. Proposal to ratify the reappointment of Arthur
Andersen LLP as the Company's independent
certified public accountants for the fiscal
year ending December 31, 1998. __ __ __
FOR AGAINST ABSTAIN
4. To transact such other business as may properly
come before the Annual Meeting and any
adjournments or postponements thereof. __ __ __
Your shares will be voted as directed herein. If signed and no direction is given for any item, it will be voted as recommended
above.
Please return your executed form as soon as possible to
Corporate Stock Transfer, Republic Plaza, 370 17th St., Check this space only if you wish
Suite 2350, Denver, CO 80202-4614 to attend and vote at the meeting. __
If securities are jointly owned, each should sign.
- -----------------------------------
Signature Date
- -----------------------------------
Signature of Joint Owner Date
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. BY RETURNING YOUR VOTING INSTRUCTIONS PROMPTLY, YOU CAN AVOID
THE INCONVENIENCE OF RECEIVING FOLLOW-UP MAILINGS PLUS HELP TO AVOID THE EXPENSES ASSOCIATED WITH SUCH ADDITIONAL MAILINGS.
</TABLE>
<PAGE>
1997
ANNUAL REPORT
TO
SHAREHOLDERS
OF
PTI Holding Inc.
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required) For the fiscal year ended December 31, 1997.
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from to
Commission file number 1-11586
PTI HOLDING INC.
(Name of small business issuer in its charter)
Delaware 13-3590980
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o 15 East North Street, Dover, DE 19901
(Address of principal executive offices) (Zip Code)
(302) 678-0855
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange
on which registered
Common Stock, par value
$.01 per share None
Securities registered under Section 12(g) of the Act:
Title of each class
Common Stock, par value
$.01 per share
-
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. __
State issuer's revenues for its most recent fiscal year: $34,566,135
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days. As of April 1, 1998, based upon the last sale price on such
date, such aggregate market value was $24,572,111.
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of April 1,
1998, 4,796,506 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
PART I
ITEM 1. Description of Business.
History
The Company, formally known as Aerial Assault Inc., was incorporated
under the laws of Delaware in March 1990. Until February 28, 1994, the Company
was engaged in the business of designing, developing and marketing distinctive,
high-performance men's athletic footwear for basketball, and related apparel
bearing the Company's name and logo. The Company commenced sales in February
1992.
On March 1, 1994, the Company acquired Foam-O-Rama, Inc. ("Foam"), a
New York corporation which is principally engaged in the business of the design,
marketing and sale of bicycle helmets, by merging it with and into the company's
wholly-owned operating subsidiary, Protective Technologies International Inc., a
New York corporation ("PTI") pursuant to a Merger Agreement and Plan of
Reorganization dated February 14, 1994 among PTI, Foam and Foam's shareholders.
From and after March 2, 1994, Foam had no separate or independent existence,
having been merged into PTI. For purposes of the transfer of the economic
benefits and risks of such transaction and the ongoing business of Foam, the
acquisition was deemed to have occurred as of the opening of business on January
1, 1994.
On August 5, 1997, the Company consummated the merger (the "Merger") of
Flents Products Co., Inc., a New York corporation ("Flents"), which is
principally engaged in the business of the manufacture of wax earplugs and the
marketing and sale of earplugs and other safety and medical supplies, such as an
eye drop delivery system, styptic devices, and air-filter masks, with and into
the Company's wholly owned subsidiary, Flents Products Co., Inc., a Delaware
corporation ("Merger Sub"), pursuant to an Agreement and Plan of Merger among
the Company, Merger Sub and Flents. For purpose of accounting, the acquisition
was effective as of the opening of business on June 1, 1997, and has been
accounted for as a purchase.
Merger Sub delivered at the closing (the "Closing") of the Merger
$27.46 and 3.47 shares of the common stock, par value $.01 per share of the
Company (the "Company's Common Stock") (with associated convertible value rights
described below) to the shareholders of Flents in respect of each of the 77,756
issued and outstanding shares of the common stock of Flents, or total merger
consideration of $4,837,085. The merger consideration was paid $2,135,435 in
cash, and $2,701,650 in units consisting of 270,165 shares of the Company's
Common Stock and 270,165 Convertible Value Rights ("CVRs"). For purposes of the
Merger, the Units were valued at $10 per Unit. Each CVR entitles the original
holder to up to $4.00 of additional Common Stock of the Company to the extent
that the market value of the Company's Common Stock is less than $10.00 per
share on the one-year anniversary of the Closing.
Products
The Company competes in the bicycle helmet, bicycle and bicycle
accessories industry through its Protective Technologies International Inc.
("PTI") subsidiary, and in the personal care industry through its Flents
Products Co. Inc. ("Flents") subsidiary.
PTI competes in the mass market channel by offering a complete line of
sports safety helmets in toddler through adult sizes. PTI also supplies bicycle
accessory products such as locks, tubes and tires, general accessories,
protective wear and children bicycles.
Flents competes in the ear and eye care portion of the personal care
market. Products include earplugs, eyeglass cleaners, eye patches, eyewash, ear
wax removal, as well as other ear and eye care products. Flents also supplies
general accessories for the eyeglass market.
Manufacturing
The Company assembles and distributes helmets, and distributes bicycles
and bicycle accessory products from its manufacturing facility in New York
State. Ear and eye care products are currently distributed from the Company's
facility in Connecticut; however, the Company plans to consolidate its
operations into its New York State facility in or about May, 1998. The Company
sources out the manufacturing of all the raw components of its helmets,
including the plastic foam liners that constitute the main part of the helmets,
to various manufacturers in the United States. Such independent manufacturers
use molds and tooling that are owned by and for the exclusive use of the Company
in the manufacture of these sub-assembly components. Further, the Company
sources out the manufacturing of its bicycle and bicycle accessory products and
ear and eye care products to certain foreign manufacturers in East Asia and
Europe. Management believes that this outsourcing is the best long-term
arrangement because it enables the Company to reduce its need for capital
expenditures on equipment, and its manufacturing overhead.
However, access to the foreign manufacturers could be adversely
affected by economic or political instability in such foreign countries, and by
currency fluctuations. In addition, the bicycles and bicycle accessories
purchased by the Company for resale are subject to United States custom duties.
Under the fixed duty structure in effect since July 1981, duties range from 8.5%
to 37.5%, plus unit charges, depending on whether the principal component is
leather or some other material. Further, the adoption of bilateral trade
agreements between the United States and countries in which the Company's
suppliers are located, work stoppages or the impositions of unilateral
restrictions on trade, including quotas or additional duties, by either the
United States or any supplier company, could disrupt supplies and/or increase
the costs of obtaining products. The Company is unable to predict whether
additional customs duties, quotas or other restrictions may be imposed on the
importation of its products in the future. Any such action could result in
increases in the cost of bicycles or bicycle accessories and, accordingly, might
adversely affect the sales or profitability of the Company.
Although the Company's operations would be seriously disrupted until
alternative suppliers are found, with a significant adverse financial impact,
the Company believes that such contract manufacturing of raw helmets and tooling
and molds, as well as all of the raw materials required for such manufacturing,
is available from several alternate sources. In addition, the Company believes
that alternative suppliers for the Company's bicycle and bicycle accessory
products and ear and eye care products are available in the event of a
disruption of supply.
Marketing and Distribution
The two largest segments in the bicycle helmet market are mass
merchants and independent bicycle dealers ("IBDs"). The Company historically has
focused its sales goals on servicing the large mass-merchant customers. A large
portion of the helmet sales for children in the United States are due to the
mandatory helmet legislation that has been adopted in many states. Mass
merchants have accounted for a large portion of the purchases motivated by such
legislation because of their low retail prices for helmets relative to the
bicycle dealers. In addition, mass merchants provide the largest order volume
and do not require the extensive distribution channels needed to provide
services to IBDs. The Company's helmets are sold chain-wide in Toys R Us (650
stores), Target stores (800 stores), Sam's Club (430 stores), Sports Authority
(150 stores), and other regional mass merchants.
During 1997, the Company's sales to its single largest customer
constituted approximately 71 percent of its gross revenues, compared to
approximately 65 percent during the 1996 calendar year. Sales to its second
largest customer during the 1997 and 1996 accounted for 15 percent of gross
revenues. The Company believes that its relationships with these accounts are
good.
The Company has entered into a license arrangement with Hasbro, Inc. to
manufacture and market helmets, bicycles and bicycle accessories under the
PlayskoolTM brand name. In addition, the Company has entered into an exclusive
license with Mattel, Inc. to manufacture helmets under the BarbieTM brand name,
as well as a license to sell BarbieTM bicycle accessory products.
Private label manufacturing of helmets and accessories for other
companies in the helmet market has historically constituted a small part of the
Company's business, and remains so to date. The Company's private label
purchasers include Toys-R-Us and Target stores.
Flents Products sells its merchandise to mass market merchandisers,
drug stores, and the food trade. The majority of such sales are made through
independent sales representatives who work exclusively on a commission basis.
Flents ships its products directly to retail customers through common freight
carriers. Flents products are sold in over 30,000 retail locations.
Trademarks and Patents
The Company markets its bicycle helmets, bicycles and bicycle products
under the brand names Protective TechnologiesTM PTITM Hydrogen(R) and Aerial
Assualt(R). The Company markets its ear care products under the brand name Quiet
Please!(R). The Company believes that such trademarks are helpful to the
Company's ability to market its products. To the extent it has not already done
so, the Company plans to apply for registration of such trademarks.
The Company does not currently use or employ any patents material to
its business or operations.
Competition
The bicycle helmet industry is dominated by Bell Sports Corporation
("Bell"), which the company estimates has a 65% market share in the United
States. In addition to Bell, significant competitors include Troxel, Specialized
and Trek, as well as other small manufacturers.
Bell and other competitors have significantly greater financial and
other resources than the Company; however, the Company's ability to compete with
Bell is highlighted by its success at Toys R Us and Target, where it has
replaced Bell as the largest vendor. PTI believes it has become the second
largest manufacturer of bicycle helmet and accessories selling through the mass
merchant channel.
Flents' competitors include many large and small company's, many of
which have an advantage over the company in terms of greater financial resources
and ability to advertise their products to the general public.
Research and Development
The Company's research and development activities include development
of new products, the improvement of existing products and the refinement of its
manufacturing processes. During 1997, the Company spent approximately $117,000
on such research and development, up from approximately $109,000 in 1996. Of the
$117,000 spent on research and development during 1997, PTI spent approximately
$107,000 and Flents spent approximately $10,000.
Employees
As of March 25, 1998, the Company had approximately 250 full-time
employees, including 30 individuals in management, administration and clerical
positions. The Company's employees are not represented by a labor union, and the
Company believes that its relations with employees are satisfactory.
ITEM 2. Description of Property.
The Company's principal facility is a 200,000 square foot warehouse and
assembly facility in Hastings on Hudson, New York. The Company occupies the
facility pursuant to a lease, which expires in 2001. The Company also occupies
approximately 15,000 square feet of warehouse space in Bronx, NY pursuant to a
lease expiring September 1998. The Company also occupies approximately 12,500
square feet of office space in Yonkers, New York pursuant to a lease expiring in
2004. Flents occupies 15,000 square feet of warehouse, assembly, and office
space in Norwalk, Connecticut. This facility is to be closed in May of 1998, and
its operations will be consolidated into the Company's other facilities.
ITEM 3. Legal Proceedings.
Although the Company is a party to a certain litigation, which has
arisen in the usual course of its business, management deems such litigations
immaterial to the Company's financial position, results of operations and future
cash flows.
ITEM 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted during the fourth quarter of the Company's 1997
fiscal year to a vote of security-holders.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Principal market on which the Company's common stock trades is The
NASDAQ Small-Cap Stock Market under the symbol "PTII."
The following table sets forth the high and low sale prices according
to The NASDAQ Stock Market Research Department for the common stock of the
Company during the periods indicated:
NASDAQ Stock Market List Prices
Quarter Ended High Low
March 31, 1996 $ 6.875 $ 4.375
June 30, 1996 $ 9.375 $ 5.750
September 30, 1996 $ 9.625 $ 7.063
December 31, 1996 $10.375 $ 7.750
March 31, 1997 $ 9.250 $ 7.875
June 30, 1997 $ 8.813 $ 7.688
September 30, 1997 $ 9.563 $ 6.875
December 31, 1997 $ 9.625 $ 7.375
The above prices are over-the-counter market quotations and reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and may
not represent actual transactions. The source of such prices is The NASDAQ Stock
Market's monthly statistical summary reports.
As of April 1, 1998, the approximate number of holders of record of the
Company's common stock was 120, and the number of beneficial holders of the
Company's common stock was in excess of 1,300. The Company has not paid
dividends to its shareholders since its inception and does not plan to pay
dividends in the foreseeable future. The Company currently intends to retain any
earnings to finance the growth of the Company.
ITEM 6. Management's Discussion and Analysis
Statements in this Annual Report on Form 10-K concerning the Company's
business outlook or future economic performance; or other financial items; and
plans and objectives related thereto; and statements concerning assumptions made
or expectations as to any future events, conditions, performance or other
matters, are "forward-looking statements" as that term is defined under the
Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from those stated in such statements.
The Company's net sales were $34,566,135 during the year ended December
31, 1997, an increase of 97% from its net sales of $17,529,509 in 1996.
The 97% sales increase from 1996 to 1997 resulted predominantly from
increased sales to existing customers through the addition of new helmet models,
from increased market share at the expense of competitors, from increased sales
in existing models due to growth in the overall helmet market, from increased
sales of the Company's bicycle and bicycle accessory products, from the addition
of new retail outlets for the Company's products, from introducing new accessory
product lines, and from the Company's license arrangements both with Hasbro,
Inc., to manufacture and market helmets, bicycles and bicycle accessories under
the PlayskoolTM brand name, and with Mattel, Inc. to manufacture and market
helmets under the Barbie(TM) name. The results for 1997 also include 7 months of
sales from Flents in the amount of $3,715,425.
The Company had a net loss of $941,295 for the year ended December 31,
1997 compared to the Company's net income for the year ended December 31, 1996
of $1,691,118. The net loss for 1997 included a non-recurring charge for stock
based compensation of $3,636,838. This charge was the result of the Company's
preferred shares held by management and former directors being converted into
common shares pursuant to the terms of the Company's Series A preferred stock.
Without this charge net income for 1997 would have been $2,695,543, an increase
of 59% over net income for 1996. The increase in net income was due to
predominantly higher sales levels.
The cost of sales for the year ended December 31, 1997 was $23,751,353
(resulting in a gross profit margin of 31%), compared to the Company's cost of
sales for the year ended December 31, 1996 of $12,140,542 (resulting in a gross
profit margin of 31%). Flents 7 month gross profit margin contribution
approximated 40%.
Selling, general and administrative for the year ended December 31,
1997 were $9,710,647 compared to selling, general and administrative expenses of
$2,717,851 for the year ended December 31, 1996. Selling, general and
administrative expense was $6,073,809 for 1997 without the charge for conversion
of the preferred shares. Without the charge, SG&A as a percentage of sales were
18% and 16% for the years ended December 31, 1997 and 1996, respectively.
The increased selling, general and administrative spending in 1997 was
primarily due to the higher costs associated with the expansion of the helmet,
bicycle and bicycle accessory business, the acquisition of Flents, and the
higher costs for human resources.
Liquidity and Capital Resources
The Company has satisfied its capital requirements through the proceeds
of its initial public offering of securities, which resulted in net proceeds of
approximately $3,800,000, through the proceeds of a Regulation 'S' private
placement in November 1994, which resulted in gross proceeds of approximately
$751,875, through the exercise of certain outstanding options held by employees
and consultants of the Company, which resulted in net proceeds of approximately
$406,247, through internal cash flow, through PTI's opening of a revolving line
of credit in May, 1996 and through the exercise of public warrants in 1997,
which resulted in gross proceeds of approximately $3,002,000.
The Company's working capital at December 31, 1997 was $10,209,168 as
compared to $5,519,873 at December 31, 1996.
The cash flows of the Company have fluctuated due to the impact of net
income and losses, capital spending, working capital requirements, the issuance
of common stock and other financing activities. The Company expects that cash
flows in the near future will be primarily determined by the levels of net
income, working capital requirements, and financings, if any, undertaken by the
Company. Net cash increased (decreased) by $320,282 and $(607,451) in the years
ended December 31, 1997 and 1996, respectively.
Net cash used in operating activities was $463,798 and $1,691,790 in
the years ended December 31, 1997 and 1996, respectively. Net (loss) income was
$(941,295) and $1,691,118 for the same periods, respectively.
Net cash used in investing activities was $3,414,633 and $269,221 in
the years ended December 31, 1997 and 1996, respectively. Net cash used in
investing activities included capital expenditures of $1,558,784 and $476,039 in
these periods, respectively, primarily for computer and manufacturing equipment.
Net cash provided by financing activities was $4,198,713 and $1,353,560
in the years ended December 31, 1997 and 1996, respectively. Cash flows from
financing activities were primarily affected by the net proceeds from issuance
of common stock of $3,350,234 and $201,838 in these periods, respectively.
During the year ended December 31, 1996 proceeds from the bank loan were
$1,196,199. Net proceeds from the sale of common stock result from option and
warrant exercises.
The Company pays its employees and vendors on a weekly, monthly or
bimonthly basis, while its customers pay for products on an average of 75 days
after shipment, and therefore the Company has substantial needs for working
capital. As of December 31, 1997, the Company had $682,160 of cash available for
its cash needs, compared to cash of $361,878 as of December 31, 1996.
On May 6, 1996, PTI opened a revolving line of credit at Key Bank of
New York. The line of credit is collateralized by the PTI's inventory,
receivables and other assets, and guaranteed by the Company. As of December 31,
1997 the Company had $2,068,261 outstanding pursuant to such line of credit
($7,000,000 available). The Company is currently in discussions with its lender
to increase the availability on its line of credit to a total of $14,000,000,
including $2,000,000 specifically for the future capital expenditures.
Based on the Company's current plans, management anticipates that
current cash balances, together with the Company's line of credit and cash flow
generated from operations, will be sufficient to continue to fund production,
purchase of equipment, increased marketing activities and continued research and
development, as well as the rest of the Company's cash requirements, for
approximately the next 18 months.
The Company's research and development efforts are directed toward
developing new products, improving existing products and refining its
manufacturing processes. Such research and development costs amounted to
approximately $117,000 for the year ended December 31, 1997, approximately
$109,000 for the year ended December 31, 1996 and approximately $54,000 for the
year ended December 31, 1995. It is expected that the Company will spend
approximately $150,000 on research and development during the 1998 year.
Year 2000 Compliance
The Company is currently in the process of finalizing its installation
of the SAP R/3 accounting system, which will be year 2000 compliant. The Company
does not anticipate any material additional costs with regard to its year 2000
compliance.
The year 2000 issue is expected to affect the systems of various
entities with which the Company interacts, including suppliers and vendors.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure by
another company's systems to be year 2000 compliant would not have a material
adverse effect on the Company.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprhensive income and its componenets(revenue, expenses, gains, and losses) in
a full set of general purpose financial statements. The Company does not
anticipate SFAS 130 will have a material impact on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about segments
of an Enterprise and Related Information", which establishes standards for the
way public business enterprises report information about operating segments in
interim and annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS No. 131 in the first quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and other Post-retirement Benefits", which standardizes the
disclosure requirements for pensions and other post-retirement benefits. The
company will adopt SFAS No. 132 in the first quarter of 1998.
ITEM 7. Financial Statements.
Page
Independent Auditor's Report for 1997 F-1
Independent Auditor's Report for 1996 F-2
Consolidated Balance Sheet as of December 31, 1997 F-3
Consolidated Statements of Operations for the years
ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years F-6
ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements F-7 to
F-21
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
<TABLE>
The directors and executive officers of the Company are as follows:
<S> <C> <C> <C>
Executive
Officer or
Director
Name Age Position Since
Meredith W. Birrittella 31 Chairman, Director and Chief Executive 3/21/90
Officer
Anthony Costanzo 28 Chief Financial Officer 10/1/97
Myles Birrittella 34 Director 10/22/96
Robert Fuhrman 69 Director 12/12/96
Warren Schaeffer 40 Director, Secretary and President 3/1/94
of Operating Subsidiary
Gary J. Kocher 34 Director 10/21/97
</TABLE>
Meredith W. Birrittella. Mr. Birrittella, age 31, a co-founder of the
Company, has served as an officer and director since the Company's inception,
and is currently Chairman and C.E.O. of the Company.
Anthony Costanzo. Mr. Costanzo, age 28, became Chief Financial Officer
of the Company in October, 1997. Prior to becoming the CFO, he served as
Treasurer of the Company since February, 1995. Mr. Costanzo has been a Certified
Public Accountant since August 1993. Prior to joining PTI, Mr. Costanzo worked
in Public Accounting from 1991 to 1995.
Myles Birrittella. Mr. Myles Birrittella, age 34, became a director of
the Company in October, 1996. Mr. Birrittella is currently employed by Merrill
Lynch as a financial consultant. For the years 1995 and 1996, prior to his
employment with Merrill Lynch, Mr. Birrittella was a self-employed investor.
From 1992 through 1994, prior to becoming a self-employed investor, Mr.
Birrittella was the National Sales Manager for the Company.
Warren Schaeffer. Mr. Schaeffer, age 40, co-founded Foam, the company
acquired by the Company in March, 1994. Since the acquisition, he has served as
the president of the Operating Subsidiary, and in October, 1996, was elected as
a director of the Company. As of December, 1996, Mr. Schaeffer became the
Secretary of the Company. Prior to his employment by the Operating Subsidiary,
Mr. Schaeffer was the President and a director of Foam.
Robert Fuhrman. Mr. Fuhrman, age 69, has been Chairman of Fuhrman
Associates, Inc. since 1972, serving as a managing and marketing consultant for
a wide variety of consumer product companies. During this period, he has also
served from time to time as an executive of client companies, including
positions as President (CEO) of Eggland's Best, Inc., Marketing Vice President
of Beech-Nut Nutrition Inc. (Baby Food) and Senior Vice President of "Totes."
Gary J. Kocher. Mr. Kocher, age 34, became a director of the Company in
1997. Mr. Kocher is a partner in the law firm of Preston, Gates & Ellis, LLP.
Mr. Kocher's practice includes a broad range of corporate finance and
security-related transactions with an emphasis on public and private offerings
of equity and debt and cross-border transactions.
The Board of Directors is classified into three classes. Directors in
each class are elected for a period of three years at the Company's annual
meeting of shareholders, and each serves until his or her successor is duly
elected by the shareholders. Currently, each director's term in office has
expired and/or such director is serving an interim term until the election of
his successor. Officers are elected by and serve at the will of the Board of
Directors. No inside director receives any compensation for services as a
director. The only two committees of the Board of Directors are the Option
Committee and the Audit Committee, both consisting of Mr. Fuhrman and Mr. Myles
Birrittella. The Company has no executive, nominating, compensation or other
committees. Meredith Birrittella and Myles Birrittella are brothers.
The following persons, each of whom was, at some time during the
Company's 1997 fiscal year, a director, officer or beneficial owner of more than
10 percent of any class of equity securities of the Company, failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934 during such year or prior years:
Name of Number of Number of Transactions
Reporting Person Late Reports Not Filed on Timely Basis
Myles Birrittella 1 1
Robert Fuhrman 1 1
Warren Schaeffer 1 1
Martin Birrittella 2 3
Anthony Costanzo 1 1
Thomas Coleman 2 8
Gary J. Kocher 1 1
<PAGE>
ITEM 10. Executive Compensation.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Securities
Name and Underlying Other Annual
Principal Position Year Salary Bonus Options Compensation (1)
Meredith W. Birrittella 1997 $161,539 -0- 25,000 $2,580
Chief Executive Officer 1996 $155,385 -0- 25,000 $2,424
1995 $131,192 -0- 25,000 $2,024
Warren Schaeffer 1997 $161,539 -0- 25,000 $2,580
Secretary, and President 1996 $130,769 -0- 27,000 $2,424
of Operating Subsidiary 1995 $100,000(2) $50,000(3) -0- $0
Anthony Costanzo 1997 $73,154 $15,000 8,000 $2,580
Chief Financial Officer 1996 $60,462 $10,000 5,000 $2,424
1995 $35,538 - 10,000 $2,024
Warren T. Davies 1997 $196,691 - 40,000 $2,580
President of Operating
Subsidiary
</TABLE>
(1) Consists of dental and health insurance premiums and retirement
plan contributions.
(2) $10,000 of the stated amount has been repaid by Mr. Schaeffer to
the Company in retroactive salary adjustments under an employment agreement
between Mr. Schaeffer and the Company commencing January 1, 1994 (the
"Employment Agreement"). Although the Employment Agreement continues to govern
Mr. Schaeffer's employment with the Company, and remains in full force and
effect with respect to all other provisions, the Board of Directors of the
Company has increased the amount of compensation paid to Mr. Schaeffer pursuant
to the Employment Agreement, as is set forth in the above Summary Compensation
Table.
(3) Accrual of a deferred compensation payment of $100,000 paid by the
Company in March 1996, pursuant to the Employment Agreement, as a result of Mr.
Schaeffer's remaining with the Company throughout the fiscal years of 1994 and
1995.
Inside directors of the Company receive no compensation for serving as
a director; however, the Company's outside directors will receive compensation
in the amount of $7,500 per annum. In addition, on the anniversary of each
outside director's appointment to the Board of Directors, the Company will grant
2,500 options to purchase the Company's common stock to such directors at
exercise prices equal to the closing market price of the Company's common stock
on such date.
<TABLE>
Option Grants In Last Fiscal Year
<S> <C> <C> <C> <C>
Percent of
Name and Principal Number of Securities Total Grants Exercise Expiration
Position Underlying Options to Employees(1) Price Date
Anthony Costanzo 8,000 11.3% 8.00 2/20/02
Chief Financial Officer
Warren T. Davies 40,000 56.5% (2) (2)
President of Operating
Subsidiary
</TABLE>
(1) Does not include stock options granted to consultants or directors
of the Company.
(2) Exercise price and vesting dates are as follows: 10,000 shares
with an exercise price of $9.00 per share, vest on December 31,
1997 and expire on December 31, 2003; 10,000 shares with an
exercise price of $11.00 per share vest on December 31, 1999 and
expire on December 31, 2004; 10,000 shares with an exercise price
of $12.00 per share vest on December 31, 2000 and expire on
December 31, 2005.
Indemnification
The Company's Certificate of Incorporation eliminates or limits the
personal financial liability of the Company's directors, except in situations
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of the law. In addition, the
Company's By-laws include provisions to indemnify its officers and directors and
other persons against expenses, judgments, fines and amounts paid in settlement
in connection with threatened, pending or completed suits or proceedings against
such persons by reason of serving or having served as officers, directors or in
other capacities, except in relation to matters with respect to which such
persons shall be determined to have acted not in good faith, unlawfully or not
in the best interest of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 1, 1998, to the extent
known to the Company, the ownership of the Company's Common Stock by (i) each
person who is known by the Company to own of record or beneficially more than
five percent of the Company's Common Stock, (ii) each of the Company's directors
and executive officers and (iii) all directors and executive officers as a
group. Except as otherwise indicated, the shareholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
<PAGE>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
Martin P. Birrittella
One River Street
Hastings on Hudson, NY 10706 552,698 (1) 11.3%
Meredith W. Birrittella
One River Street
Hastings on Hudson, NY 10706 900,198 (2) 18.1%
Myles Birrittella
One River Street
Hastings on Hudson, NY 10706 3,910 (3) .1%
Robert Fuhrman
One River Street
Hastings on Hudson, NY 10706 2,500 (3) .1%
Gary Kocher
One River Street
Hastings on Hudson, NY 10706 -0- -0-
Thomas Coleman
One River Street
Hastings on Hudson, NY 10706 451,125 (4) 9.2%
Warren Schaeffer
One River Street
Hastings on Hudson, NY 10706 207,000 (5) 4.3%
Anthony Costanzo
One River Street
Hastings on Hudson, NY 10706 24,000 (6) .5%
All directors and
officers as a group
(six persons) 1,140,108 (2)(3)(5)(6) 22.4%
(1) Includes 25,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share,
and 88,320 shares of the Company's Common Stock, which are issuable in respect
of stock options at an exercise price of $4.50.
(2) Includes 100,000 shares of the Company's Common Stock which are
issuable in respect of stock options issued under the Company's 1994 Joint
Incentive and Non-Qualified Stock Option Plan at an exercise price of $1.25 per
share, and 88,320 shares of the Company's Common Stock, which are issuable in
respect of stock options at an exercise price of $4.50.
(3) Includes 2,500 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $8.00 per share.
(4) Includes 50,000 shares of the Company's Common Stock registered
hereunder which are issuable in respect of stock options at an exercise price of
$1.25 per share, and 58,880 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $4.50 per share
(5) Includes 75,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share.
Includes 2,000 shares of the Company's Common Stock which are issuable in
respect of stock options vesting as of December 31, 1996, at an exercise price
of $5.38 per share.
(6) Includes 10,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $2.25 per share.
Includes 5,000 shares of the Company's Common Stock which are issuable in
respect of stock options at an exercise price of $5.375 per share. Includes
8,000 shares of the Company's Common Stock which are issuable in respect of
stock options at an exercise price of $8.00 per share.
ITEM 12. Certain Relationships and Related Transactions.
Martin Birrittella (an officer and director of the Company until his
resignation on December 18, 1996), Meredith Birrittella, Myles Birrittella and
Thomas Coleman (an officer and director of the Company until his resignation on
November 22, 1996), collectively owned 23,599 shares of the Company's Series A
Preferred Stock. The Series A Preferred Stock carried stock issuance rights
entitling the holder thereof to the issuance of a maximum aggregate amount of 30
shares of Common Stock for each share of Series A Preferred Stock upon the
achievement of certain targets.
In the 1995 fiscal year, the Company's net income exceeded $750,000,
thereby entitling holders of Series A Preferred Stock to an issuance of ten
shares of the Company's Common Stock for each share of Series A Preferred Stock.
On such basis, Meredith Birrittella, Martin Birrittella and Thomas Coleman were
collectively entitled to a total of 235,520 shares of Common Stock of the
Company pursuant to their Series A Preferred Stock issuance rights. However,
those individuals relinquished all claim to said 235,520 shares of Common Stock
and, in consideration, the Company granted such individuals ten-year options to
purchase 235,520 shares of the Company's Common Stock at the then-current market
price of $4.50. Myles Birrittella did not relinquish his claim to the 470 shares
of Common Stock to which he was entitled, and the Company issued such shares of
Common Stock to him.
In September 1994, the shareholders of the Company approved a stock
option plan, which provided that Mr. Coleman and Mr. Meredith Birrittella would
receive options to purchase 25,000 shares of Common Stock of the Company at
$4.00 per share for each year of service as an executive officer of the Company
from 1994 through and including 1999. However, in May 1995 both Mr. Coleman,
then a director and executive officer of the Company, and Mr. Birrittella waived
all rights to receive these options. In consideration for such waiver, the
Company granted to Mr. Coleman options (such options not pursuant to the Plan)
to purchase 50,000 shares of Common Stock of the Company at $1.25 per share
(such options exercisable for five years from the date of vesting), 25,000 of
which options vested on May 1, 1995, and 25,000 of which vested on March 31,
1996. In consideration for Mr. Meredith Birrittella's waiver, the Company
granted to him options (pursuant to the Plan) to purchase 100,000 shares of
Common Stock of the Company at $1.25 per share (such options exercisable for
five years from the date of vesting), of which 25,000 vested on May 1, 1995,
25,000 vested on March 31, 1996, 25,000 vested on March 31, 1997, and the
remaining 25,000 vested on March 31, 1998.
As the Company's sales increased in the first quarter of 1996 at a
greater rate than its receivables matured, the Company experienced a shortage of
working capital. To meet these working capital needs during the course of the
Company's negotiations with a commercial lender for a line of credit, the
Company obtained bridge financing in the total amount of $1,272,800 from Martin
P. Birrittella, Meredith W. Birrittella and Warren Schaeffer. On May 6, 1996 the
Company signed a line of credit agreement, and drew upon such facility to fully
satisfy its loans from Messrs. M.P. Birrittella, M.W. Birrittella and Schaeffer.
In connection with this bridge financing, the Company paid a total of $9,658 of
interest to the aforementioned lenders.
At December 31, 1997, Mr. Meredith Birrittella owed the company
approximately $380,000. Subsequent to December 31, 1997, the company loaned Mr.
Warren Schaeffer approximately $800,000 of which $ 400,000 has been repaid on
April 15, 1998. These loans bear interest at 6% per annum.
For the year ended December 31, 1997, the company recognized interest
income of approximately $39,000 from loans to Officers/Directors.
ITEM 13. Exhibits; List and Reports on Form 8-K.
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended, incorporated by
reference to the like numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended,
File No. 33-53466
3.2 Registrant's by-laws, incorporated by reference to the like numbered
exhibit in the Registrant's Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File No. 33-53466
4.1 Resolution of Designation, Powers, Preferences and Rights of Series A
Preferred Stock, incorporated by reference to the like numbered exhibit
in the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-53466
4.2 Form of Warrant of Bridge Loan lenders, incorporated by reference to
the like numbered exhibit in the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, File No.
33-53466
4.3 Form of Warrant included in Units, incorporated by reference to the
like numbered exhibit in the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, File No.
33-53466
4.4 Form of Underwriters' Warrant, incorporated by reference to the like
numbered exhibit in the Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No. 33-53466
10.1 Warrant Agreement dated , 1992 between Corporate Stock Transfer, Inc.
and the Company, incorporated by reference to exhibit number 10.9 in
the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-53466
10.2 Form of Stock Option granted to employees, independent contractors and
consultants, incorporated by reference to exhibit number 10.14 in the
Registrant's Registration Statement on Form SB-2 under the Securities
Act of 1933, as amended, File No. 33-53466
10.3 Agreement and Plan of Merger dated February 14, 1994 among Protective
Technologies International Inc., Foam-O-Rama, Inc., Ellen Schaeffer and
Lori Hillsberg, as amended, incorporated by reference to exhibit number
2 in the Registrant's Current Report on Form 8-K dated March 16, 1994
under the Securities Exchange Act of 1934, as amended
10.4 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Ellen Schaeffer and Lori Hillsberg,
incorporated by reference to exhibit number 99.1 in the Registrant's
Current Report on Form 8-K dated March 16, 1994 under the Securities
Exchange Act of 1934, as amended
10.5 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Warren Schaeffer and Alan
Hillsberg, incorporated by reference to exhibit number 99.2 in the
Registrant's Current Report on Form 8-K dated March 16, 1994 under the
Securities Exchange Act of 1934, as amended
10.6 Form of Promissory Note memorializing loans from directors and officers
as authorized by the Board of Directors on March 13, 1996, incorporated
by reference to exhibit number 10.21 in the Registrant's Annual Report
on Form 10-KSB for the period ended December 31, 1995, under the
Securities Exchange Act of 1934, as amended
10.7 Guarantee from Warren Schaeffer and Alan Hillsberg to Protective
Technologies International Inc., incorporated by reference to exhibit
number 10.21 in the Registrant's Quarterly Report on Form 10-QSB for
the period ended September 30, 1995, under the Securities Exchange Act
of 1934, as amended
10.8 Exclusive License and Purchase Guarantee Agreement, dated July 19, 1994
between Toy Biz, Inc. and the Registrant, incorporated by reference to
exhibit number 10.22 in the Registrant's Quarterly Report on Form
10-QSB for the period ended September 30, 1995, under the Securities
Exchange Act of 1934, as amended
10.9 Amendment #1 dated October 18, 1995 to Warrant Agreement, incorporated
by reference to exhibit number 10.23 in the Registrant's Quarterly
Report on Form 10-QSB for the period ended September 30, 1995, under
the Securities Exchange Act of 1934, as amended
10.10 Line of Credit Agreement (Asset Based), dated May 6, 1996, between Key
Bank of New York, Protective Technologies International Inc., PTI
Holding Inc. and Protective Technologies of America Inc., and
collateral loan documents thereto, incorporated by reference to exhibit
number 10.25 in the Registrant's Quarterly Report on Form 10-QSB dated
March 31, 1996, under the Securities Exchange Act of 1934, as amended
10.11 Financial Advisory and Investment Banking Agreement, dated April 2,
1996, between PTI Holding Inc. and GKN Securities Corp., incorporated
by reference to the like numbered exhibit in Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, dated January
27, 1997, File No. 333-20607
10.12 Amendment #2, dated June 6, 1996 to Warrant Agreement, incorporated by
reference to exhibit number 2 in Registrant's Current Report on Form
8-K dated July 9, 1996, under the Securities Exchange Act of 1934, as
amended
10.13 Merger Agreement and plan of Reorganization dated July 25, 1997 among
PTI Holding Inc. and Flents Products Co., Inc., as amended,
incorporated by reference to exhibit numbers 1 and 2 in the
Registrant's Current Report on Form 8-K date August 20, 1997 under the
Securities Exchange Act of 1934, as amended.
21 Subsidiaries of registrant
(b) Reports on Form 8-K
During the fourth quarter, 1997 the Company filed one
amendment to a Current Report on Form 8-K dated October 15,
1997. Such Amendment included Audited financial statements of
Flents Products Co., Inc. for the period ended May 31, 1997
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PTI HOLDING INC.
By
Meredith W. Birrittella,
Chairman of the Board
Chief Executive Officer (authorized signatory)
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Chief Executive Officer, April 15, 1998
Meredith W. Birrittella Chairman and Director
Chief Financial Officer April 15, 1998
Anthony Costanzo Chief Accounting Officer
Director April 15, 1998
Myles Birrittella
Director April 15, 1998
Robert Fuhrman
Director and Secretary April 15, 1998
Warren Schaeffer
Director April 15, 1998
Gary J. Kocher
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PTI HOLDING INC.
By/s/ Meredith W. Birrittella
Meredith W. Birrittella,
Chairman of the Board
Chief Executive Officer (authorized signatory)
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Meredith W. Birrittella Chief Executive Officer, April 15, 1998
Meredith W. Birrittella Chairman and Director
/s/ Anthony Costanzo Chief Financial Officer April 15, 1998
Anthony Costanzo Chief Accounting Officer
/s/ Myles Birrittella Director April 15, 1998
Myles Birrittella
/s/ Robert Fuhrman Director April 15, 1998
Robert Fuhrman
/s/ Warren Schaeffer Director and Secretary April 15, 1998
Warren Schaeffer
/s/ Gary J. Kocher Director April 15, 1998
Gary J. Kocher
Exhibit 21
List of Subsidiaries of PTI Holding Inc.
Protective Technologies International Inc., a New York Corporation
Flents Products Co., Inc., a Delaware Corporation
Fu-Chung Manufacturing Inc., a Delaware Corporation
Zacko Sports, Inc., a Delaware Corporation
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
PTI Holding Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of PTI Holding Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PTI Holding Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 12, 1998
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
PTI Holding Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of PTI Holding Inc. and subsidiaries for
the year ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
PTI Holding Inc. and subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
D'ARCANGELO & CO., LLP
Purchase, New York
March 4, 1997
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $
682,160
Accounts receivable, net of allowance for returns and doubtful accounts of $108,500 5,227,171
Inventories 7,872,357
Prepaid expenses and other current assets 1,101,103
Deferred tax assets 133,523
-------------------
Total current assets 15,016,314
Deferred tax assets
164,000
Equipment and leasehold improvements, net of accumulated depreciation of $1,458,016 1,673,637
Intangible assets, net of accumulated amortization of $654,387 4,273,019
-------------------
$ 21,126,970
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable, bank $ 2,068,261
Accounts payable and accrued expenses 2,681,886
Other Current Liabilities 56,999
-------------------
Total current liabilities 4,807,146
-------------------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity:
Common stock, $.01 par value; authorized 10,000,000 shares, issued and outstanding
4,796,506 shares 47,965
Capital in excess of par
16,144,815
Note receivable from exercise of common stock warrants (58,322)
Retained earnings
185,366
-------------------
Total stockholders' equity 16,319,824
-------------------
$ 21,126,970
===================
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
-------------------- -------------------
Net sales $ 34,566,135 $ 17,529,509
Cost of sales 23,751,353 12,140,542
-------------------- -------------------
Gross profit 10,814,782 5,388,967
==================== ===================
Selling, general and administrative expenses:
SG&A excluding stock-based compensation 6,073,809 2,717,851
Non-recurring stock-based compensation expense 3,636,838 -
-------------------- -------------------
9,710,647 2,717,851
-------------------- -------------------
Income from operations 1,104,135 2,671,116
Interest expense (income), net of interest income of $100,022 (1997)
and $53,540 (1996) 217,430 (2)
-------------------- -------------------
Income before income taxes 886,705 2,671,118
-------------------- -------------------
Income taxes (benefit):
Current 1,807,000 1,014,000
Deferred 21,000 (34,000)
-------------------- -------------------
1,828,000 980,000
-------------------- -------------------
Net (loss) income $ (941,295) $ 1,691,118
==================== ===================
Net (loss) income per share of common stock:
Basic $ (.23) $ .49
Diluted (.23) .43
Weighted average shares outstanding:
Basic 4,083,209 3,450,751
Diluted 4,083,209 3,918,146
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C> <C> <C> <C> <C>
Common stock
------------------------------
Receivable
from exercise Retained Total
Shares Amount Capital in of stock (deficit) stockholders'
excess of par options and earnings equity
warrants
--------------- ------------- ----------------- --------------- ----------------- ---------------
Balance,
January 1, 1996 3,338,956 $ 33,390 $ 6,212,696 $ (4,688) $ (564,457) $ 5,676,941
Net income - - - - 1,691,118 1,691,118
Collection - - - 4,688 - 4,688
Issuance of common stock 148,980 1,489 195,661 - - 197,150
--------------- ------------- ----------------- --------------- ----------------- -----------------
Balance,
December 31, 1996 3,487,936 34,879 6,408,357 - 1,126,661 7,569,897
Net (loss) - - - - (941,295) (941,295)
Issuances of common stock 1,308,570 13,086 9,736,458 (58,322) - 9,691,222
--------------- ------------- ----------------- --------------- ----------------- -----------------
Balance,
December 31, 1997 4,796,506 $ 47,965 $ 16,144,815 $ (58,322) $ 185,366 $ 16,319,824
=============== ============= ================= =============== ================= =================
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
-------------------- ----------------------
Cash flows from operatinactivities:
Net (loss) income $ (941,295) $ 1,691,118
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Provision for return and doubtful accounts (87,406) 78,906
Depreciation and amortization 539,764 371,761
Amortization of intangible assets 196,513 146,139
Deferred income tax (benefit) 21,000 (34,000)
Stock-based compensation 3,636,838 -
(Increase) decrease in operating assets:
Accounts receivable (933,737) (2,139,935)
Inventories (3,390,435) (2,094,413)
Prepaid expenses and other current assets 88,846 (737,365)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 1,411,002 13,999
Income taxes payable (1,004,888) 1,012,000
----------------- ------------------
Net cash used in operating activities (463,798) (1,691,790)
----------------- ------------------
Cash flows from investing activities:
Cash payments as partial consideration for purchase of acquired
company and acquisition costs, net of cash acquired (1,855,289) -
Purchase of equipment and improvements (1,558,784) (476,039)
Purchase of trademarks (560) (1,932)
Reduction in cash invested to secure letters of credit - 208,750
----------------- ------------------
Net cash used in investing activities (3,414,633) (269,221)
----------------- ------------------
Cash flows from financing activities:
Payments of other current liabilities (23,583) (44,477)
Proceeds from bank loan, net 872,062 1,196,199
Proceeds from exercise of common stock options and warrants 3,350,234 201,838
----------------- ------------------
Net cash provided by financing activities 4,198,713 1,353,560
----------------- ------------------
Net increase (decrease) in cash and cash equivalents 320,282 (607,451)
Cash and cash equivalents, beginning of year 361,878 969,329
----------------- ------------------
Cash and cash equivalents, end of year $ 682,160 $ 361,878
================= ==================
Supplemental disclosures:
Interest paid $ 317,452 $ 53,538
Income taxes paid 3,415,144 2,000
Non-cash investing and financing activities:
Acquisition of business:
Fair value of net assets acquired 2,198,604 -
Resultant goodwill 2,931,572
Common stock issued as partial consideration 2,701,650 -
Conversion of preferred stock 2,500 -
Receivable from exercise of common stock warrants 58,322 -
</TABLE>
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include PTI Holding Inc., (a
Delaware Corporation) and its three wholly-owned subsidiaries:
Protective Technologies International Inc. ("PTI"), Flents Products
Co., Inc. ("Flents") a subsidiary acquired in 1997 (see note 2), and
Zacko Sports, Inc. ("Zacko"), a subsidiary formed in 1996. PTI Holding
Inc. and its subsidiaries are collectively referred to as the Company.
Significant intercompany balances and transactions are eliminated in
consolidation.
Nature of operations:
PTI and Zacko design, manufacture and market bicycle helmets, bicycles
and bicycle accessories for sale principally to domestic retailers.
Flents designs, manufactures and markets earplugs and other safety and
medical supplies such as an eye drop delivery system, styptic devices,
and air filter masks.
The composition of net sales for the year ended December 31, 1997 was
approximately 49% bicycle helmets, 40% bicycles and bicycle accessories,
and 11% Flents products. For the year ended December 31, 1996, sales of
bicycle and bicycle accessories represented approximately 39% of net
sales.
The following table presents sales and other financial information by
business segment for 1997:
<TABLE>
<S> <C> <C> <C> <C>
PTI Products Flents Products Corporate and Eliminations Consolidated
-------------- --------------- ---------------------------- -------------
Sales to unaffiliated customers $ 30,851,000 $ 3,715,000 - $ 34,566,000
Operating (loss) income 748,000 406,000 (50,000) 1,104,000
Identifiable assets 15,049,000 5,077,000 1,001,000 21,127,000
Capital expenditures 1,559,000 - - 1,559,000
Derpreciation 505,000 35,000 - 540,000
</TABLE>
Revenue recognition:
Sales are recognized when products are shipped with payment due in the
normal course of business.
Cash and cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
The carrying amount of cash and cash equivalents approximates fair
value.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Cost includes
material, labor and manufacturing overhead costs.
Depreciation:
Equipment and leasehold improvements are stated at cost. Depreciation of
production equipment and office equipment is provided for using
accelerated methods over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line
method over the related lease term or the estimated useful lives of the
assets, whichever shorter.
Intangible assets:
Goodwill, covenants not to compete, and trademarks are amortized using
the straight-line method over 35 years, 5 years and 17 years,
respectively.
It is the Company's policy to review the carrying value of unamortized
goodwill, and when such review indicates impairment of value, goodwill
would be written-down.
Impairment of long-lived assets:
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
full recoverability is questionable. Management evaluates the
recoverability of its intangible assets and other long-lived assets and
several factors are used in the valuation including, but not limited to,
management's plans for future operations, recent operating results and
projected cash flows.
Income Taxes:
Income taxes are determined under the asset and liability method.
Deferred tax assets and liabilities are determined based upon
differences between the financial reporting and the tax basis of assets
and liabilities.
Research and development costs:
Research and development costs included in selling, general and
administrative expenses are charged to operations as incurred and
amounted to approximately $119,000 and $109,000 for the years ended
December 31, 1997 and 1996, respectively.
Earnings per share of common stock:
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, net earnings per common share amounts
("basic EPS") were computed by dividing net (loss) earnings by the
weighted average number of common shares outstanding and excluded any
potential dilution. Net earnings per common share amounts assuming
dilution ("diluted EPS") were computed by reflecting potential dilution
from the exercise of stock options and warrants. SFAS No. 128 requires
the presentation of both basic EPS and diluted EPS on the face of the
statement of operations. Earnings per share amounts for the prior-year
have been restated to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic
and diluted EPS computations for net (loss) earnings is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------- -----------------------------
Per Share Per share
Net Loss Shares Amounts Net Income Shares Amounts
--------- -------- ----------- ----------- --------- ----------
Basic EPS $ (941,295) 4,083,209 $ (0.23) $ 1,691,118 3,450,751 $ 0.49
Dilutive stock
options & warrants 467,395
---------
Diluted EPS $ (941,295) 4,083,209 $ (0.23) $ 1,691,118 3,918,146 $ 0.43
</TABLE>
The potenially diluted shares that were not included in the computation
of diluted earnings per share because to do so would be antidilutive
consist of stock options and warrants as follows:
Options/Warrants
Year ended December 31, 1997 837,283
Year ended December 31, 1996 -
Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation
expense for stock options issued to employees is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification:
For the comparability, certain 1996 amounts have been reclassified where
appropriate to conform to the financial statement presentation used in
1997.
New Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses,
gains, and losses) in a full set of general purpose financial
statements. The Company will adopt SFAS No. 130 in the first quarter of
1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about segments
of an Enterprise and Related Information", which establishes standards
for the way public business enterprises report information about
operating segments in interim and annual financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company will adopt
SFAS No. 131 in the first quarter of 1998.
2. Business combination:
On August 5, 1997, the Company acquired, Flents Products Co., Inc., a
New York Corporation ("Flents-New York") and concurrently merged
Flents-New York into Flents, the Company's wholly-owned subsidiary
designed for this purpose. After August 5, 1997, Flents-New York had no
separate or independent existence, having merged into Flents. For
purposes of accounting, the acquisition was effective as of the opening
of business on June 1, 1997, and has been accounted for as a purchase.
In exchange for all the outstanding shares of common stock of Flents-New
York, the Company paid $2,135,435 to the shareholders of Flents-New
York, and issued them: 270,165 units consisting of 270,165 shares of the
Company's common stock and 270,165 convertible value rights ("CVRs").
For purposes of the business combination, the units were valued at $10
per unit. Each CVR entitles the original holder to up to $4.00 of
additional common stock of the Company to the extent that the market
value of the Company's common stock is less than $10.00 per share on the
one-year anniversary of the closing (August 5, 1998).
The pro-forma unaudited consolidated results of operations of the
Company for the years ended December 31, 1997 and 1996 as if the
business combination had been completed on January 1, 1996 are as
follows:
1997 1996
------------ ---------
Net sales $ 37,351,000 $ 23,839,000
Income from operations 1,105,000 3,109,000
Net (loss) income (938,000) 1,930,000
Net (loss) income per share of
common stock:
Basic $ (.23) $ .56
Diluted (.23) .49
3. Inventories:
Inventories are summarized as follows:
Raw materials and work-in-process $ 3,014,426
Finished goods 4,857,931
-------------------
$ 7,872,357
===================
4. Equipment and improvements:
Equipment and improvements consist of the following:
Production equipment $ 1,666,569
Office equipment 1,246,934
Leasehold improvements 218,150
------------------
3,131,653
Less accumulated depreciation 1,458,016
------------------
$ 1,673,637
==================
5. Loan payable, bank
On May 6, 1996, the Company entered into a line of credit agreement with
a bank. Under the terms of the agreement, the Company may borrow up to
$7,000,000 based on a percentage of certain accounts receivable and
inventories as defined in the agreement. All borrowings are due on
demand, and are collateralized by substantially all of the Company's
assets. At December 31, 1997, $2,068,261 was outstanding.
The line of credit agreement requires the Company to comply with certain
affirmative covenants, including the maintenance of a minimum current
ratio, minimum quarterly interest ratios and a maximum leverage ratio,
all as defined in the agreement. In addition, certain negative covenants
(which are all defined in the agreement) call for the Company to obtain
the bank's consent prior to business acquisitions, debt guarantees,
sales or transfers of accounts receivable, loans, total annual capital
expenditures in excess of $300,000 (which was waived for 1997), dividend
declarations or payments, distributions of assets, incurring certain
debt, and permitting liens against assets.
The carrying amount of the bank loan payable approximates fair value due
to the debt instrument's market interest rate (9.75% per annum at
December 31, 1997).
6. Commitments:
Employment contracts:
The Company has long-term employment agreements with five of its key
employees and consulting agreements with two consultants. The employment
agreements provide for a minimum annual compensation plus certain fringe
benefits.
The table below shows the aggregate minimum compensation required under
the employment and consulting agreements:
1998 $561,000
1999 431,000
2000 431,000
2001 326,000
2002 134,000
Thereafter 53,000
----------
$1,936,000
Leasing arrangements:
The Company leases office space, manufacturing and warehouse facilities
under operating leases which expire at various dates through the year
2004. In addition to minimum rent, most of the leases require escalation
payments based on operating expenses and/or real estate taxes. One lease
provides the Company with the option to lease additional space.
Minimum payments for operating leases having initial or remaining
non-cancelable terms in excess of one year are as follows:
1998 $826,000
1999 899,000
2000 887,000
2001 330,000
2002 299,000
Thereafter 658,000
----------
$3,899,000
Rent expense for the years ended December 31, 1997 and 1996
totaled approximately $575,000 and $370,000, respectively.
Retirement plan:
Effective January 1, 1998, the Company began sponsoring a defined
contribution plan. The plan covers all eligible employees and provides
for contributions of up to 3% of salary plus an additional discretionary
percentage to be determined annually by resolution of the Board of
Directors.
7. License agreements:
The Company has entered into various licensing agreements requiring
royalty payments based on specified percentages of product sales. The
future minimum guaranteed royalty payments are $257,000 in 1998 and
$214,000 in 1999. Royalty expenses under these licensing agreements
totaled $468,000 in 1997 and $122,000 in 1996.
8. Contingent liabilities:
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the
opinion of management, all such matters are without merit or of such
kind, or involve such amounts, as would not have a material effect on
the financial position and results of operations of the Company if
concluded unfavorably.
While the Company has not experienced any product liability claims, it
presently cannot be determined if its product liability insurance is
adequate to cover any losses that may arise.
9. Series A preferred stock:
The Company's Series A preferred stock which was issued on July 31, 1992
was converted to common stock during 1997. The Series A preferred stock
bore stock issuance rights entitling the holder thereof to the issuance
of 10 shares of common stock, up to a maximum aggregate amount of 30
shares of common stock, for each share of Series A preferred stock for
each of the following conditions that are met: The Company has net
income of $750,000 during any of the three complete fiscal years
immediately after the date of the public offering (December 1992); the
Company has gross revenue of $20,000,000 during any of the five complete
fiscal years after the date of the public offering; the Company has
gross revenue of $35,000,000 during any of the five complete fiscal
years after the date of the public offering; and a cumulative total of
50% of the warrants issued in the public offering have been exercised.
For the year ended December 31, 1995, the Company had net income in
excess of $750,000. Accordingly, the Series A preferred stockholders
were entitled to 10 shares of common stock for each Series A preferred
share owned. However, three preferred stockholders holding an aggregate
of 23,552 preferred shares relinquished their right to receive an
issuance of an aggregate of 235,520 shares of the Company's common
stock. In consideration for relinquishing their rights to that common
stock, the Company granted the three preferred stockholders options to
acquire an aggregate of 235,520 shares of the common stock. The options
have an exercise price of $4.50 (the quoted market price on the
effective date of grant), are outstanding and exercisable as of December
31, 1997, and expire in January, 2006. The three preferred stockholders
are also major common stockholders of the Company. The remaining 14,480
common shares were issued to the other preferred stockholders in 1996.
During the year ended December 31, 1997, the Company's gross revenues
exceeded the $20,000,000 threshold and a cumulative total of 402,390
public warrants (87% of the public warrants) were exercised. As a result
of the Company's meeting these two conditions, an aggregate of 500,000
shares of common stock were issued to holders of the Company's Series A
preferred stock. Approximately 95% of the shares of common stock issued
were issued to either present or former directors, officers, employees
and consultants of the Company. Accordingly, for the year ended December
31, 1997, the Company provided for stock-based compensation of
$3,636,838, resulting from meeting those two additional preferred stock
conditions. The stock issuance for the remaining 5% of the preferred
stock, held by individuals not otherwise involved with the Company, has
no effect on results of operations. The accounting for the $3,636,838
stock-based compensation charge has no effect on the Company's
consolidated net worth or cash flows.
10. Common stock and warrants:
In December 1992, the Company completed a public offering of 400,000
units at $10 per unit. Each unit consisted of two shares of common stock
and one warrant to purchase one share of common stock at an exercise
price of $7.50. In addition, in January 1993, the underwriters exercised
the overallotment provision of the underwriting agreement to purchase an
additional 60,000 units. During the year ended December 31, 1997, an
aggregate of 402,390 warrants were exercised resulting in gross proceeds
of $3,017,925. The remaining 57,610 warrants were cancelled.
In connection with the public offering, the underwriter received
warrants to purchase 40,000 units at an exercise price of $11 per unit.
None of these warrants have been exercised as of December 31, 1997.
During October 1992, the Company issued warrants to purchase 63,750
shares of common stock at $1.65 per share of which 9,000 warrants were
exercised prior to January 1, 1996. The warrants were issued pursuant to
a borrowing that has since been repaid. During the year ended December
31, 1997, 53,250 of these warrants were exercised resulting in total
proceeds of 87,863. The remaining 1,500 warrants expired.
During November and December 1994, the Company completed a private
placement of a total of 318,956 shares of common stock. In connection
with the private placement, the underwriter received warrants to
purchase 62,500 shares of common stock at $3.75 per share and 14,765
shares of common stock at $3.95 per share at any time during the
three-year period commencing in November 1994. These warrants were
exercised during the year ended Deccember 31, 1997 resulting in proceeds
of $233,750 and a note receivable of $58,322.
11. Stock options:
The Company has granted stock options to employees, directors and
consultants pursuant to individual agreements or to its incentive and
non-qualified stock option plan. All options granted are for exercise
prices equal to the quoted market price at date of grant.
The total amount of shares of common stock which may be issued upon
exercise of options granted under the incentive and non-qualified stock
option plan is limited to 350,000 shares. Any options granted, may be
exercisable for a period determined in each case by the Board of
Directors. Except under certain circumstances, such period cannot exceed
ten years from the date of grant. Options may not be granted after the
plan terminates in 2004. However, unexpired options granted will
continue until they lapse or terminate by their own terms and
conditions. Any options granted to employees will expire if not
exercised within three months after termination of employment. Subject
to certain limitations, options may be granted to employees, directors,
consultants, and others who the Board of Directors believes have
contributed or will contribute to the Company.
The table below summarizes plan and non-plan stock option activity for
the past two years:
Weighted average
Number of exercise price
shares
-------------- -----------------
Outstanding, January 1, 1996 427,800 $1.61
Granted 440,520 $2.86
Exercised (134,500) $1.62
Canceled or expired (75,000) $5.875
--------------
Outstanding, December 31, 1996 658,820 $3.57
Granted 111,000 $9.69
Exercised ( 5,500) $4.67
Cancelled or expired ( 20,800) $7.51
--------------
Outstanding, December 31, 1997 743,520 $4.36
==============
Exercisable, December 31, 1997 635,520 $3.46
==============
The weighted average grant date fair value of options granted during the
year ended December 31, 1997 is $9.07 per option.
Options outstanding and exercisable at December 31, 1997 and related
weighted average exercise price and life information follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options outstanding Options exercisable Remaining
---------------------------- ---------------------------
Grant date Shares price Shares price life (years)
----------------- ------------- --------- ------------ ----------- ---------------
1993-1994 24,500 $3.97 24,500 $3.97 1
1995 260,000 $1.29 260,000 $1.29 3
1996 351,020 $5.03 351,020 $5.03 8
1997 108,000 $9.70 - - 4
</TABLE>
The Company follows the disclosure-only
provision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options. Had compensation cost
for the Company's stock options been determined based on the fair value
at the grant date for options granted in 1997 and 1996 consistent with
the provisions of SFAS No. 123, the Company's net (loss) income and
(loss) earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<S> <C> <C>
1997 1996
-------------- ----------------
Net (loss) income, as reported $ (941,295) $ 1,691,118
Net (loss) income, pro forma (276,706) 888,476
Earnings (loss) per share, as reported (.23) .49
</TABLE>
Earnings (loss) per share, pro forma (.30) .26 The pro forma effect
on net (loss) income for 1997 and 1996 does not take into consideration
pro forma compensation expense related to grants made prior to 1995.
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
Expected life (years) 5
Interest rate 7.10%
Volatility - 1997 54.7%
- 1996 66.4%
Dividend yield 0%
12. Significant customers:
Two major retail chain organizations accounted for approximately 71% and
15% of net sales in 1997 and 65% and 15% of net sales in 1996. As of
December 31, 1997, accounts receivable included approximately $2,585,000
and $1,257,000, respectively, due from these two customers. Although
other major retailers are customers, a loss of one or both of these two
established major customers would cause a significant loss of sales and
affect operating results adversely.
13. Income taxes:
<TABLE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets are presented as
follows:
<S> <C> <C> <C>
1997 1996 Change
--------------- ------------------ --------------------
Accounts receivable due to the allowance
for returns and doubtful accounts $ 44,000 $ 74,000 $ (30,000)
Inventories due to additional costs inventoried for
tax purposes and inventory reserves 44,000 40,000 4,000
Equipment and improvements due to depreciation and
amortization 32,000 8,000 24,000
Intangible assets due to differences in amortization
119,000 95,000 24,000
Accounts payable and accrued expenses due to
accrued bonuses and severance costs 59,000 - 59,000
Other - 7,000 (7,000)
--------------- ------------------ --------------------
Total deferred tax assets $ 298,000 $ 224,000 74,000
=============== ==================
Deferred tax asset acquired (95,000)
--------------------
$ (21,000)
====================
</TABLE>
The valuation allowance decreased by $130,000 to $0 for the year ended
December 31, 1996.
The significant components of the income tax provision attributable to
continuing operations for the years ended December 31, 1997 and 1996 are
presented below:
<TABLE>
<S> <C> <C>
1997 1996
------------------- -------------------
Current income tax expense $ 1,832,000 $ 1,256,000
Deferred income tax (exclusive of the effects of the other
components listed below) 21,000 (34,000)
Tax credits (25,000) (71,000)
Tax benefits of operating loss carryforwards - (171,000)
------------------- -------------------
Income taxes $ 1,828,000 $ 980,000
=================== ===================
</TABLE>
The difference between the actual income tax provision and the income
tax provision computed by applying the statutory federal income tax rate
to income from operations for the years ended December 31, 1997 and 1996
is attributable to the following:
<TABLE>
<S> <C> <C>
1997 1996
------------------- -------------------
Income tax provision at 34% $ 302,000 $ 908,000
State income taxes net of federal income tax 307,000 152,000
Intangible assets and amortization 30,000 38,000
Net operating losses - (138,000)
Tax credits (11,000) (55,000)
Stock-based compensation 1,237,000 -
Other (37,000) 75,000
------------------- -------------------
Actual income tax provision $ 1,828,000 $ 980,000
=================== ===================
</TABLE>
The income tax provision of $1,828,000 for the year ended December 31,
1997 is comprised of $1,423,000 of federal income taxes and $405,000 of state
income taxes.
The income tax provision of $980,000 for the year ended December 31,
1996 is comprised of $750,000 of federal income taxes and $230,000 of
state income taxes. For the year ended December 31, 1996, the income tax
provision from continuing operations reflects the utilization of a
$400,000 federal net operating loss carry forward.
14. Related Parties:
At December 31, 1997, an officer/director owed the Company
approximately $380,000 pursuant to a loan. Subsequent to
December 31, 1997, the Company loaned another officer/director
approximately $ 800,000, of which $400,000 is due on April 15,
1998. These loans bear interest at 6% per annum. For the year
ended December 31, 1997, the Company recognized interest
income of approximately $ 39,000 from loans to
officers/directors.
<PAGE>
PTI HOLDING INC.
BOARD OF DIRECTORS
Meredith W. Birrittella
Chairman and Chief Executive Officer
Warren Schaeffer
President Protective Technologies International Inc.
Robert Fuhrman
Chairman Fuhrman Associates, Inc.
Myles Birrittella
Financial Consultant Merrill Lynch
Gary J. Kocher
Partner Preston, Gates & Ellis, LLP
TRANSFER AGENT
Corporate Stock Transfer, Inc.
370 17th Street
Denver, CO 80202
(303) 595-3300
AUDITORS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
CORPORATE COUNSEL
Akabas & Cohen
488 Madison Avenue
New York, NY 10022
ANNUAL MEETING
The annual meeting of shareholders will be held at 10:00 a.m. on Monday,
October 19, 1998 at the offices of Protective Technologies International Inc.
One Executive Boulevard, Yonkers, NY
SHAREHOLDERS REPORTS AND INVESTOR INQUIRIES
Shareholders seeking information about PTI Holding Inc. are invited to
contact Mr. Anthony Costanzo at One Executive Boulevard, Yonkers, NY 10701.
Shareholders may also request to receive, free of charge, copies of the
Company's Form 10-K and 10-Q reports filed with the Securities and Exchange
Commision.
