SUBSCRIPTION AGREEMENT
PTI HOLDING INC.
(a Delaware corporation)
PTI Holding Inc.
One Executive Boulevard,
Yonkers, NY 10701
Ladies and Gentlemen:
I hereby subscribe for the purchase of Two Million One Hundred Seventy
Three Thousand Nine Hundred Thirteen (2,173, 913) shares (the "Shares") of the
Common Stock, $.01 par value per share, of PTI Holding Inc. (the "Company"), at
a price of $.46 per share, or an aggregate purchase price of $1,000,000.00(the
"Purchase Price").
This Agreement represents the subscription by the undersigned for the
Shares. Execution of this Subscription Agreement (the "Agreement") shall
constitute an offer by the undersigned to subscribe for the Shares on the terms
specified herein.
Section 1. Purchase of the Shares. Subject to the terms and conditions
of this Agreement and in reliance upon the representations, warranties,
covenants and agreements contained herein, at the Closing (as herein defined)
the undersigned shall purchase from the Company, and the Company shall issue
sell and deliver, the Shares for the Purchase Price.
1.1 Closing. The "Closing Date" shall be August 15, 2000.
1.2 Payment of the Purchase Price. At the Closing, in full payment for
the Shares to be issued and delivered, the undersigned shall pay the Purchase
Price by cash, check, or wire transfer.
1.3 The Undersigned's Conditions Precedent. The obligations of the
undersigned under this Agreement to proceed with the transactions contemplated
hereby are subject to the fulfillment of the following condition prior to
closing, and the Company shall use its best efforts to cause such condition to
be fulfilled: all defaults under all agreements and instruments in connection
with the Company's financing, currently outstanding, shall be waived by the
Company's current financing and lending sources ("the Lenders"), and the Lenders
shall consent to this Agreement, on terms and by written waiver and consent
reasonably satisfactory in form and substance to the undersigned.
1.4 Undersigned's Right to "Put" the Shares. The undersigned shall have
the right to "Put" to the Company, and upon proper exercise of such Put, the
Company shall repurchase the Shares at the Put Price, as herein defined. The Put
Price shall be equal to the Purchase Price multiplied by 0.9. The Put Price
shall be allocated pro rata among the Shares or any security into which the
Shares are converted or exchanged. The Put shall not be exercisable for a period
of two years from the date hereof. The undersigned shall not exercise the Put at
any time that such exercise shall cause the Company to be in default of any
covenants contained in its then current financing agreements. The Put may be
exercised in whole or in part from time to time.
1.4.1 Exercise of the Put. The undersigned shall notify the
Company in writing of the election to exercise and set forth the number of
Shares with respect to such exercise. The "Put Date" for closing shall be 20
business days after notice of exercise at 10:00 a.m., and the place for payment
of the Put Price shall be the Company's offices, at the address first set forth
above, unless another date is agreed upon by the Company and the undersigned.
Payment of the Put Price shall be made by the Company by delivery to the
undersigned of a certified or bank check payable to the order of the
undersigned. On the Put Date, the undersigned shall deliver certificates for the
Shares together with a stock power, executed in blank, with signature
guaranteed. If any certificates for the Shares shall have been lost, stolen or
destroyed, the undersigned shall sign and deliver to the Company an affidavit of
loss attesting to such loss, theft or destruction, and indemnifying the Company
for all loss or damages incurred in connection therewith. All costs, fees or
taxes attributable to such exercise shall be the responsibility of the Company.
Section 2. Representations and Warranties of the Company. The Company
represents and warrants to the undersigned as follows, and acknowledges that the
undersigned is relying upon such representations and warranties in connection
with the execution, delivery and performance of this Agreement, notwithstanding
any investigation made by the undersigned or on his behalf.
2.1 Consents, Authorizations and Binding Effect.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is qualified to transact business and is in good standing as a foreign
corporation in the jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) conflict with, result in the breach of, constitute a
default, with or without notice and/or lapse of time, under, result in
being declared void or voidable any provision of, or result in any right
to terminate or cancel any contract, lease or agreement to which the
Company or any of its properties is bound;
(ii) constitute a violation of any statute, judgment, order,
decree or regulation or rule of any court, governmental authority or
arbitrator applicable or relating to the Company;
(iii) result in the acceleration of any debt or other obligation
of the Company; or
(iv) conflict with or violate any provision of the Company's
certificate of incorporation or by-laws, in each case as amended through
the date hereof.
2.2 Judgments. No judgments exist against the Company or any of the
Company's assets.
2.3 Litigation and Compliance.
(a) There are no actions, suits, claims or proceedings or
governmental or administrative investigations pending or, to the knowledge of
the Company, threatened, nor, to the knowledge of the Company, is there any
reasonable basis for any such action, suit, claim or proceeding (i) by, against
or otherwise involving any of the Company or any of the Company's officers,
directors, employees or agents or any asset or property of others leased or used
by the Company pursuant to an agreement which, if decided adversely to the
Company, would have a materially adverse effect on the company's financial
condition or (ii) which questions or challenges the validity of this Agreement
or any action taken or to be taken pursuant to this Agreement.
(b) The Company is in substantial compliance with, is not in
default or violation in any material respect under, and has not been charged
with or received any notice at any time of any violation by it of, any statute,
law, ordinance, regulation, decree or order applicable to the business or
operations of the Company.
(c) None of the Company nor the transactions contemplated under
this Agreement is subject to any judgment, order or decree entered in any
lawsuit or proceeding applicable to the business and operations of the Company.
(d) The Company has duly filed all reports and returns required
to be filed by it with governmental authorities and has obtained all
governmental permits and licenses and other governmental consents.
2.4 Securities. The Shares, when sold pursuant to the terms hereof,
shall constitute duly authorized, validly issued, fully paid and
nonassessable shares of the Company's common stock.
Section 3. Representations and Warranties of the Undersigned. The
Undersigned represents and warrants to the Company as follows, and acknowledges
that the Company is relying upon such representations and warranties in
connection with the execution, delivery and performance of this Agreement,
notwithstanding any investigation made by the Company or on its behalf.
3.1 Risk Factors. The undersigned has reviewed and fully understands
each of the RISK FACTORS, attached hereto as EXHIBIT A, involved in an
investment in the Company and agrees that the undersigned's execution and
delivery of this Subscription Agreement shall constitute an acknowledgment by
the undersigned that: (i) the undersigned has read and understands all such RISK
FACTORS; (ii) if the undersigned has received or reviewed a business plan,
offering memorandum or projection of future performance of the Company, he has
not relied upon such documents as the basis of, or an influencing factor with
respect to, his decision to subscribe to invest in the Company; and (iii) there
is no basis for projecting the profits or losses that might result from the
Company's operations.
3.2 Not Dependent upon Investment. The undersigned (i) has adequate
means of providing for the undersigned's current needs and possible
contingencies, apart from any income that the undersigned might earn from an
investment in the Company, and the undersigned has no need for liquidity of the
undersigned's investment in the Company, (ii) can bear the economic risk of
losing the undersigned's entire investment therein, and (iii) has, alone, such
knowledge and experience that the undersigned is capable of evaluating the
relative risks and merits of this investment.
3.3 Subscriber's Status.
3.3.1 The undersigned, if an individual, is more than 21 years
old. The undersigned has consulted with tax and legal counsel selected by the
undersigned, and has reviewed with such counsel the Company's Annual Report on
Form 10-K for the year ended12/31/99 and Quarterly Report on Form 10-Q for the
quarter ended 3/31/00 (the A34 Docs"), and this Subscription Agreement, and the
merits of an investment in the Company. The undersigned, together with such
persons, has sufficient knowledge and experience in business and financial
matters to evaluate the merits and the risks of an investment in the Company,
and the undersigned, fully aware of the risks involved, has determined that an
investment in the Company is consistent with the undersigned's investment
objectives. The undersigned is relying solely on the undersigned's own tax
advisors with respect to the tax factors relating to an investment in the
Company.
3.3.2 The undersigned is an Accredited Investor as defined in
Rule 501 of the Securities Act of 1933, as amended (the "Act") and satisfies at
least one of the following categories:
(a) a corporation, partnership, trust or llc, not formed for the
specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(b) a director, or executive officer of the Company;
(c) a natural person whose individual net worth, or joint net
worth with that person's spouse at the time of his purchase
exceeds $1,000,000;
(d) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same
income level in the current year; and
(e) an entity in which all of the equity owners are accredited
investors.
3.3.3 The subscriber, if an entity, is duly organized, validly
existing and in good standing under the under the laws of the state of its
organization.
3.3.4 The undersigned, if signing on behalf of an entity, has
been duly authorized to execute and deliver this agreement, and such agreement
has been duly authorized by such entity's governing body and constitutes the
legal, valid and binding obligation of such entity.
3.4 Subscriber's Address. The address set forth below is the
undersigned's true and correct residence, and the undersigned has no present
intention of becoming a resident of any other state or jurisdiction.
3.5 Familiarity with Company. All documents, records and books
pertaining to an investment in the Company requested by the undersigned have
been made available or delivered to, and have been examined by, him, and the
undersigned has had an opportunity to ask questions of and receive answers from
the principals of the Company concerning the terms and conditions of this
investment; provided, however, that the undersigned acknowledges that he is not
relying upon any information, representation, warranty or promise that is not
contained herein.
3.6 No Purchaser Representative. The undersigned has not utilized the
services of a "Purchaser Representative" ( as defined in Regulation D,
promulgated under the Act).
3.7 No Public Sales Efforts. The Undersigned is not entering into this
Subscription Agreement as a result of or subsequent to: (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
other publication or broadcast over television or radio; (ii) any seminar or
meeting open to the public; or (iii) any solicitation of a subscription by a
person not previously known to him in connection with investments in securities
generally.
3.8 No Representations. The undersigned confirms that no representations
or warranties have been made to the undersigned by the Company or any of its
principals, officers or voting members or any agent, employee or affiliate of
any of them, and that in entering into this transaction the undersigned is not
relying upon information, other than as expressly set forth in Section 1 herein,
the 34 Docs and the results of the undersigned's own independent investigation.
The undersigned hereby also confirms that he did not rely upon any
representation or warranty contained in any business plan, projection, or
offering documents with respect to a prior distribution of the Company's
securities which may have been distributed by the Company or affiliates thereof,
and that in entering into this transaction the undersigned is not relying upon
information contained in any such documents.
Section 4. Shares Not Registered. The undersigned understands that the
Shares are not registered under the Act, and must be held by the undersigned
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. The undersigned understands that
the resale of such Shares will be restricted so that such resale may be made
only in accordance with the appropriate exemptions (including holding such
Shares for periods of time specified in Rule 144 promulgated under the Act and
compliance with the other provisions thereof, if such exemption is available),
or registration under the Act. The undersigned is aware of the risks of an
investment in restricted securities and has no need for any income from his
investment in the Shares and can afford to lose his entire investment.
Section 5. Restrictive Legend. The undersigned understands that all
certificates evidencing Shares will bear a legend substantially in the
following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws. These securities may not be sold, transferred, pledged
or hypothecated in the absence of an effective registration statement
for the securities under said Act or an opinion of counsel and other
assurances satisfactory to the Company prior to the transaction that
registration under said Act is not required.
Section 6. Restrictions on Transfer. The undersigned hereby agrees as
follows:
(a) If the undersigned, or any subsequent holder, desires to
transfer any of the Shares, such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts presented
to said Commission, or (ii) upon receipt by the Company of an opinion of
counsel, in either case to the effect that the proposed transfer will not
violate the provisions of the Act, the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated under either such act.
(b) Prior to any such proposed transfer, and as a condition
thereto, the undersigned, or any subsequent holder, will, if requested by the
Company, deliver to the Company an investment letter setting forth investment
representations of the proposed transferee and such proposed transferee's
covenant to comply with the transfer provisions set forth in this Section 4,
signed by the proposed transferee.
(c) The Company may place a stop order with its transfer agent
and registrar, if any, with respect to any of the Shares or any certificates
into which such Shares are exchanged.
Section 7. Further Actions. Each party shall execute such other
documents and instruments as shall be requested by the other party in order
fully to accomplish the purposes of this Agreement.
Section 8. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions contemplated
by this Agreement and supersedes all prior arrangements or understandings with
respect thereto.
Section 9. Construction.
(a) The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(b) Any pronoun herein shall include all genders and/or the
plural or singular as appropriate from the context.
Section 10. Assignability. This Agreement shall not be assignable
otherwise than by operation of law by any party hereto without the prior written
consent of the other parties, and any purported assignment without such prior
written consent shall be null and void, except that the Company may assign this
Agreement in connection with a sale of all or substantially all of its assets.
Section 11. Notices. All notices or other communications given or made
hereunder shall be deemed given if in writing and delivered personally or mailed
by registered or certified mail, return receipt requested, or by overnight
courier procuring a return receipt, postage prepaid, to the undersigned at the
address set forth below and to the Company at the address first set forth above.
Section 12. Counterparts. This Agreement may be executed in multiple
counterparts all of which taken together shall constitute one and the same
instrument.
Dated: July 25, 2000
Very truly yours,
MEREDITH BIRRITTELLA
ADDRESS FOR ALL NOTICES:
SSN or other Taxpayer
I.D.
ACCEPTED:
PTI HOLDING INC.
By:
Name:
Title:
<PAGE>
SUBSCRIPTION AGREEMENT
PTI HOLDING INC.
(a Delaware corporation)
PTI Holding Inc.
One Executive Boulevard,
Yonkers, NY 10701
Ladies and Gentlemen:
I hereby subscribe for the purchase of Two Million One Hundred Seventy
Three Thousand Nine Hundred Thirteen (2,173, 913) shares (the "Shares") of the
Common Stock, $.01 par value per share, of PTI Holding Inc. (the "Company"), at
a price of $.46 per share, or an aggregate purchase price of $1,000,000.00(the
"Purchase Price").
This Agreement represents the subscription by the undersigned for the
Shares. Execution of this Subscription Agreement (the "Agreement") shall
constitute an offer by the undersigned to subscribe for the Shares on the terms
specified herein.
Section 1. Purchase of the Shares. Subject to the terms and conditions
of this Agreement and in reliance upon the representations, warranties,
covenants and agreements contained herein, at the Closing (as herein defined)
the undersigned shall purchase from the Company, and the Company shall issue
sell and deliver, the Shares for the Purchase Price.
1.1 Closing. The "Closing Date" shall be August 15, 2000.
1.2 Payment of the Purchase Price. At the Closing, in full payment for
the Shares to be issued and delivered, the undersigned shall pay the Purchase
Price by cash, check, or wire transfer.
1.3 The Undersigned's Conditions Precedent. The obligations of the
undersigned under this Agreement to proceed with the transactions contemplated
hereby are subject to the fulfillment of the following condition prior to
closing, and the Company shall use its best efforts to cause such condition to
be fulfilled: all defaults under all agreements and instruments in connection
with the Company's financing, currently outstanding, shall be waived by the
Company's current financing and lending sources ("the Lenders"), and the Lenders
shall consent to this Agreement, on terms and by written waiver and consent
reasonably satisfactory in form and substance to the undersigned.
1.4 Undersigned's Right to "Put" the Shares. The undersigned shall have
the right to "Put" to the Company, and upon proper exercise of such Put, the
Company shall repurchase the Shares at the Put Price, as herein defined. The Put
Price shall be equal to the Purchase Price multiplied by 0.9. The Put Price
shall be allocated pro rata among the Shares or any security into which the
Shares are converted or exchanged. The Put shall not be exercisable for a period
of two years from the date hereof. The undersigned shall not exercise the Put at
any time that such exercise shall cause the Company to be in default of any
covenants contained in its then current financing agreements. The Put may be
exercised in whole or in part from time to time.
1.4.1 Exercise of the Put. The undersigned shall notify the
Company in writing of the election to exercise and set forth the number of
Shares with respect to such exercise. The "Put Date" for closing shall be 20
business days after notice of exercise at 10:00 a.m., and the place for payment
of the Put Price shall be the Company's offices, at the address first set forth
above, unless another date is agreed upon by the Company and the undersigned.
Payment of the Put Price shall be made by the Company by delivery to the
undersigned of a certified or bank check payable to the order of the
undersigned. On the Put Date, the undersigned shall deliver certificates for the
Shares together with a stock power, executed in blank, with signature
guaranteed. If any certificates for the Shares shall have been lost, stolen or
destroyed, the undersigned shall sign and deliver to the Company an affidavit of
loss attesting to such loss, theft or destruction, and indemnifying the Company
for all loss or damages incurred in connection therewith. All costs, fees or
taxes attributable to such exercise shall be the responsibility of the Company.
Section 2. Representations and Warranties of the Company. The Company
represents and warrants to the undersigned as follows, and acknowledges that the
undersigned is relying upon such representations and warranties in connection
with the execution, delivery and performance of this Agreement, notwithstanding
any investigation made by the undersigned or on his behalf.
2.1 Consents, Authorizations and Binding Effect.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is qualified to transact business and is in good standing as a foreign
corporation in the jurisdictions where it is required to qualify.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement does not and will not:
(i) conflict with, result in the breach of, constitute a
default, with or without notice and/or lapse of time, under, result in
being declared void or voidable any provision of, or result in any right
to terminate or cancel any contract, lease or agreement to which the
Company or any of its properties is bound;
(ii) constitute a violation of any statute, judgment, order,
decree or regulation or rule of any court, governmental authority or
arbitrator applicable or relating to the Company;
(iii) result in the acceleration of any debt or other obligation
of the Company; or
(iv) conflict with or violate any provision of the Company's
certificate of incorporation or by-laws, in each case as amended through
the date hereof.
2.2 Judgments. No judgments exist against the Company or any of the
Company's assets.
2.3 Litigation and Compliance.
(a) There are no actions, suits, claims or proceedings or
governmental or administrative investigations pending or, to the knowledge of
the Company, threatened, nor, to the knowledge of the Company, is there any
reasonable basis for any such action, suit, claim or proceeding (i) by, against
or otherwise involving any of the Company or any of the Company's officers,
directors, employees or agents or any asset or property of others leased or used
by the Company pursuant to an agreement which, if decided adversely to the
Company, would have a materially adverse effect on the company's financial
condition or (ii) which questions or challenges the validity of this Agreement
or any action taken or to be taken pursuant to this Agreement.
(b) The Company is in substantial compliance with, is not in
default or violation in any material respect under, and has not been charged
with or received any notice at any time of any violation by it of, any statute,
law, ordinance, regulation, decree or order applicable to the business or
operations of the Company.
(c) None of the Company nor the transactions contemplated under
this Agreement is subject to any judgment, order or decree entered in any
lawsuit or proceeding applicable to the business and operations of the Company.
(d) The Company has duly filed all reports and returns required
to be filed by it with governmental authorities and has obtained all
governmental permits and licenses and other governmental consents.
2.4 Securities. The Shares, when sold pursuant to the terms hereof,
shall constitute duly authorized, validly issued, fully paid and
nonassessable shares of the Company's common stock.
Section 3. Representations and Warranties of the Undersigned. The
Undersigned represents and warrants to the Company as follows, and acknowledges
that the Company is relying upon such representations and warranties in
connection with the execution, delivery and performance of this Agreement,
notwithstanding any investigation made by the Company or on its behalf.
3.1 Risk Factors. The undersigned has reviewed and fully understands
each of the RISK FACTORS, attached hereto as EXHIBIT A, involved in an
investment in the Company and agrees that the undersigned's execution and
delivery of this Subscription Agreement shall constitute an acknowledgment by
the undersigned that: (i) the undersigned has read and understands all such RISK
FACTORS; (ii) if the undersigned has received or reviewed a business plan,
offering memorandum or projection of future performance of the Company, he has
not relied upon such documents as the basis of, or an influencing factor with
respect to, his decision to subscribe to invest in the Company; and (iii) there
is no basis for projecting the profits or losses that might result from the
Company's operations.
3.2 Not Dependent upon Investment. The undersigned (i) has adequate
means of providing for the undersigned's current needs and possible
contingencies, apart from any income that the undersigned might earn from an
investment in the Company, and the undersigned has no need for liquidity of the
undersigned's investment in the Company, (ii) can bear the economic risk of
losing the undersigned's entire investment therein, and (iii) has, alone, such
knowledge and experience that the undersigned is capable of evaluating the
relative risks and merits of this investment.
3.3 Subscriber's Status.
3.3.1 The undersigned, if an individual, is more than 21 years
old. The undersigned has consulted with tax and legal counsel selected by the
undersigned, and has reviewed with such counsel the Company's Annual Report on
Form 10-K for the year ended12/31/99 and Quarterly Report on Form 10-Q for the
quarter ended 3/31/00 (the A34 Docs"), and this Subscription Agreement, and the
merits of an investment in the Company. The undersigned, together with such
persons, has sufficient knowledge and experience in business and financial
matters to evaluate the merits and the risks of an investment in the Company,
and the undersigned, fully aware of the risks involved, has determined that an
investment in the Company is consistent with the undersigned's investment
objectives. The undersigned is relying solely on the undersigned's own tax
advisors with respect to the tax factors relating to an investment in the
Company.
3.3.2 The undersigned is an Accredited Investor as defined in
Rule 501 of the Securities Act of 1933, as amended (the "Act") and satisfies at
least one of the following categories:
(a) a corporation, partnership, trust or llc, not formed for the
specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(b) a director, or executive officer of the Company;
(c) a natural person whose individual net worth, or joint net
worth with that person's spouse at the time of his purchase
exceeds $1,000,000;
(d) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching the same
income level in the current year; and
(e) an entity in which all of the equity owners are accredited
investors.
3.3.3 The subscriber, if an entity, is duly organized, validly
existing and in good standing under the under the laws of the state of its
organization.
3.3.4 The undersigned, if signing on behalf of an entity, has
been duly authorized to execute and deliver this agreement, and such agreement
has been duly authorized by such entity's governing body and constitutes the
legal, valid and binding obligation of such entity.
3.4 Subscriber's Address. The address set forth below is the
undersigned's true and correct residence, and the undersigned has no present
intention of becoming a resident of any other state or jurisdiction.
3.5 Familiarity with Company. All documents, records and books
pertaining to an investment in the Company requested by the undersigned have
been made available or delivered to, and have been examined by, him, and the
undersigned has had an opportunity to ask questions of and receive answers from
the principals of the Company concerning the terms and conditions of this
investment; provided, however, that the undersigned acknowledges that he is not
relying upon any information, representation, warranty or promise that is not
contained herein.
3.6 No Purchaser Representative. The undersigned has not utilized the
services of a "Purchaser Representative" ( as defined in Regulation D,
promulgated under the Act).
3.7 No Public Sales Efforts. The Undersigned is not entering into this
Subscription Agreement as a result of or subsequent to: (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
other publication or broadcast over television or radio; (ii) any seminar or
meeting open to the public; or (iii) any solicitation of a subscription by a
person not previously known to him in connection with investments in securities
generally.
3.8 No Representations. The undersigned confirms that no representations
or warranties have been made to the undersigned by the Company or any of its
principals, officers or voting members or any agent, employee or affiliate of
any of them, and that in entering into this transaction the undersigned is not
relying upon information, other than as expressly set forth in Section 1 herein,
the 34 Docs and the results of the undersigned's own independent investigation.
The undersigned hereby also confirms that he did not rely upon any
representation or warranty contained in any business plan, projection, or
offering documents with respect to a prior distribution of the Company's
securities which may have been distributed by the Company or affiliates thereof,
and that in entering into this transaction the undersigned is not relying upon
information contained in any such documents.
Section 4. Shares Not Registered. The undersigned understands that the
Shares are not registered under the Act, and must be held by the undersigned
indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. The undersigned understands that
the resale of such Shares will be restricted so that such resale may be made
only in accordance with the appropriate exemptions (including holding such
Shares for periods of time specified in Rule 144 promulgated under the Act and
compliance with the other provisions thereof, if such exemption is available),
or registration under the Act. The undersigned is aware of the risks of an
investment in restricted securities and has no need for any income from his
investment in the Shares and can afford to lose his entire investment.
Section 5. Restrictive Legend. The undersigned understands that all
certificates evidencing Shares will bear a legend substantially in the following
form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under any state
securities laws. These securities may not be sold, transferred, pledged
or hypothecated in the absence of an effective registration statement
for the securities under said Act or an opinion of counsel and other
assurances satisfactory to the Company prior to the transaction that
registration under said Act is not required.
Section 6. Restrictions on Transfer. The undersigned hereby agrees as
follows:
(a) If the undersigned, or any subsequent holder, desires to
transfer any of the Shares, such transfer may be made only either (i) upon
publication by the Securities and Exchange Commission (the "Commission") of a
ruling, interpretation, opinion or "no action letter" based upon facts presented
to said Commission, or (ii) upon receipt by the Company of an opinion of
counsel, in either case to the effect that the proposed transfer will not
violate the provisions of the Act, the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated under either such act.
(b) Prior to any such proposed transfer, and as a condition
thereto, the undersigned, or any subsequent holder, will, if requested by the
Company, deliver to the Company an investment letter setting forth investment
representations of the proposed transferee and such proposed transferee's
covenant to comply with the transfer provisions set forth in this Section 4,
signed by the proposed transferee.
(c) The Company may place a stop order with its transfer agent
and registrar, if any, with respect to any of the Shares or any certificates
into which such Shares are exchanged.
Section 7. Further Actions. Each party shall execute such other
documents and instruments as shall be requested by the other party in order
fully to accomplish the purposes of this Agreement.
Section 8. Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions contemplated
by this Agreement and supersedes all prior arrangements or understandings with
respect thereto.
Section 9. Construction.
(a) The descriptive headings of this Agreement are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
(b) Any pronoun herein shall include all genders and/or the
plural or singular as appropriate from the context.
Section 10. Assignability. This Agreement shall not be assignable
otherwise than by operation of law by any party hereto without the prior written
consent of the other parties, and any purported assignment without such prior
written consent shall be null and void, except that the Company may assign this
Agreement in connection with a sale of all or substantially all of its assets.
Section 11. Notices. All notices or other communications given or made
hereunder shall be deemed given if in writing and delivered personally or mailed
by registered or certified mail, return receipt requested, or by overnight
courier procuring a return receipt, postage prepaid, to the undersigned at the
address set forth below and to the Company at the address first set forth above.
Section 12. Counterparts. This Agreement may be executed in multiple
counterparts all of which taken together shall constitute one and the same
instrument.
Dated: July 25, 2000
Very truly yours,
WARREN SCHAEFFER
ADDRESS FOR ALL NOTICES:
SSN or other Taxpayer
I.D.
ACCEPTED:
PTI HOLDING INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
RISK
FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk. Common Stock should not be purchased by a person who cannot afford the
loss of his or her entire investment. The following risks should be considered
carefully in evaluating the Company and its business prior to purchasing any of
the Common Stock offered hereby.
1. New Acquisitions. On August 5, 1997, the Company consummated the
merger of Flents Products Co., Inc., a New York corporation ("FPC"), which was
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 ("Flents").
On April 14, 1999, Flents consummated an asset acquisition of Karlen
Manufacturing, Inc. ("Karlen"). The Company acquired substantially all of the
net operating assets of Karlen. The Karlen operation, which is based in
Michigan, is in the business of manufacturing, marketing and selling personal
health and beauty care items, including some products similar to those sold by
Flents. The purchase price was $17,750,000, excluding acquisition costs.
To finance the Karlen acquisition, at the Closing, the Company's
subsidiaries borrowed approximately $16,000,000 for the acquisition, in addition
to such subsidiaries ordinary working capital financing.
Interest expense, net of interest income, for the Company for the three
months ended March 31, 2000 was $704,202, compared to net interest expense of
$264,572 for the three months ended March 31, 1999. The increase in net interest
expense from 1999 to 2000 was due primarily to the financing costs associated
with the acquisition of Karlen. Net interest expense for Flents was $494,223 for
the three months ended March 31, 2000, and $93,488 for the quarter ended March
31, 1999.
The Company had a net loss of ($206,628) for the year ended December 31,
1999 compared to the Company's net income for the year ended December 31, 1998
of $2,492,229. The reduction in earnings from 1998 to 1999 resulted in
significant part from and the financing costs associated with the acquisition of
Karlen.
The Company had a net loss of ($553,943) for the three months ended March
31, 2000 compared to the Company's net income for the three months ended March
31, 1999 of $485,063. The reduction in earnings resulted in significant part
from the financing costs associated with the acquisition of Karlen.
If the acquired companies do not perform as expected, the Company's
operating results in the short and long term could be materially adversely
affected. Additionally, the Company is likely to experience undercapitalization,
cash shortages, set backs in product development and other risks common to
expanding businesses.
2. Recent Losses. The Company operated at a loss for the fiscal year
ended December 1999 and the most recent quarter ended March 31, 2000 (See Risk
Factor #1 "New Acquisitions" above). The Company believes that such losses are
attributable to the cost of the acquisitions, increased finance charges relating
to the acquisitions, reduced margins on goods sold and the increased cost of
human resources. If the Company does not improve its operating results, then it
will need additional financing to fund its losses. In such case, no assurance
can be given that such financing will be available or, if available, that it
will be on terms favorable to the Company.
3. Competition. The safety sport helmet industry is dominated by Bell
Sports Corporation ("Bell"),which the Company estimates has approximately a 65%
market share in the United States. In addition to Bell, significant competitors
include Troxol, 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. The Company believes it has become the second
largest manufacturer of bicycle helmets and accessories selling through the mass
merchant channel. However, with greater resources, the Company's competitors
could expand production, reduce margins or undertake aggressive advertising
campaigns. Any of these actions by a competitor could have an adverse affect on
the Company's business.
4. Dependence upon Major Customers. A large portion of the helmet sales
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
bicycle helmets. The Company's helmets are sold chain-wide in Toys R Us, Target,
Sam's Clubs, Sports Authority and other regional mass merchants. During 1999,
the Company's sales to its single largest customer constituted approximately 42%
of its gross revenues, compared to 58% in 1998. Sales to its second largest
customer accounted for 25% of gross revenues in 1999, compared to 28% in 1998.
The loss of either of these customers would have a material adverse effect on
the Company's business.
Additionally, some mass merchants at times condition future purchases on
the Company's acceptance of returns of unsold goods. Such returns can be resold
by the Company only at sharp discounts. The unpredictability of the volume of
returns and the amount of discounts required to resell such goods could have a
serious adverse effect on the profitability of the Company.
5. Need for Additional Financing. On April 14, 1999, the
Company negotiated new financing agreements with a bank. Under the terms of the
new financing agreement, the bank has issued separate financing agreements for
each of the Company's operating subsidiaries, Protective Technologies
International Inc. (A PTI") and Flents. Each company now has a line of credit
collateralized by such company's inventory, receivables and other assets, and
guaranteed by the Company as well as a separate term loan.
The line of credit agreements require the Company and each of PTI and
Flents to comply with certain affirmative covenants, including the maintenance
of maximum leverage ratios, minimum fixed charge ratios and minimum net worth
amounts, all as defined in the agreements. PTI failed to meet the leverage,
fixed charge and net worth covenants for PTI for 1999, and the bank waived them.
PTI is unlikely to meet the affirmative covenants in 2000, and, unless the bank
waives such covenants, PTI will be in default. The Company needs to raise
additional equity funds to avoid default under the credit agreements. No
assurance can be given that such financing will be available to the Company, or,
if it is available, that it will be on terms favorable to the Company. If
additional funds are unavailable, the Company will default under such credit
agreements, and no assurance can be given that the bank will continue to waive
such defaults. A default by PTI could induce the bank to accelerate the loan,
requiring PTI to seek alternate financing. No assurance can be given that such
financing will be available to the PTI, or, if it is available, that it will be
on terms favorable to PTI.
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
1999), dividend declarations or payments, distributions of assets, incurring
certain debt, and liens against assets. These covenants could hamper the Company
in making future acquisitions, which could negatively affect future earnings.
6. Dependence Upon Key Personnel and Executive Pay. The Company is
dependent upon the services of Meredith Birrittella, its Chief Executive Officer
and Chairman, and Warren Schaeffer, Secretary of the Company and President of
PTI. The loss or interruption of the services of either of these individuals
would have a material adverse effect on the Company.
7. Trademarks. The Company markets its bicycle helmets, bicycles and
bicycle products under the brand names Protective TechnologiesTM PTITM Hydrogen7
and Aerial Assault7. The Company markets its ear care products under the brand
names Comfees7 and Quiet Please!7. 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. No assurance can be given that the Company will be able to
successfully defend its trademarks if forced to litigate their enforceability.
If the Company were to lose the use of such trademarks, its sales could be
adversely affected.
In addition, the Company has licenses to market different helmet models
under the trademarks Spice Girls Playskool, Tonka, Barbie, Lisa Frank, Hello
Kitty, Power Rangers, and Furby, The Company believes that such trademarks are
helpful to the Company's ability to market its products. However, sales of these
products may be affected by the popularity attached to the underlying trademark,
and many of these trademarks may sharply decline in popularity if consumer
trends change. Moreover, each of these licenses can be terminated or may expire
in the near future. If the Company were to lose the use of such licenses, its
sales could be adversely affected.
The Company has entered into a 10-year licensing agreement with Greg
LeMond for which the Company will manufacture and market high-end helmets and
bicycle accessories. The Company has guaranteed that it will make minimum
royalty payments of $500,000 per year under such license. This program is the
Company's first attempt at marketing high-end products. The acceptance and
success of this product line can not be reasonably forecast. If such line is
unsuccessful, it could negatively affect future earnings.
8. Reliance on Foreign Manufacturers. The Company sources out the
manufacturing of all bicycle accessory products to certain manufacturers, a
number of which are foreign corporations. Access to the foreign manufacturers
could be adversely affected by economic or political instability in such foreign
countries and by currency fluctuations; however, the Company believes that
adequate alternate sources of supply exist. The Company has not entered into any
written agreement with any manufacturer, foreign or domestic. In the event of a
loss of a supplier, the Company's operations could be seriously disrupted until
other manufacturers are found.
9. Control by Current Management. The current management of the Company
currently owns, including various vested and unvested options to purchase Common
Stock of the Company, approximately 23.9% of the outstanding shares of Common
Stock of the Company. The balance of shares are widely held. Accordingly,
management controls the Company and has the power to elect a majority of the
directors, appoint corporate officers and approve certain actions requiring the
approval of a majority of the Company's stockholders. This control could pose an
obstacle to a purchase of the Company that might be desirable to other
stockholders.
10. No Dividends. 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.
11. Certain Anti-Takeover Provisions; Preferred Stock. Certain
provisions of the Certificate of Incorporation of the Company could make it more
difficult for a third party to acquire control of the Company, even if such
change in control would be beneficial to stockholders. The Certificate of
Incorporation allows the Company to issue preferred stock without stockholder
approval. Such issuances could make it more difficult for a third party to
acquire the Company. The Certificate of Incorporation also provides for a
classified board of directors, which would prevent a third party acquiring a
majority of the Common Stock from immediately electing a new board of directors.
These provisions may be used to entrench current management at the expense of
acquisition offers that might be beneficial to other shareholders.
12. Limitation on Directors' Liabilities under Delaware Law. Pursuant
to the Company's Certificate of Incorporation and under Delaware law, directors
of the Company are not liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases illegal under Delaware law or for any transaction
in which a director has derived an improper personal benefit.
13. Rules Limiting Broker-Dealer Sales of Company Shares. It is
possible that the Company's Common Stock will be covered by a Securities and
Exchange Commission rule that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 jointly with their spouse). For
transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. This rule could affect the
Company's ability to sell its securities and discourage broker-dealers from
dealing in the Company's stock.
14. Management Discretion in Use of Proceeds. The proceeds of the
Offering will be allocated predominately for marketing and sales, and for
general and administrative and working capital purposes. However, management
will have broad discretion over the application and allocation of the use of the
net proceeds.
