<PAGE> 1
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 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MacGregor Sports & Fitness, Inc.
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(Name of Registrant as Specified in Its Charter)
C. Frederick Lebaron, Jr., ESQ., and David S. Guin, ESQ.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
MACGREGOR SPORTS & FITNESS, INC.
8100 WHITE HORSE ROAD
GREENVILLE, SC 29611
June 19, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Meeting" or "Special Meeting") of MacGregor Sports and Fitness, Inc., a
Minnesota corporation ("MSF" or "MacGregor") to be held on Wednesday, July 10,
1996, at 2:00 p.m., Central Daylight Time, at the Marquette Hotel, Stars Room,
710 Marquette Avenue, Minneapolis, Minnesota 55402. Only those individuals and
entities who were holders of record of shares of MacGregor's Common Stock on
June 1, 1996 (the "Record Date") are entitled to notice of and to vote at the
Meeting. As of the Record Date, MacGregor had 9,144,497 shares of Common Stock
issued and outstanding, each of which is entitled to one (1) vote at the
Meeting. MacGregor had no shares of any other class of capital stock issued
and outstanding as of the Record Date.
At the Meeting, you will be asked to consider and vote upon the following
six (6) proposals described more-fully herein: (i) the sale of the rights to
use the MacGregor trademark and various related trademarks (the "MacGregor
Rights") held by MSF's wholly-owned subsidiary MacGregor Sports Products, Inc.
("MSP"), to Hutch Sports U.S.A., Inc. ("Hutch"), a subsidiary of Roadmaster
Industries, Inc. ("Roadmaster"); (ii) the execution and delivery of the
attached Agreement and Plan of Merger, as amended (the "Merger Agreement"),
between MSF, MG Acquisition Subsidiary, Inc., a Minnesota corporation, a
newly-formed, wholly-owned subsidiary of MSF ("Subsidiary" or "MG"), and
IntraNet Integration Group, Inc. (formerly known as Technical Publishing
Solutions, Inc.), a Minnesota corporation ("TPSI"), pursuant to which
Subsidiary shall be merged (the "Merger") with and into TPSI, with TPSI as the
surviving corporation and as a wholly-owned subsidiary of MSF; (iii) the
amendment and restatement of MSF's Articles of Incorporation in their entirety;
(iv) the election of a newly constituted MSF Board of Directors consisting of
five members; (v) the adoption and ratification of a new 1994-1997 MSF Stock
Option Plan; and (vi) the ratification and appointment of Lund Koehler Cox &
Company, PLLP, as MSF's independent auditors for the fiscal years ending March
31, 1997 and March 31, 1998. For ease of reference the post-merger, publicly
traded parent company is hereinafter referred to as "IntraNet". YOU SHOULD BE
AWARE THAT PROPOSALS (I) AND (II) GIVE RISE TO DISSENTERS' RIGHTS UNDER
MINNESOTA LAW. IF YOU WISH TO EXERCISE YOUR DISSENTERS' RIGHTS, YOU MUST FILE
A WRITTEN NOTICE OF YOUR INTENT TO DO SO AND REFRAIN FROM VOTING FOR ONE OR
BOTH OF PROPOSALS (I) AND (II). A MORE DETAILED DESCRIPTION OF THE PROCEDURE
NECESSARY TO EXERCISE YOUR DISSENTERS' RIGHTS APPEARS IN THE ATTACHED PROXY
STATEMENT UNDER THE CAPTIONS "SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S
ASSETS TO HUTCH - DISSENTERS' RIGHTS" AND "RATIFICATION AND APPROVAL OF THE
MERGER AGREEMENT - DISSENTERS' RIGHTS."
In connection with the proposed sale of the MacGregor Rights (which
comprise substantially all of the assets of MSF) MSF has disposed of the
residual liabilities left in its subsidiaries MSP and Carolina
<PAGE> 3
Team Sports,Inc., a South Carolina corporation ("CTS"), by selling all of the
issued and outstanding capital stock of MSP and CTS. If the proposed Merger
becomes effective, each common shareholder of TPSI will be entitled to receive
1.736 shares of MSF common stock in exchange for each share of Company common
stock held, of record, on the Effective Date of the Merger, as defined in the
Merger Agreement. In addition, each option or warrant to purchase one share of
the common stock of TPSI shall become an option or warrant to purchase 1.736
shares of MSF common stock. Any fractional shares of MSF's common stock
resulting from the application of the exchange ratio shall be rounded either to
the next higher or lower whole share, as the case may be. If the Amended and
Restated Articles of Incorporation of MSF are approved, the rights of
MacGregor's shareholders will be affected as described herein.
THE COMBINED EFFECT OF THE SALE OF THE MACGREGOR RIGHTS AND THE MERGER
WILL BE TO CHANGE THE BUSINESS CONDUCTED BY MACGREGOR. The proposed sale of
the MacGregor Rights, the Merger and the amendment and restatement of MSF's
Articles of Incorporation have each been approved by MSF's Board of Directors
and the proposed Merger has been approved by the Boards of Directors of
Subsidiary and TPSI. The sale of the MacGregor Rights, the Merger and the
amendment and restatement of MSF's Articles of Incorporation are subject to
approval by the holders of a majority of the outstanding common stock of MSF.
The Merger is also subject to the approval of the shareholders of Subsidiary
and TPSI.
THE MACGREGOR BOARD OF DIRECTORS BELIEVES THAT THE SALE OF THE MACGREGOR
RIGHTS, THE MERGER BETWEEN MSF, SUBSIDIARY AND TPSI AND THE AMENDMENT AND
RESTATEMENT OF MSF'S ARTICLES OF INCORPORATION ARE EACH IN THE BEST INTEREST OF
MACGREGOR SPORTS AND FITNESS, INC. AND ITS SHAREHOLDERS, AND, THEREFORE,
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF SUCH PROPOSALS. IN
ADDITION, THE MACGREGOR BOARD RECOMMENDS RATIFICATION OF THE NEW MSF STOCK
OPTION PLAN AND THE APPOINTMENT OF LUND KOEHLER COX & COMPANY, PLLP AS MSF'S
AUDITORS.
Details of the background and reasons for each of the above proposals
appear and are explained in the enclosed Proxy Statement. Additional
information concerning MacGregor and TPSI is also set forth in the attached
Proxy Statement. I urge you to read this material carefully.
MSF's Board of Directors has engaged two investment bankers, R.J. Steichen
& Co. and Summit Investment Corporation ("Summit"), both located in Minneapolis,
Minnesota, to advise MSF, its Board of Directors and its shareholders in
connection with the Merger and the matters discussed in this Proxy Statement.
Specifically, MSF's Board of Directors has received a Fairness Opinion
dated March 20, 1996 from Summit that the 1.736 Exchange Ratio being offered in
the Merger is fair and reasonable from a financial point of view to you, as
shareholders. A copy of Summit's Fairness Opinion is attached to the Proxy
Statement as Exhibit F.
-2-
<PAGE> 4
In order to ensure that your vote is represented at the Meeting, please
indicate your choice on the enclosed proxy card, date and sign it, and return
it in the enclosed postage-paid envelope. You are also welcome to attend the
Meeting, and may revoke your proxy and vote in person at the Meeting even if
you have previously returned your proxy card.
Very truly yours,
Henry Fong
Chairman of the Board
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF THE AGREEMENT
AND PLAN OF MERGER IS ADOPTED BY MACGREGOR'S SHAREHOLDERS, YOU WILL BE SENT
INSTRUCTIONS FROM NORWEST STOCK TRANSFER, MACGREGOR'S TRANSFER AGENT, REGARDING
THE SURRENDER OF YOUR EXISTING MACGREGOR SPORTS & FITNESS, INC. STOCK
CERTIFICATES.
-3-
<PAGE> 5
MACGREGOR SPORTS & FITNESS, INC.
8100 WHITE HORSE ROAD
GREENVILLE, SC 29611
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
WEDNESDAY, JULY 10, 1996
TO THE SHAREHOLDERS OF MACGREGOR SPORTS & FITNESS, INC.:
A Special Meeting of Shareholders (the "Meeting") of MacGregor Sports &
Fitness, Inc., a Minnesota corporation ("MSF" or "MacGregor"), will be held in
the Stars Room of the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota 55402, on Wednesday, July 10, 1996, at 2:00 p.m., Central Daylight
Time, to consider and act upon the following proposals:
1. The sale of the rights to use the MacGregor trademark and various
related trademarks (the "MacGregor Rights") held by MSF's wholly-owned
subsidiary, MacGregor Sports Products, Inc. ("MSP"), to Hutch Sports
U.S.A., Inc. ("Hutch"), a subsidiary of Roadmaster Industries, Inc.
("Roadmaster");
2. The approval of the Agreement and Plan of Merger, dated and
entered into on January 16, 1996, as amended on March 20, and May 31,
1996 (the "Merger Agreement"), among MacGregor, IntraNet Integration
Group, Inc. (formerly known as Technical Publishing Solutions, Inc.), a
Minnesota corporation ("TPSI") and MG Acquisition Subsidiary, Inc., a
Minnesota corporation, a wholly-owned subsidiary of MacGregor
("Subsidiary"), a copy of which Merger Agreement is attached hereto as
Exhibit and incorporated herein by reference, pursuant to which: (a)
Subsidiary will be merged with and into TPSI (the "Merger"), with TPSI as
the surviving corporation, and further, with the result that TPSI shall
become a wholly-owned subsidiary of MacGregor (for ease of reference, the
post-merger, publicly traded parent company is hereinafter referred to as
"IntraNet"); and (b) each of the owners of issued and outstanding Company
common stock will be entitled to receive 1.736 shares of MacGregor's
common stock in exchange and conversion for each share of Company common
stock held, of record, on the Effective Date of the Merger, as defined in
the Merger Agreement and each option or warrant to purchase one share of
the common stock of TPSI outstanding on the Effective Date of the Merger
shall become an option or warrant to purchase 1.736 shares of MSF common
stock;
3. The amendment and restatement of MacGregor's Articles of
Incorporation to effect a name change, eliminate the classes of preferred
stock and reduce the par value of the common stock, as more fully set
forth in Exhibit E attached hereto and incorporated herein by reference;
4. The election of a newly-constituted MacGregor Board of Directors
consisting of five (5) members;
5. The adoption and ratification of a new 1994-1997 MacGregor Stock
Option Plan, a copy of which Stock Option Plan is attached hereto as
Exhibit H;
<PAGE> 6
6. The ratification and appointment of Lund Koehler Cox & Company,
PLLP as MacGregor's independent auditors for the fiscal years ending
March 31, 1997 and March 31, 1998; and
7. A proposal to adjourn the Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares of MacGregor Common Stock are present, in person or by proxy, at
the Meeting to approve the Merger Agreement and all of the matters
summarized above.
You should be aware that proposals (i) and (ii) give rise to dissenters'
rights under Minnesota law. If you wish to exercise your dissenters' rights,
you must file a written notice of your intent to do so and not vote in favor of
one or both of proposals (i) and (ii). A more detailed description of the
procedure necessary to exercise your dissenters' rights appears in the attached
Proxy Statement under the captions "Sale Of Substantially All Of MacGregor's
Assets To Hutch - Dissenters' Rights" and "Ratification And Approval Of The
Merger Agreement - Dissenters' Rights."
Only those individuals and entities who were holders of record of shares
of MacGregor's Common Stock on June 1, 1996 (the "Record Date") are entitled to
notice of and to vote at the Meeting. As of the Record Date, MacGregor had
9,144,497 shares of Common Stock issued and outstanding. MacGregor had no
shares of any other class of capital stock issued and outstanding as of the
Record Date.
BY ORDER OF THE BOARD OF DIRECTORS,
Henry Fong,
Chairman
Dated: June 19, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ACCOMPANYING PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
SELF-ADDRESSED STAMPED RETURN ENVELOPE. IF YOU LATER DESIRE TO REVOKE YOUR
PROXY AND VOTE YOUR SHARES AT THE MEETING, YOU MAY DO SO AT ANY TIME BEFORE IT
IS EXERCISED AT THE MEETING.
AT THIS TIME, PLEASE DO NOT SEND IN ANY OF YOUR OUTSTANDING MSF STOCK
CERTIFICATES IN CONNECTION WITH THE MERGER. YOU SHALL RECEIVE SUPPLEMENTAL
CORRESPONDENCE FROM NORWEST STOCK TRANSFER, MACGREGOR'S TRANSFER AGENT,
CONCERNING THE REISSUANCE OF YOUR SHARES SUBSEQUENT TO, AND CONDITIONED UPON,
APPROVAL OF EACH OF THE PROPOSALS SET FORTH ABOVE.
-2-
<PAGE> 7
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, July 10, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION................................................................ (iii)
AVAILABLE INFORMATION.......................................................(viii)
SUMMARY OF PROXY STATEMENT..................................................... 1
GLOSSARY OF TECHNICAL TERMS.................................................... 6
COMPARATIVE PER SHARE MARKET INFORMATION....................................... 8
PROPOSAL NUMBER I.............................................................. 12
THE SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S ASSETS TO HUTCH........... 12
Background..................................................... 12
The Proposed Transaction....................................... 13
Management Recommendation and Rationale for the Transaction.... 13
Dissenter's Rights............................................. 14
Related Parties................................................ 16
ROPOSAL NUMBER II.............................................................. 17
APPROVAL OF THE MERGER AGREEMENT....................................... 17
General Information............................................ 17
Common Stock................................................... 18
The Merger..................................................... 23
Management Recommendation and Rationale for the Transaction.... 24
Opinion of MSF's Financial Advisor............................. 25
Treatment of MacGregor and TPSI Options and Employee Stock
Option Plans................................................. 28
Interests of Certain Persons in the Merger..................... 29
Conditions to the Merger; Termination.......................... 29
Fees and Expenses.............................................. 30
No Solicitation................................................ 31
Effective Time of the Merger................................... 31
Certain Federal Income Tax Consequences........................ 31
Dissenter's Rights............................................. 32
Certain Risk Factors to Consider............................... 32
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 36
MacGregor.................................................... 36
TPSI......................................................... 39
</TABLE>
(i)
<PAGE> 8
<TABLE>
<S> <C>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................... 45
PROPOSAL NUMBER III................................................................. 47
AMENDMENT AND RESTATEMENT OF MACGREGOR'S ARTICLES OF
INCORPORATION IN THEIR ENTIRETY..................................... 47
General............................................................. 47
Management Recommendation and Rationale for the Amendments.......... 47
PROPOSAL NUMBER IV.................................................................. 49
ELECTION OF A NEWLY CONSTITUTED BOARD OF DIRECTORS OF
MACGREGOR CONSISTING OF FIVE (5) MEMBERS............................ 49
SUMMARY COMPENSATION TABLE.................................................. 50
Certain Transactions................................................ 50
PROPOSAL NUMBER V................................................................... 52
ADOPTION OF INTRANET SOLUTIONS, INC. 1994-1997 STOCK OPTION PLAN............ 52
Certain Federal Income Tax Consequences............................. 54
PROPOSAL NUMBER VI.................................................................. 57
THE RATIFICATION AND APPOINTMENT OF LUND KOEHLER COX &
COMPANY, PLLP AS MACGREGOR'S INDEPENDENT AUDITORS FOR
THE FISCAL YEARS ENDING MARCH 31, 1997 AND MARCH 31, 1998........... 57
PROPOSAL NUMBER VII................................................................. 58
A PROPOSAL TO ADJOURN THE MEETING TO A LATER DATE TO PERMIT
FURTHER SOLICITATION OF PROXIES IN THE EVENT AN
INSUFFICIENT NUMBER OF SHARES OF MACGREGOR COMMON STOCK
IS PRESENT, IN PERSON OR BY PROXY, AT THE MEETING TO
APPROVE THE MERGER AGREEMENT AND THE MATTERS SUMMARIZED ABOVE....... 58
OTHER BUSINESS...................................................................... 58
EXPERTS............................................................................. 58
CERTAIN LEGAL MATTERS............................................................... 59
EXHIBIT INDEX....................................................................... 60
</TABLE>
(ii)
<PAGE> 9
INTRODUCTION
This Proxy Statement has been prepared in connection with a Special
Meeting (the "Meeting") of shareholders of MacGregor Sports & Fitness, Inc., a
Minnesota corporation ("MSF" or "MacGregor"), and is being furnished to the
holders of MacGregor's Common Stock, $.02 par value ("MacGregor Common Stock"),
in connection with the solicitation of proxies by MacGregor's Board of
Directors for use at the Meeting. The Meeting will be held in the Stars Room
of the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, on
Wednesday, July 10, 1996, at 2:00 p.m., Central Daylight Time. Only those
individuals and entities who were holders of record of shares of MacGregor's
Common Stock on June 1, 1996 (the "Record Date") are entitled to notice of and
to vote at the Meeting. As of the Record Date, MacGregor had 9,144,497 shares
of Common Stock issued and outstanding. MacGregor had no shares of any other
class of capital stock issued and outstanding as of the Record Date.
PROPOSALS OF SECURITY HOLDERS
In the event the Merger described below is approved, any holders of
Securities of MacGregor who wish to submit a proposal to be considered at the
next annual meeting of Shareholders must insure that such proposal is delivered
to IntraNet by April 1, 1997. In the event the Merger described below is not
approved, any holders of Securities of MacGregor who wish to submit a proposal
to be considered at the next annual meeting of Shareholders must insure that
such proposal is delivered to MacGregor by September 1, 1997.
THE SIX PROPOSALS
The Meeting has been called to consider and vote upon: (i) the sale of
all the rights of MacGregor Sports Products, Inc., MacGregor's wholly-owned
subsidiary ("MSP"), in and to the "MacGregor" trademark pursuant to certain
license agreements and certain related trademarks (the "MacGregor Rights"),
which comprise substantially all of MacGregor's assets, to Hutch Sports
U.S.A., Inc. ("Hutch"), a subsidiary of Roadmaster Industries, Inc.
("Roadmaster"). MacGregor and Roadmaster are affiliates in that they are
both under the indirect control of Mr. Henry Fong; (ii) the ratification of
the attached Agreement and Plan of Merger, as amended (the "Merger
Agreement"), among MacGregor, MG Acquisition Subsidiary, Inc., a Minnesota
corporation ("Subsidiary" or "MG"), and IntraNet Integration Group, Inc.
(formerly known as Technical Publishing Solutions, Inc.), a Minnesota
corporation ("TPSI"), pursuant to which MacGregor's newly-formed
wholly-owned subsidiary, MG, shall be merged (the "Merger") with and into
TPSI, with TPSI as the surviving corporation and as a wholly-owned
subsidiary of MacGregor (for ease of reference, the post-merger, publicly
traded parent company is hereinafter referred to as "IntraNet")(TPSI is not
an affiliate of either MSF or Roadmaster); (iii) the amendment and
restatement of the MacGregor's Articles of Incorporation in their entirety;
(iv) the election of a newly constituted MacGregor Board of Directors
consisting of five members; (v) the adoption and ratification of a new
1994-1997 MacGregor Stock Option Plan; and (vi) the ratification and
appointment of Lund Koehler Cox & Company, PLLP, as MacGregor's independent
auditors for the fiscal years ending March 31, 1997 and March 31, 1998.
Consummation of the Merger is conditioned upon approval of proposals (i)
and (iv) above. If MacGregor's shareholders do not approve the sale of
substantially all of MacGregor's assets to Hutch, TPSI will not proceed
with the Merger regardless of whether it is approved by MacGregor's
shareholders. Each of proposals (iii), (iv), (v), and (vi) above is
conditioned on the approval of proposal (ii). If MacGregor's shareholders
do not approve the Merger, MacGregor will not take any of the actions
described in proposals (iii), (iv), (v) or (vi), regardless of whether such
proposals
(iii)
<PAGE> 10
are approved by MacGregor's shareholders. However, the sale of the MacGregor
Rights is not conditioned on the shareholders' approval of the Merger.
Therefore, if the sale of the MacGregor Rights is approved but the Merger is
not, MacGregor will still complete the sale of the MacGregor Rights to Hutch.
THE COMBINED EFFECT OF THE PROPOSED SALE OF MACGREGOR'S ASSETS AND THE
PROPOSED MERGER WILL BE TO ENTIRELY CHANGE THE LINE OF BUSINESS IN WHICH
MACGREGOR ENGAGES. The current shareholders of MacGregor will continue to hold
Shares of the merged entity. However, the business engaged in by the merged
entity will be that of document-based information management systems rather
than sporting goods. In addition, the proposed Merger would result in a
decrease in the percentage ownership of MacGregor's current shareholders from
100% to as little as 33% of the post-merger entity. See: "Ratification And
Approval Of The Merger Agreement-Management Of IntraNet After The Merger."
I.
Sale of the MacGregor Rights to Hutch. At the Meeting, you will be asked
to approve the sale of the MacGregor Rights to Hutch for a purchase price of
$2,910,000 payable as follows: (i) $1,000,000 in cash at closing, and (ii) an
unsecured promissory note in the amount of $1,910,000. In response to this
agreement, MacGregor reduced the carrying value of its intangible assets by
$1,200,000, the amount by which the book value of those assets exceeded the
actual price MacGregor was able to realize on the sale thereof. See:
"Proposal Number I; The Sale Of Substantially All Of MacGregor's Assets To
Hutch."
II.
The Merger. At the Meeting, you will be asked to approve and ratify an
Agreement and Plan of Merger dated January 16, 1996, as amended on March 20,
1996 and May 31, 1996 (the "Merger Agreement"), by and among MacGregor, MG
Acquisition Subsidiary, Inc., a Minnesota corporation, a newly-formed,
wholly-owned subsidiary of MacGregor ("MG" or "Subsidiary"), and IntraNet
Integration Group, Inc. (formerly known as Technical Publishing Solutions,
Inc.), a Minnesota corporation ("TPSI"), providing for the merger (the
"Merger") of Subsidiary into TPSI. If the proposed Merger is consummated, each
outstanding share of TPSI's Common Stock, $.001 par value ("TPSI Common
Stock"), will be converted into 1.736 shares (the "Exchange Ratio") of
MacGregor Common Stock and each option or warrant to purchase one share of
TPSI Common Stock shall become an option or warrant to purchase 1.736 shares of
MacGregor Common Stock. TPSI's shareholders shall be entitled to: (a) one
time-demand registration rights exercisable for eighteen (18)Emonths after the
Effective Date; and (b) piggy-back registration rights exercisable for a period
of thirty-six (36) months after the Effective Date. TPSI shareholder Robert F.
Olson shall be subject to a one-year lock-up agreement. Based on the closing
bid price of $3.1875 of MacGregor Common Stock on the NASDAQ composite tape on
January 16, 1996, the Exchange Ratio would have resulted in TPSI's shareholders
receiving approximately $57,375,000 in market value of MacGregor Common Stock,
if the Merger had been effective on that date. Because the Exchange Ratio is
fixed by the Merger Agreement and the market price of MacGregor Common Stock is
subject to fluctuation, the market price of MacGregor Common Stock may increase
or decrease prior to the Merger, thereby increasing or decreasing the market
value of the shares of MacGregor Common Stock which TPSI's shareholders will
receive in the Merger. See: "Proposal Number II; Ratification And Approval Of
The Merger Agreement."
(iv)
<PAGE> 11
In the event the proposed Merger is consummated, MacGregor will issue
approximately 18,000,000 shares of MacGregor Common Stock in exchange for all
of TPSI Common Stock outstanding at such time, which would constitute, as of
the Effective Time, approximately 60% of the outstanding shares of MacGregor
Common Stock (or approximately 67% after considering the effect of the
outstanding TPSI options and warrants as discussed below) after giving effect
to such issuance. MacGregor may also issue up to approximately 5,756,194
additional shares of MacGregor Common Stock upon exercise of outstanding
employee stock options granted by TPSI and pursuant to TPSI's employee stock
purchase plans, and 272,118 shares issuable pursuant to TPSI stock purchase
warrants, which will be assumed by MacGregor in the Merger. The TPSI Stock
purchase warrants are immediately exercisable. The employee stock options
generally vest over periods of one to five years. The effect of such issuances
would be to reduce the percentage ownership of MacGregor's current shareholders
from approximately 40% to 33%. (For more information regarding MacGregor or
TPSI's outstanding stock options and stock purchase plans, see "Ratification
And Approval Of The Merger Agreement-Treatment Of MacGregor And TPSI Options
And Employee Stock Option Plans.")
TPSI is a Minneapolis-based technology company focused on document-based
information management systems. TPSI's present customer base includes over 200
accounts, primarily Fortune 1500 organizations. In addition to its corporate
offices in Minneapolis, TPSI has sales offices in Milwaukee, Denver, and
Phoenix, with independent sales representation in Boston and Atlanta. In
mid-1994, TPSI began IntraNet Distribution Group, Inc. (formerly known as
DocuPro Services, Inc., hereinafter "IDG"), a wholly-owned subsidiary. IDG
offers customers a service for off-site electronic document warehousing,
electronic demand publishing, and multiple methods of digital distribution of
information.
TPSI will record the transaction as an acquisition and recapitalization.
Accordingly, for accounting purposes, TPSI is assumed to be the acquirer.
Subsequent to the transaction,the historical financial statements will be those
of TPSI. MacGregor will change its fiscal year end to March 31.
III.
Amendment and Restatement of MacGregor Articles of Incorporation. At the
Meeting you will also be asked to approve the amendment and restatement of
MacGregor's Articles of Incorporation. The Amended and Restated Articles of
Incorporation provide only for the issuance of Common Stock, thereby
eliminating MacGregor's ability to issue preferred stock. In addition, the
Amended and Restated Articles will change the par value of MacGregor Common
Stock from $0.02 to $0.01. Finally, the Amended and Restated Articles will
change MacGregor's name from "MacGregor Sports & Fitness, Inc." to "IntraNet
Solutions, Inc." See: "Proposal Number III; Amendment And Restatement Of
MacGregor's Articles Of Incorporation In Their Entirety."
IV.
Election of Five Directors. At the Meeting, you will also be asked to
elect a new Board of Directors consisting of five (5) members. MacGregor's
existing Board of Directors is recommending election of the following five (5)
individuals: Henry Fong; Robert F. Olson; Jeffrey J. Sjobeck; Ronald E.
Eibensteiner; and David D. Koentopf. Of these nominees, only Mr.Fong
currently serves as a director of MacGregor. See: "Proposal Number IV;
Election Of A Newly Constituted Board Of Directors Of MacGregor Consisting Of
Five (5) Members."
(v)
<PAGE> 12
V.
Adoption of a New MacGregor 1994-1997 Stock Option Plan. At the Meeting,
you will also be asked to approve a new 1994-1997 Stock Option Plan for the
benefit of MacGregor's employees, consultants, advisors and non-employee
directors. The stock option plan is more fully described herein. See:
"Proposal Number V; Adoption And Ratification Of A MacGregor Stock Option
Plan."
VI.
Appointment of MacGregor Independent Auditors. At the meeting, you will
also be asked to approve, conditioned upon approval of the Merger, the
appointment of Lund Koehler Cox & Company, PLLP as MacGregor's independent
auditors for the fiscal years ending March 31, 1997 (including any applicable
transition periods created by the Merger) and March 31, 1998. Gelfond Hochstadt
Pangburn & Co. is MacGregor's current independent auditor. MacGregor's Board
of Directors has determined that Lund Koehler Cox & Company PLLP, currently
TPSI's independent auditor, would prove more appropriate as independent
auditors if the Merger is consummated, due to its familiarity with the
business of TPSI. See: "Proposal Number VI; The Ratification And Appointment
Of Lund Koehler Cox & Company, PLLP As MacGregor's Auditors For The Fiscal
Years Ending March 31, 1997 And March 31, 1998."
VOTING REQUIREMENTS
Votes Required. Approval of Proposals I, II, and III, the (i) sale of the
MacGregor Rights to Hutch, (ii) approval of the Merger, and (iii) approval of
MacGregor's Amended and Restated Articles of Incorporation, respectively,
require the affirmative vote of the holders of a majority of the outstanding
shares of MacGregor Common Stock. Approval of Proposals IV, V and VI, the (i)
election of directors, (ii) adoption of a Stock Option Plan and (iii)
appointment of MacGregor's independent auditors, respectively, require the
affirmative vote of the holders of a majority of the shares of MacGregor Common
Stock represented in person or by proxy at the Meeting, assuming a quorum is
present at the Meeting. See: "Proxies; Solicitation; Quorum Requirements."
PROXIES; SOLICITATION; QUORUM REQUIREMENTS
Any person signing and mailing the enclosed proxy may revoke the proxy at
any time prior to its exercise by (i) executing a subsequent proxy; (ii)
notifying the Secretary of MacGregor of such revocation in a written notice
received by him at MacGregor Sports & Fitness, Inc., 8100 White Horse Road,
Greenville, South Carolina 29611, prior to the Meeting; or (iii) attending the
Meeting and voting in person.
The cost of solicitation of proxies will be borne by MacGregor. In
addition to the use of the mails, proxies may be solicited personally, or by
telephone or facsimile, by directors of MacGregor (each a "Director" and
collectively, the "Directors") and executive officers and regular employees of
MacGregor. MacGregor does not now expect to pay any compensation for the
solicitation proxies, but will reimburse brokers and other persons holding
shares in their names or in the names of nominees for their expenses in sending
proxy material to principals and obtaining their proxies.
Shares of MacGregor represented by properly executed proxies will, unless
such proxies have been previously revoked, be voted in accordance with the
instructions indicated in the proxies. Unless
(vi)
<PAGE> 13
otherwise instructed in the proxy, the agent named in the proxy intends to cast
the proxy votes (i)FOR the approval of the sale of the MacGregor Rights to
Hutch; (ii) FOR the Merger through the adoption of the Merger Agreement and
related transactions; (iii) FOR the approval of the amendment and restatement
of MacGregor's Articles of Incorporation; (iv) FOR the election of management's
slate of directors; (v) FOR the adoption and ratification of MacGregor's Stock
Option Plan; and (vi) FOR the ratification and appointment of Lund Koehler Cox
& Company, PLLP as MacGregor's independent auditors for the fiscal years ending
March 31, 1997 and March 31, 1998.
A quorum must be present at the Meeting before action can be taken on
the proposals. The presence, in person or by proxy, of the holders of a
majority of MacGregor's shares outstanding on the record date is required for a
quorum at the Meeting. The shares of MacGregor Common Stock held by Henry
and his affiliates Fong present in person or by proxy at the Meeting will be
counted in determining whether a quorum is present at the Meeting. As to all
anticipated votes, each share will have one (1) vote, except that Mr. Fong and
his affiliates California Pro Sports, Inc., Equitex, Inc. and Roadmaster
Industries, Inc., who own 1.9%, 25.13% and 1.20% of the outstanding shares of
MacGregor Common Stock, respectively, will abstain from voting on Proposal No.
1. As to each matter to be voted on, abstentions will be treated as shares
present and entitled to vote for purposes of determining whether a quorum is
present, but not voted for purposes of determining the approval of any matter
submitted to the shareholders for a vote. If a proxy returned by a broker
indicates that the broker does not have discretionary authority to vote some or
all of the shares covered thereby for any matter submitted to the shareholders
for a vote, such shares will be considered to be present for purposes of
determining whether a quorum is present, but will not be considered to be
present and entitled to vote at the Meeting.
The presence, in person or by proxy, of the holders of a majority of the
MacGregor Common Stock is necessary to constitute a quorum at the Meeting for
purposes of the vote of the MacGregor Common Stock. All directors and
executive officers and certain other shareholders of MacGregor have agreed to
vote the shares of MacGregor Common Stock they hold for the proposals described
in this Proxy Statement. These shareholders own an aggregate of 3,578,046
shares of MacGregor Common Stock (approximately 30% of the MacGregor Common
Stock entitled to be voted at the Meeting).
MACGREGOR HAS NOT, AND WILL NOT, FILE A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), WITH THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), COVERING THE SHARES OF MACGREGOR COMMON
STOCK TO BE ISSUED IN THE EVENT THE PROPOSED MERGER IS CONSUMMATED. AS SUCH,
THE SHARES OF MACGREGOR COMMON STOCK RECEIVED BY TPSI SHAREHOLDERS WILL NOT BE
REGISTERED UNDER THE ACT AND SUCH TPSI SHAREHOLDERS WILL NOT BE ABLE TO RESELL
SUCH SHARES OF MACGREGOR COMMON STOCK WITHOUT PRIOR REGISTRATION UNDER THE ACT
OR PURSUANT TO A SALE WHICH IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND ALL APPLICABLE STATE LAWS.
All information concerning MacGregor contained in this Proxy Statement has
been supplied by MacGregor, and all information concerning TPSI contained in
this Proxy Statement has been supplied by TPSI.
This Proxy Statement is dated June 19, 1996, and is first being mailed on
or about June 19, 1996 to the record holders of MacGregor Common Stock as of
June 1, 1996.
(vii)
<PAGE> 14
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MACGREGOR OR TPSI. THIS
PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH A
PROXY SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MACGREGOR OR TPSI SINCE THE DATE HEREOF OR THAT THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
AVAILABLE INFORMATION
MacGregor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files periodic reports and other information with the SEC. Such
reports and other information filed by MacGregor may be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
75 Park Place, New York, New York 10007 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such reports and other information filed by MacGregor also
may be inspected at the offices of the National Association of Securities
Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
(viii)
<PAGE> 15
SUMMARY OF PROXY STATEMENT
Certain significant matters discussed in this Proxy Statement are
summarized below. This Summary is not intended to be complete and is qualified
in all respects by reference to the more detailed information appearing, or
incorporated by reference, elsewhere in this Proxy Statement. Shareholders are
urged to review the entire Proxy Statement carefully (including all Exhibits,
financial statements and notes thereto and any documents incorporated herein by
reference).
Date, Time and Place of Meeting The Meeting will be held on
Wednesday, July 10, 1996, at 2:00 p.m.,
Central Daylight Time, in the Stars Room
of the Marquette Hotel, 710 Marquette
Avenue, Minneapolis, Minnesota.
Record Date Holders of record of MacGregor's Common
Stock on June 1, 1996 are entitled to
receive notice of and to vote at the
Meeting.
Purpose of the Meeting At the Meeting, or any adjournment
thereof, the holders of MacGregor Common
Stock will be asked to consider and vote
upon proposals to: (i) approve the sale
of the MacGregor Rights to Hutch, (ii)
approve the Merger Agreement and the
transactions contemplated thereby, (iii)
approve MacGregor's Amended and Restated
Articles of Incorporation (a copy of
which is attached hereto as Exhibit E),
(iv) elect a new slate of directors,
(v) approve and adopt a new MacGregor
Stock Option Plan, and (vi) approve the
appointment of MacGregor's independent
auditors.
Required Votes
Approval of Proposals I, II and III,
the (i) sale of the MacGregor Rights to
Hutch, (ii) approval of the Merger, and
(iii) approval of MacGregor's Amended
and Restated Articles of Incorporation,
respectively, requires the affirmative
vote of the holders of a majority of
the outstanding shares of MacGregor
Common Stock. Approval of Proposals
IV, V, and VI, the (i) election of
directors, (ii) adoption of a Stock
Option Plan and (iii) appointment of
MacGregor's independent auditors,
respectively, requires the affirmative
vote of the holders of a majority of
the shares of MacGregor Common Stock
represented in person or by proxy at
the Meeting.
Sale of Assets MacGregor intends to sell substantially
all of its assets. MacGregor intends to
cause its subsidiary, MSP, to sell the
MacGregor Rights owned by MSP to Hutch
for a purchase price of $2,910,000;
consisting of $1,000,000 in cash and
$1,910,000 in the form of an unsecured
promissory note. MacGregor has disposed
of its
1
<PAGE> 16
subsidiaries MSP and Carolina
Team Sports, a South Carolina
corporation ("CTS") by selling
them for a purchase price of
$10. A detailed description of
the assets held by MSP and CTS
appears later in this Proxy
Statement at page 12. The
combined effect of the proposed
sale of assets and the Merger
(see below) will be to change
the nature of MacGregor's
business. See: "The Sale Of
Substantially All Of
MacGregor's Assets To Hutch -
The Proposed Transaction."
Recommendation of Board of Directors The Board of Directors
believes that disposition of
the MacGregor Rights will allow
it to maximize the value of
those assets while at the same
time relieving MacGregor of
potential liabilities.
Management has investigated the
sale of the MacGregor Rights to
other parties and believes the
proposed transaction offers the
best outcome for the MacGregor
and its shareholders. See:
"The Sale Of Substantially All
Of MacGregor's Assets To Hutch
- Management Recommendation And
Rationale For The Transaction."
Interests of Certain Persons in Sale of Assets Henry Fong, Chairman of the
MacGregor's Board of Directors,
is also the President and
Chairman of the Board, and
indirectly a controlling
shareholder of, Roadmaster and
Chairman of California Pro
Sports, Inc. ("California
Pro"). Because all of
MacGregor, Roadmaster and
California Pro are indirectly
under the common control of
Mr.Fong, Roadmaster and
California Pro are considered
affiliates of MacGregor for SEC
reporting purposes. In
addition, Mr.Fong is the
President, a director and
controlling shareholder of
Equitex, Inc. ("Equitex"), a
Denver-based business
development company. Equitex
is a principal shareholder of
MacGregor and also owns
some 10.2% of the stock of
Roadmaster. Through his
affiliation with Equitex,
Roadmaster and California Pro,
Mr. Fong, who owns no shares of
MacGregor Common Stock and
warrants to purchase only
250,200 shares of MacGregor
Common Stock in his own name,
may be deemed to be a
beneficial owner of 3,342,517
shares of MacGregor Common
Stock and warrants to purchase
250,200 shares of MacGregor
Common Stock. See: "The Sale
Of Substantially All Of
MacGregor's Assets to Hutch -
Related Parties."
The Merger At the Effective Time (as
defined below), TPSI will be
merged into Subsidiary, and
each outstanding share of
TPSI Common Stock will be
converted into 1.736 shares
2
<PAGE> 17
of MacGregor Common Stock and each
option or warrant to purchase one
share of TPSI Common Stock shall
become an option or warrant to
purchase 1.736 shares of MacGregor
Common Stock. Based on the closing
bid price of $3.1875 of MacGregor
Common Stock on the NASDAQ SmallCap
Market ("NASDAQ") composite tape on
January 16, 1996, the Exchange
Ratio would have resulted in TPSI
shareholders receiving
approximately $57,375,000 in market
value of MacGregor Common Stock, if
the Merger had been effective on
that date. Because the
Exchange Ratio is fixed by the
Merger Agreement and the market
price of MacGregor Common Stock is
subject to fluctuation, the market
price of MacGregor Common Stock may
increase or decrease prior to the
Merger, thereby increasing or
decreasing the market value of the
shares of MacGregor Common Stock
that TPSI shareholders will receive
in the Merger. See: "Approval Of
The Merger Agreement - The Merger."
IntraNet Integration Group, Inc. (formerly TPSI is a Minneapolis-based
known as Technical Publishing Solutions, technology company focused on
Inc.) document-based information
management systems. TPSI's
present customer base includes over
200 accounts, primarily Fortune
1500 organizations. In addition to
its corporate offices in
Minneapolis, TPSI has sales offices
in Milwaukee, Denver, and Phoenix,
with independent sales
representation in Boston and
Atlanta. In mid-1994, TPSI began
IntraNet Distribution Group, Inc.
(formerly known as DocuPro
Services, Inc., hereinafter "IDG"),
a wholly-owned subsidiary. IDG
offers customers a service for
off-site electronic document
warehousing, electronic demand
publishing, and multiple methods of
digital distribution of
information. See: "Approval Of The
Merger Agreement - Management Of
MacGregor After The Merger."
Recommendation of Board of Directors MacGregor's Board of Directors,
after considering many issues (as
more fully discussed herein) but
which include, although not limited
to, the Fairness Opinion discussed
herein, has determined that the
proposed Merger is fair and in the
best interest of MacGregor and its
shareholders. As such, MacGregor's
Board of Directors recommends
approval of the proposed merger.
See: "Approval Of The Merger
Agreement - Management
Recommendation And Rationale For
The Transaction."
3
<PAGE> 18
Closing Date and Effective Time of If the Merger Agreement is approved and
the Merger ratified at the Meeting, and all other
conditions to the Merger have been met (or
waived), the parties expect the Merger to
be effective on the day of the Meeting, or
shortly thereafter, upon the filing of
Articles of Merger with the Minnesota
Secretary of State. The time of such
filing is referred to in this Proxy
Statement as the "Effective Time." See:
"Approval Of The Merger Agreement -
Effective Time Of The Merger."
Conditions to Merger The respective obligations of MacGregor
and TPSI to consummate the Merger are
subject to a number of contingencies
relating to MacGregor's financial
condition at the Effective Time. In
addition, TPSI and MacGregor must have
completed a satisfactory due diligence
of the other, all representations and
warranties of the parties must be true as
of the Effective Time, all covenants must
have been performed and there must have
been no material adverse change
relating to either entity. See:
"Approval Of The Merger Agreement -
Conditions To The Merger; Termination."
Dissenter's Rights Pursuant to Section 302A.471 of the
Minnesota Business Corporations Act,
holders of record of MacGregor Common
Stock who file a written objection to the
Sale of the MacGregor Rights and/or the
Merger with MacGregor at or prior to the
time the vote is taken at the Meeting,
and who do not vote in favor of the Sale
of the MacGregor Rights or the Merger,
may make written demand on MacGregor for
payment of the fair value of their
shares. Persons whose shares are not
owned of record by them and who desire
to make such written demand should
contact the holder of record. Any
shareholder failing to make such demand
within the statutory period will lose his
or her right to receive payment of the
fair value of his or her shares and will
be bound by the terms of the Sale
of the MacGregor Rights and the Merger
Agreement, assuming such transactions are
approved by the holders of MacGregor
Common Stock as a whole. THE FAILURE BY A
SHAREHOLDER TO TAKE ANY STEP IN A TIMELY
MANNER IN CONNECTION WITH THE EXERCISE OF
SUCH DISSENTERS' RIGHTS MAY RESULT IN
TERMINATION OR WAIVER OF DISSENTERS'
RIGHTS. Accordingly, shareholders who
seek to perfect such rights are advised
to follow the statutory procedures
precisely as set forth in Minnesota
Statutes, Section 302A.473, copies of
which are appended hereto as Exhibit G.
See: "Sale of Substantially All Of
4
<PAGE> 19
MacGregor's Assets To Hutch -
Dissenter's Rights," "Approval Of The
Merger Agreement - Dissenter's Rights,"
and Exhibit G to this Proxy Statement.
Termination of Merger Agreement In the event that one party is unable or
unwilling to consummate the Merger for
reasons other than those specifically
provided for in the Merger Agreement, the
party who fails or refuses to perform is
required to pay all of the other party's
out-of-pocket expenses relating to the
Merger as well as a termination or
"break-up" fee in the amount of $100,000.
The failure of the shareholders to
approve the Sale of the MacGregor Rights
would not trigger the "break up" fee.
See: "Approval Of The Merger Agreement -
Conditions To The Merger; Termination."
Federal Income Tax Consequences The Merger is expected to qualify as a
tax-free reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the
Internal Revenue Code of 1986, as
amended. However, no ruling will be
requested from the Internal Revenue
Service (the "IRS") as to the federal
income tax consequences of the Merger.
See: "Approval Of The Merger Agreement -
Certain Federal Income Tax Consequences."
Effect of Amendment and Restatement The Amended and Restated Articles
of Articles of Incorporation of Incorporation will provide for the
issuance of only Common Stock,
thereby eliminating the A,
B, and C series of preferred stock and
the potential series of undesignated
preferred stock currently authorized. In
addition, the Amended and Restated
Articles will change the par value of
MacGregor Common Stock from $0.02 to
$0.01. Finally, the Amended and Restated
Articles will change MacGregor's name
from "MacGregor Sports & Fitness, Inc."
to "IntraNet Solutions, Inc." See:
"Proposal Number III; Amendment And
Restatement Of MacGregor's Articles Of
Incorporation In Their Entirety."
MacGregor Stock Option Plan The Merger Agreement provides that
MacGregor will adopt a new Stock Option
Plan substantially equivalent to TPSI's
existing 1994-1997 Stock Option Plan.
The terms of the proposed Stock Option
Plan are more fully described herein. At
the Effective Time there will be options
to purchase 3,315,780 shares of TPSI
Common Stock outstanding. The
obligations under these options will be
assumed by MacGregor as part of the
Merger and will become options to
purchase approximately 5,756,194 shares
of MacGregor Common
5
<PAGE> 20
Stock. At the Effective Time, there
will be options to purchase 50,000 shares
of MacGregor Common Stock outstanding under
MacGregor's existing Stock Option Plan.
See: "Proposal Number V; Adoption And
Ratification Of A MacGregor Stock Option
Plan."
GLOSSARY OF TECHNICAL TERMS
CAD File. A file containing an electronic drawing created using
Computer Automated Design Software.
Computer Network. A group of one or more computers connected together for
the purpose of sharing data and networked resources
such as printers, modems or fax servers.
Data Vault System. Secure electronic storage of data files using document
management software combined with database management
software.
Digital Document
Distribution. Distribution of documents through a computer network by
sending the version contained in a computer file rather
than a version printed on paper.
Digital Document
Management. Software technology that manages information contained
in electronic document files, or unstructured data,
providing revision control, configuration management,
and workflow.
Distribution
Technology. The various methods of using state-of-the-art
technology to distribute documents, both electronically
and in hardcopy.
Disaster Recovery
System. A combination of hardware and software designed to
provide automated backup and archiving of computer
files to allow rapid recovery in the event of a
catastrophic loss of data.
Document-based
Information
Management System. Software technology that manages business critical
documents and the information contained in those
documents by automating and accelerating the creation,
assembly, control, modification and distribution of
these documents.
Electronic Document
Warehousing. Using digital document management technology to provide
off-site storage of documents contained in computer
files.
6
<PAGE> 21
Electronic Demand
Publishing. Providing printed documents "on demand" through the use
of high-speed laser printers in order to reduce
inventory and production costs of frequently revised
documents.
Hardware Platform. A standard computer hardware configuration on which a
comprehensive approach to a computer solution of a
problem can be based. Examples of well-known hardware
platforms include the IBM PC and MacIntosh personal
computers.
Hypertext Link. An automatic link for navigation between electronic
documents activated by point and click with a computer
mouse.
Internet. An Open global network of interconnected commercial,
educational and governmental computer networks which
utilize a common communications protocol. TCP/IP.
Intranet. An organization's private network of its local area
networks which utilize Internet data formats and
communications protocols, and which may use the
Internet's facilities as the backbone for network
communications.
Overlay File. A file containing markup to communicate changes to a
computer file.
Post-script. An industry standard data file format for communication
with printing devices.
System Integrator. An organization that specialized in delivering
solutions to end-user organizations by combing a
variety of software components and integrating them
into a complete end-user solution.
Unstructured Business-
Critical Data. Information that typically exists in the form of word
processing documents, spreadsheets, or CAD files that
are maintained on a variety of hardware platforms with
little compatibility or data sharing capability between
systems.
Value Added Reseller
(VAR). A business that purchases equipment or software from a
vendor, usually at a discount, adds value and resells
the altered product.
Web. A collection of electronically retrievable documents
related by hypertext links.
Web Generation. The process of programmatically constructing a set of
interlinked electronic documents (A Web.)
Workflow A computer application which provides management,
control and tracking of a business process such as the
routing of a business document for approval signatures.
7
<PAGE> 22
World Wide Web. (WWW). The worldwide collection of electronically retrievable
hypertext linked documents resident on the Internet. This
worldwide collection of documents is unified by standard file
format and retrieval protocol standards to allow document
retrieval as if from a single library.
COMPARATIVE PER SHARE MARKET INFORMATION
MacGregor's Common Stock is traded on the NASDAQ Small Cap Market
("NASDAQ") under the symbol MACG. TPSI's Common Stock is not traded on any
market and is closely held by five shareholders.
The table below reflects the high ask and low bid prices of MacGregor
Common Stock on the NASDAQ composite tape as reported by IDD Information
Services for the periods indicated.
<TABLE>
<CAPTION>
MACGREGOR
STOCK
-----------------
HIGH ASK LOW BID
-------- -------
<S> <C> <C>
FISCAL YEAR ENDING JULY 31, 1996
1st Quarter 1-5/16 1-3/16
2nd Quarter 4-1/16 1-3/8
3rd Quarter 3-13/16 2-3/8
4th Quarter to May 31, 1996 5-7/8 2-3/8
FISCAL YEAR ENDING JULY 31, 1995
1st Quarter 1-5/16 3/8
2nd Quarter 1-3/16 5/8
3rd Quarter 1-1/16 23/32
4th Quarter 1-5/16 23/32
FISCAL YEAR ENDING JULY 31, 1994
1st Quarter 1-3/4 15/16
2nd Quarter 1-9/16 15/16
3rd Quarter 1-1/8 7/16
4th Quarter 3/4 1/4
FISCAL YEAR ENDING JULY 31, 1993
1st Quarter 2-1/21-1/4
2nd Quarter 2 1-1/2
3rd Quarter 1-3/4 7/8
4th Quarter 1-5/8 3/4
</TABLE>
On January 16, 1996, the business day of the public announcement of the
execution of the Merger Agreement, the reported closing sale price per share of
MacGregor Common Stock on the NASDAQ composite tape was $3.1875. Based on this
price, the Exchange Ratio would have resulted in TPSI's shareholders receiving
approximately $57,375,000 in market value of MacGregor Common Stock. On
8
<PAGE> 23
May 31, 1996, the high ask and low bid price of MacGregor Common Stock on the
NASDAQ composite tape were 5-7/8 and 5 respectively. Based on this price, the
Exchange Ratio would have resulted in TPSI's shareholders receiving
approximately $90,000,000 in market value of MacGregor Common Stock. On
October 4, 1995, the business day preceding the public announcement of the
execution of the Letter of Intent with respect to the Merger, the high ask and
low bid price of MacGregor Common Stock on the NASDAQ composite tape were $1.94
and $1.63 respectively. As of May 1, 1996, there were approximately 1,606
holders of record of MacGregor Common Stock. MacGregor has not declared any
cash dividends on any class of equity securities, including the MacGregor
Common Stock during the two-year period preceding the date hereof.
Shareholders are advised to obtain current market quotations for MacGregor
Common Stock. No assurance can be given as to the market price of MacGregor
Common Stock at the Effective Time.
HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
IntraNet Intregration Group, Inc. MacGregor Sports and Fitness, Inc.
(f/k/a/ Technical Publishing Solutions, Inc.)
------------------------------------------------------------ ----------------------------------------
Twelve months
Year ended March Year ended March ended Year ended Nine months ended
31, 1995 31, 1996 March 31, 1996 July 31, 1995 April 30, 1996
(Historical) (Historical) (pro forma)(1) (Historical) (Historical)
------------------------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
Book value per share $0.02 $0.00 $0.09 $0.15 $0.26
Cash dividends
declared per share None None None None None
Loss from
continuing
operations per
share $0.00 ($0.02) ($0.01) ($0.14) ($0.31)
</TABLE>
(1) On January 16, 1996, TPSI and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity. At Closing,
TPSI's shareholders will receive approximately 60% of the then
outstanding common stock of MacGregor in exchange for their
10,000,000 outstanding shares of TPSI common stock. Pro forma
adjusted to record (i) MacGregor's transactions in anticipation of
the merger and (ii) this transaction as an acquisition and
recapitalization including estimated transaction costs.
9
<PAGE> 24
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
(f/k/a TECHNICAL PUBLISHING SOLUTIONS, INC)
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
ENDED MARCH 31,
1996
YEAR ENDED MARCH 31, PRO FORMA (2)
---------------------------------------------------- -----------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $14,235,742 $14,235,742
Cost of revenues 5,223,914 7,600,690 10,708,253 10,708,253
---------- ----------- ----------- ----------
Gross profit 2,021,309 2,845,971 3,527,489 3,527,489
Operating expenses 1,830,720 2,612,262 3,670,773 3,670,773
Interest expense 23,143 97,033 230,293 230,293
---------- ----------- ----------- ---------
Income (loss)
before income taxes 167,446 136,676 (373,577) (373,577)
Provision for
(benefit of) income
taxes 64,000 64,553 (125,770) (125,770)
---------- ----------- ----------- ---------
Net income (loss) $103,446 $72,123 $ (247,807) $ (247,807)
========== =========== =========== =============
Net income (loss)
per share $0.01 $0.00 $ (0.02) $ (0.01)
========== =========== =========== =============
Shares used in per
share calculation 20,000,000 20,467,290 12,916,667 29,700,003
========== =========== =========== =============
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
-------------- --------------------------------
ACTUAL ACTUAL PRO FORMA(1)
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) ($11,801) ($1,076,767) $1,723,233
Total assets 3,878,832 5,712,866 8,512,866
Total liabilities 3,471,108 5,734,049 5,734,049
Retained earnings (deficit) 396,160 (22,265) (22,265)
Shareholders' equity (deficiency) 407,724 (21,183) 2,778,817
</TABLE>
- --------------------
(1) On January 16, 1996, IIGI (or TPSI) and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity. At Closing,
TPSI's shareholders will receive approximately 60% of the then
outstanding common stock of MacGregor in exchange for their
10,000,000 outstanding shares of IIGI common stock. Pro forma
adjusted to record (i) MacGregor's transactions in
10
<PAGE> 25
of the merger and (ii) this transaction as an acquisition and
recapitalization including estimated transaction costs.
(2) As pro forma adjusted to reflect the reverse merger
identified in Note 1, above, as if it had occurred on April 1, 1995.
Since MSF will be a nonoperating entity at the date of the
transaction, none of the revenues or expenses of MSF would have
resulted during the period had the transaction occurred on April 1,
1995. Accordingly, the pro forma adjustments reflect the removal of
these revenue and expense items.
MACGREGOR SPORTS AND FITNESS, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months Ended April 30,
------------------- ---------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $ 2,684,933 $ 765,635 $ 627,115 141,667
Cost of revenues 1,872,198 446,471 328,239 0
----------- ----------- --------- ----------
Gross profit 812,735 319,164 298,876 141,667
Operating expenses 2,538,340 1,298,657 575,311 3,164,998
Other expenses 129,662 165,310 92,081 50,330
----------- ----------- --------- ----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (368,516) (3,073,661)
Extraordinary item 0 0 0 119,787
Provision for (benefit of) income taxes 0 0 0 0
----------- ----------- --------- ----------
Net (loss) ($1,855,267) ($1,144,803) ($368,516) ($2,953,874)
=========== =========== ========= ==========
Net (loss) per share, before
extraordinary item -- -- - ($.32)
=========== =========== ========= ==========
Net (loss) per share ($0.26) ($0.14) ($.05) ($.31)
----------- ----------- --------- ----------
Shares used in per share calculation 7,376,483 8,169,622 8,143,312 9,652,274
=========== =========== ========= ==========
<CAPTION>
JULY 31, 1995 APRIL 30, 1996
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ($2,166,528) $81,836
Total assets 4,284,808 3,014,715
Total liabilities 3,012,173 0
Accumulated deficit (7,293,370) (10,247,246)
Stockholders' equity 1,272,635 3,014,715
</TABLE>
11
<PAGE> 26
PROPOSAL NUMBER I:
THE SALE OF SUBSTANTIALLY ALL OF MACGREGOR'S ASSETS
TO HUTCH
BACKGROUND
MacGregor's assets are its ownership, through its interest in MSP, of all
of the rights in and to the "MacGregor" trademark pursuant to certain license
agreements and certain related assets (the "MacGregor Rights"). The MacGregor
trademark is owned by MacMark Corporation, a Delaware corporation ("MacMark")
and any transfer by MSP of the MacGregor Rights requires the approval of
MacMark. MSP acquired these rights in connection with the acquisition of
assets from MacGregor Sports, Inc. in a sale in the Bankruptcy Court in
Milwaukee, Wisconsin, pursuant to Section 363 of the Bankruptcy Code. The
license agreements and other rights described above are carried on MacGregor's
balance sheet at a value of $2,932,879 as of April 30, 1996. Effective
October 7, 1993, MSP entered into an agreement (the "Distribution Agreement")
with Roadmaster Corporation ("RMC") whereby RMC, a wholly-owned subsidiary of
Roadmaster, acquired the exclusive rights to distribute sports, recreational
and fitness products under the MacGregor trademark, subject to certain
territorial limitations and restrictions set forth in other licensing
agreements of MacGregor. The Distribution Agreement provided for an initial
term of five years, with an option to renew for an additional five year term
with a minimum annual royalty. The Distribution Agreement provides that RMC
will pay MacGregor on a quarterly basis, percentage-based royalties on net
revenues generated from sales of the MacGregor products, with minimum
cumulative royalties.
Under the terms of the Distribution Agreement, MSP and the MacGregor
received cash of approximately $1,631,000 in exchange for accounts receivable
with a book value of $427,000, $623,000 of inventory, and $30,000 of equipment,
resulting in a $551,000 write off of the carrying value of the MacGregor
license costs. That amount included payment of MSP's then existing revolving
line of credit; payment of $276,000 to satisfy commissions owed to, and to
settle the exclusive representation agreement with, the company which had been
marketing the MacGregor branded products; $186,000 for the reduction of certain
notes payable and $729,000 for the reduction of certain accounts payable and
accrued expenses.
CTS formerly sold retail sporting goods and team sports equipment in the
Greenville, South Carolina area. In December 1993, management elected to
restructure CTS. The restructure included the novation of a government
contract effective December 1, 1993 whereby a new contract was created on the
same terms as the original contract and a new party substituted for CTS, the
elimination of the team division sales organization and support staff and the
closure of a team sports operation in Spartanburg, South Carolina. These
actions were taken to reduce costs and minimize usage of working capital.
In conjunction with the restructure, approximately $175,000 of inventory
and $50,000 of book value of fixed assets were sold to an unrelated third party
for $208,000. The proceeds were used to reduce CTS' revolving credit line with
the Branch Bank & Trust from $569,000 to $400,000, and to repay certain trade
accounts payable.
In May 1995, CTS did not renew its retail lease and ceased operations.
Its furniture and equipment were sold for a loss of approximately $19,000. CTS
is no longer in business.
12
<PAGE> 27
THE PROPOSED TRANSACTION
Beginning in December 1994, as previously disclosed, MacGregor began
discussions with RMC, an affiliate, to either grant an extension of the
Distribution Agreement, and/or to grant an option to RMC to acquire all of the
MacGregor's interests in and to the MacGregor Rights. On October 5, 1995 MSF
and TPSI signed a letter of intent with respect to the merger. One of the
conditions negotiated between MSF and TPSI in connection with the Letter of
Intent was that MSF sell the MacGregor Rights to a third-party. In December
1995, RMC approached the MacGregor with the following proposal for the
acquisition of the MacGregor's rights in and to the MacGregor Rights.
RMC offered to acquire the MacGregor Rights, through and in the name of
RMC's affiliate Hutch, for a purchase price of $2,910,000, payable as follows:
$1,000,000 in cash at the Closing and delivery of a one (1) year unsecured
installment promissory note in the amount of $1,910,000 to be paid in twelve
equal monthly installments which bears interest at a rate equal to the prime or
base rate from time to time publicly announced by Bank America N.A. MacGregor
has accepted the offer, which will close concurrently with the Merger but be
effective February 1, 1996, subject to the approval of MacGregor's shareholders
and MacMark Corporation, a Delaware corporation ("MacMark"), the owner and
licensor of the MacGregor trademark. In response to the agreement, MSF reduced
the carrying amount of its intangible assets at January 31, 1996 by $1,200,000.
Previously, MSF was anticipating realizing approximately $4 million on its
sale of the MacGregor Rights. However, in late 1995, due to the competitive
retail environment that the MacGregor trademarks operate in, management
believes the $2.9 million sales price stated in the agreement is the maximum
amount that a buyer would offer. Over the last two years, management has
investigated the sale of the MacGregor Rights with four other potential buyers
and based on the results of these other negotiations, believes the transaction
with RMC offers the best outcome for MSF and its shareholders.
The completion of the Sale of the MacGregor Rights to Hutch is a condition
to the obligations of MSF and TPSI to effect the Merger. However, the sale of
the MacGregor Rights is not conditioned on the shareholders' approval of the
Merger. Therefore, if the sale of the MacGregor Rights is approved but the
Merger is not, MSF will still complete the sale of the MacGregor Rights to
Hutch and its assets will then consist of $1,000,000 in cash and a $1,900,000
promissory note and will continue to pursue strategic alternatives.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE TRANSACTION
MacGregor has not had sufficient working capital required to grow the
MacGregor sporting goods business to higher levels of revenue and
profitability, and therefore, entered the Distribution Agreement in 1993.
However, the level of cash flow from the royalties under the Distribution
Agreement does not provide assurance on an ongoing basis that MacGregor will
have sufficient cash flow to pay for its operating and other expenses, nor does
it provide a sufficient capital base for MacGregor to engage in other business
opportunities. In addition, as of July 31, 1995 and through the present,
MacGregor was not and is not in compliance with certain conditions, including
financial ratios, for the continuation of the MacMark licenses, making it
necessary for MacGregor to seek some other arrangements whereby it might best
realize the value of its ownership of the MacGregor Rights. Conversely,
Roadmaster and Hutch have been reluctant to expend the capital investment and
other costs necessary to maximize the potential value of the MacGregor Rights
in the absence of long term control over the MacGregor Rights and the
additional value therein resulting from the expenditure of such investment and
costs. Over the last two years management considered alternatives to the sale
of the MacGregor Rights including bank financing
13
<PAGE> 28
and raising additional equity. In that regard, management concluded that it had
no assets on which to borrow. Moreover, in the judgment of management, MSF
would not have been able to raise additional equity without expanding or
changing its line of business. Based on this analysis, management decided to
search for a merger or acquisition partner, and engaged R.J. Steichen & Co. to
assist in that process. Disposition by MacGregor of the MacGregor Rights will
allow MacGregor to realize the value in the MacGregor Rights and to create a
pool of cash assets which make it a more attractive merger partner to TPSI.
Management has investigated the sale of the MacGregor Rights with four other
parties. Discussions with three of the parties ended after preliminary due
diligence discussions and disclosures with such parties losing interest in
pursuing proposals before any discussion of price and terms were reached.
Discussions with the fourth party ended in 1995, when that party indicated it
was not interested in a transaction which included any cash consideration.
Based on the results of those negotiations, management believes the proposed
transaction offers the best current alternative for MacGregor and its
shareholders. MANAGEMENT THEREFORE RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE PROPOSED TRANSACTION.
DISSENTER'S RIGHTS
The sale of substantially all of MacGregor's assets, as well as the
Merger, triggers dissenter's rights under Minnesota law. TPSI has the right to
abandon the Merger if shareholders holding more than 5% of the MacGregor Common
Stock assert their dissenters' rights in connection with the Merger. In the
event that shareholders holding less than 5% of the MacGregor Common Stock
assert dissenters' rights or TPSI chooses to waive the limitation of
dissenters' rights as a condition precedent to the Merger, the Merger will
proceed and dissenting shareholders of MacGregor may assert a right for payment
for their shares under Minnesota law.
The rights of dissenting holders of MacGregor Common Stock are governed by
Sections 302A.471 and 302A.473 of the Minnesota Business Corporations Act.
THE FOLLOWING IS A SUMMARY OF THE STATUTORY PROCEDURES TO BE FOLLOWED BY
HOLDERS OF MACGREGOR COMMON STOCK IN ORDER TO DISSENT FROM THE SALE OF THE
MACGREGOR RIGHTS AND/OR THE MERGER AND PERFECT APPRAISAL RIGHTS UNDER MINNESOTA
LAW. THESE SUMMARIES ARE NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROCEDURES AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXTS
OF SUCH STATUTE, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT G.
In general, a holder of shares as of the Record Date who objects to the
sale of the MacGregor Rights and/or the Merger and who has not voted in favor
of the sale of the MacGregor Rights and/or the Merger, may be entitled to a
judicial determination of the fair value of his or her shares and payment
hereof by the surviving corporation (the "Surviving Corporation"). Any holder
of MacGregor Common Stock who elects to exercise his or her dissenter's rights
must file a written notice thereof with MacGregor before MacGregor's Special
Meeting, or at the Special Meeting but before the vote is taken. The written
notice is required in addition to and separate from any proxy or vote against
the sale of the MacGregor Rights and/or the Merger. Neither voting against nor
failure to vote for the sale of the MacGregor Rights and/or the Merger will
constitute the notice required to be filed by an objecting shareholder. A
shareholder voting for the sale of the MacGregor Rights and/or the Merger will
be deemed to have waived his or her dissenter's rights. A signed proxy that is
returned but which does not contain any instructions as to who it should be
voted will be voted in favor of the sale of the MacGregor Rights and
the Merger and will be deemed a waiver of dissenter's rights. Any proxy
may be revoked before it is exercised.
14
<PAGE> 29
A shareholder may not dissent as to less than all of the shares registered
in the name of the shareholder, unless the shareholder dissents with respect to
all shares that are beneficially owned by another person but registered in the
name of the shareholder and the shareholder discloses the name and address of
the beneficial owner on whose behalf the shareholder dissents. A beneficial
owner of shares who is not the shareholder of record may assert dissenters'
rights with respect to the shares held on behalf of the beneficial owner, and
will be treated as a dissenting shareholder if the beneficial owner submits a
written consent of the shareholder of record either at the time of or before
the waiver of notice of dissent is filed. All notices of dissent should be
addressed to the Secretary of MacGregor at the address of the executive office
of parent set forth above.
Following the Special Meeting, and assuming authorization of the sale of
the MacGregor Rights and the Merger, the Surviving Corporation will give
written notice to each holder of shares who timely filed a written notice of
who did not vote in favor of the sale of the MacGregor Rights and/or the
Merger, containing: (i) the address to which a demand for payment of the
certificate or certificates representing the shareholder's shares must be sent
in order to obtain payment and the date by which they must be received; (ii)
any restrictions on transfer of uncertified shares that will apply after the
demand for payment is received; (iii) a form to be used to certify the date on
which the shareholder or the beneficial owner on whose behalf the shareholder
dissenting acquired the shares or an interest in the shares, and to demand
payment; and (iv) a copy of Sections 302A.471 and 302A.473 and a description
of the procedure to be followed under such sections. A dissenting shareholder
must demand payment and deposit certificated shares, or comply with the
restrictions on transfer of uncertificated shares, within thirty (30) days
after notice is given by the Surviving Corporation to the dissenting
shareholder.
After consummation of the transaction giving rise to the dissenter's
rights, or after the Surviving Corporation receives a valid demand payment,
whichever is later, the Surviving Corporation is required to remit to each
dissenting shareholder who has complied with the provisions of Section
302A.473, the amount the Surviving Corporation estimates to be the fair value
of the shares, with interest, if any, and accompanied by certain specified
financial statements and notes thereto, a description of the method used to
estimate the fair value of the shares, and a brief description of the procedure
to be followed in demanding supplemental payment. If a dissenting shareholder
believes that the amount remitted is less than the fair value of the shares the
dissenting shareholder may give written notice to the Surviving Corporation of
the dissenter's estimate of the fair value of the shares and demand payment of
the difference. A demand of supplemental payment must be made within thirty
(30) days after the Surviving Corporation makes remittance. A dissenting
shareholder failing to make a timely demand for such supplemental payment will
be entitled only to the amount remitted by the Surviving Corporation.
Within sixty (60) days of receipt of a timely demand for supplemental
payment, the Surviving Corporation must either pay the amount demanded, or such
other amount as may be agreed upon by the shareholder and the Surviving
Corporation, or file a petition in court requesting that the court determine
the fair value of the shares. The petition shall be filed in the District
Court, for the Judicial District, Hennepin County, in the State of Minnesota
(the "Court"), which is the county in which the registered office of the
Surviving Corporation will be located. All dissenting shareholders other than
those who reached agreement with the Surviving Corporation as to the fair value
of their shares, will be named as parties in the petition. The Court will
determine whether the shareholder or shareholders named in the petition have
fully complied with the procedural requirement of Section 302A.473, and will
determine the fair value of the shares, taking into account any and all methods
that the Court, in its discretion, sees fit to use, whether or not used by the
Surviving Corporation or dissenting shareholder. The fair value of the shares
as determined by the Court is binding on all shareholders, wherever located. A
dissenting
15
<PAGE> 30
shareholder is entitled to judgment for the amount by which the fair
value of the shares as determined by the Court exceeds the amount, if any,
remitted by the Surviving Corporation.
The Court will determine the costs and expenses of the proceeding,
including the reasonable expenses and compensation of any appraisers appointed
by the Court and attorneys' fees, and may assess those costs and expenses
against MacGregor, except that the Court may assess part or all of such costs
and expenses against a dissenting shareholder if the Court finds that the
action of such dissenting shareholder in demanding payment was arbitrary,
vexatious or not in good faith. The Court may also, in its discretion, award
fees and expenses to an attorney for dissenting shareholders out of the amount
awarded to the dissenting shareholders, if any.
RELATED PARTIES
Henry Fong, Chairman of MacGregor's Board of Directors, is also the
President and Chairman of the Board, and indirectly a controlling shareholder
of Roadmaster, the parent of RMC and Hutch and is Chairman of California Pro
Sports, Inc. ("California Pro") Due to Mr. Fong's common control of Roadmaster,
California Pro and MacGregor, Roadmaster and California Pro are considered
affiliates of MacGregor for SEC reporting purposes. Roadmaster owns 140,610
shares (1.20%) of MacGregor Common Stock. California Pro owns 223,861 shares
(1.9%) of MacGregor Common Stock. In addition, Mr. Fong is the President, a
director and controlling shareholder of Equitex, Inc., a Denver-based business
development company. Equitex is a principal shareholder of MacGregor and also
owns some 10.2 % of the stock of Roadmaster. Through his affiliation with
Equitex, California Pro and Roadmaster, Mr. Fong, who owns no shares of
MacGregor Common Stock and owns warrants to purchase only 250,200 shares of
MacGregor Common Stock in his own name, may be deemed to be a beneficial owner
of 3,592,717 shares of MacGregor Common Stock, or 29.91% of MacGregor's issued
and outstanding Common Stock. Mr. Fong has abstained from the voting or
deliberation in connection with the approval of the transactions contemplated
by this Proposal. Similarly, the Roadmaster, California Pro and Equitex shares
will abstain from voting on this Proposal so that it may be approved by a
majority of MacGregor's independent shareholders.
16
<PAGE> 31
PROPOSAL NUMBER II:
APPROVAL OF THE MERGER AGREEMENT
GENERAL INFORMATION
MACGREGOR SPORTS AND FITNESS, INC. MacGregor, through its wholly-owned
subsidiary MSP, is in the business of marketing and distributing through its
exclusive distributor, Roadmaster, a broad range of sports, recreational and
fitness products under the MacGregor trademark. MacGregor's other subsidiary,
CTS, was a sporting goods and team retailer in Greenville, South Carolina. CTS
is no longer in business.
In December 1994, MSP entered into a letter of potential interest with
Roadmaster. Under the terms of the letter, as amended in November, 1995, MSP
granted Roadmaster an option to extend the existing distribution agreement for
two additional five-year periods with increased minimum royalty requirements.
In addition, MSP granted Roadmaster an option to acquire all of its interests
in and to the MacGregor trademark and related trademarks and rights (the
"MacGregor Rights") for a cash payment of $675,000 plus a three-year note
representing the then existing present value of the remaining minimum payments
under the distribution agreement, including all extensions. In response to the
November 1995 amendment to the Letter of Potential Interest, MacGregor reduced
the carrying amount of its intangible assets at July 31, 1995 by $500,000.
MacGregor retail branded products are currently being marketed by
Roadmaster under its five-year exclusive distributor agreement. Roadmaster
distributes the MacGregor products to major retail chains including mass
merchants through independent representatives. The products marketed by
Roadmaster include baseballs, softballs, bats, gloves, basketballs, footballs,
soccer balls, volleyballs, playground balls and juvenile products.
MSP does not manufacture any products. Rather, the products sold under
the MacGregor mark are acquired by RMC from third party contract manufacturers.
MacGregor retains the right to inspect all products to ensure they meet
standards acceptable to MacGregor.
MacGregor's brand of products competes with the brands of numerous other
companies in the marketing and distribution of sporting goods, some which may
have greater capital available to them than MacGregor or Roadmaster, and some
of which may manufacture the products they market and distribute. There can be
no assurance that the MacGregor products can compete effectively. These
competitors include manufacturers of sporting goods, such as Wilson Sporting
Goods Company, Spalding Sports Worldwide, Inc., and Rawlings Sporting Goods
Company.
Competition in the channels of distribution in which Roadmaster markets
MacGregor products is fierce, and is based on price, quality, service and brand
recognition. Roadmaster products do not directly compete with MacGregor
products.
MSP has 1 full-time employee. MSP's employee is not represented by a
union, and MSP believes its relations with its employee to be good.
17
<PAGE> 32
MSP and CTS lease office space in Greenville, South Carolina. The
five-year lease terminates in 1998 and the monthly base rent is $5,833. CTS
previously had a retail store lease which expired in May 1995.
MACGREGOR SPORTS & FITNESS, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected statement of operations data for the years ended July 31, 1994,
and 1995, and the balance sheet data at July 31, 1995, are derived from, and
should be read in conjunction with, the more detailed consolidated financial
statement for MacGregor and the notes thereto, which have been audited by
Gelfond Hochstadt Pangburn & Co., independent public accountants, whose report
is located elsewhere in this Proxy Statement. The financial statements for the
nine months ended April 30, 1995, and 1996, have not been audited but, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial data for and
at the end of such periods. Results for interim periods are not necessarily
indicative of the results that may be expected for the entire year or other
interim periods. The selected financial data should be read in conjunction
with "Management's Discussion And Analysis Of Financial Condition And Results
Of Operations" and the financial statements and notes thereto included
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Year Ended July 31, Nine Months Ended April 30,
------------------- ---------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $2,684,933 $ 765,635 $ 627,115 $ 141,667
Cost of revenues 1,872,198 446,471 328,239 0
---------- ---------- --------- ----------
Gross profit 812,735 319,164 298,876 141,667
Operating expenses 2,538,340 1,298,657 575,311 3,164,998
Other expenses 129,662 165,310 92,081 50,330
---------- ---------- --------- ----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (368,516) (3,073,661)
Extraordinary item 0 0 0 119,787
Provision for (benefit of) income taxes 0 0 0 0
---------- ---------- --------- ----------
Net (loss) ($1,855,267) ($1,144,803) ($368,516) ($2,953,874)
========== ========== ========= ==========
Net (loss) per share, before
extraordinary item -- -- -- ($.32)
========== ========== ========= ==========
Net (loss) per share ($0.26) ($0.14) ($.05) ($.31)
========== ========== ========= ==========
Shares used in per share calculation 7,376,483 8,169,622 8,143,312 9,652,274
========== ========== ========= ==========
<CAPTION>
JULY 31, 1995 APRIL 30, 1996
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ($2,166,528) 81,836
Total assets 4,284,808 3,014,715
Total liabilities 3,012,173 0
Accumulated deficit (7,293,370) (10,247,246)
Stockholders' equity 1,272,635 3,014,715
</TABLE>
18
<PAGE> 33
INTRANET INTEGRATION GROUP, INC. (FORMERLY KNOWN AS TECHNICAL PUBLISHING
SOLUTIONS, INC.) TPSI was formed in 1990 to help its clients create, manage,
and distribute unstructured business-critical information. This information is
typically contained in documents such as technical publications, CAD
engineering files, word-processing files, and spreadsheets. As a single source
vendor, TPSI has provided the hardware, software and services necessary to
create, manage and distribute this data; software for producing, managing, and
electronically distributing unstructured 2MacGregor's April 30, 1996 historical
balance sheet gives effect to the disposition of its MSP and CTS subsidiaries
to Resource Reservation, L.L.C. which will be reversed if the merger is not
consummated business-critical information, work stations, servers and
related software, backup and disaster recovery systems, data communications and
security products, as well as the training, installation, maintenance and
support, customization, and other services required to successfully implement.
The majority of the hardware and software products sold to date have been
through reseller arrangements with Sun Microsystems, Inc. and Interleaf, Inc.
TPSI maintains its own internal development staff that have provided the
customization required by a significant number of implementations, as well as
the research and development of its recently introduced proprietary products.
Until 1994, all of these solutions were sold to TPSI's customers for use
internally, running on customer's internal networks or "intranets". In 1994,
TPSI expanded its services to include off-site production and distribution
services by forming its wholly-owned subsidiary, IntraNet Distribution Group,
Inc. (formerly known as DocuPro Services, Inc., "IDG"). IDG's services allow
its customers to take advantage of digital document management and distribution
technology with a minimal incremental investment, with the added benefit of
maximizing their current technology investments. IDG's revenues currently
represent approximately 10% of TPSI's total revenues.
Beyond the core digital management and distribution services provided by
IDG, TPSI has made several advancements in the development of other proprietary
products and services. In November of 1995 TPSI introduced its IntraNet Remote
Print Manager(TM) ("RPM"). RPM is an easy to use, quickly deployable, and
inexpensive interface to the IDG internal document warehouse. The interface
allows customers to order on-demand printing remotely using the Internet. In
addition, RPM makes it possible to electronically retrieve documents for
revisions using a data vault system that controls accuracy and security. Users
of the interface can send copies of documents (either electronically or
physically) to the IDG electronic document warehouse. Once the documents have
been stored, customers then access them via the Internet or dial up connection,
retrieving documents for revisions as needed. Passwords are used to restrict
access to authorized users and off-site storage of valuable documents provides
an added backup in case of disaster. This system can also be used for
high-speed PostScript output of large or frequently produced documents.
TPSI has also recently acquired core technology that automates the process
of intranet web generation for the management and viewing of unstructured
business-critical data using Internet technology. Combined with its own
development, TPSI has recently launched the release of a comprehensive system
for automatic management of documents on an internal or external World Wide Web
site called the IntraNet Web-Based Management System(TM) ("WBMS"). WBMS(TM)
fills a void between the repository of business data, and the searching and
viewing needs of Web site users. WBMS(TM) eliminates the need to manually
generate links and navigation aids, overcomes database querying limitation,
permits secure workflow and revision control, allows diverse document types to
be accessible on a Web, and continually updates the site with the most current
information. Viewing capabilities are significantly expanded with the use of
WBMSTM; any user on the system can view a document created in virtually any
application without having the origin software loaded on their desktop.
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TPSI also markets network based products: IntraNet EZVueTM, a search, view
and print interface primarily used in engineering applications; and IntraNet
Overlay Management ApplicationTM ("OMA"), a solution for managing CAD
engineering source files with overlay files.
TPSI's products and services provide integrated solutions for the
management and distribution of business-critical information. TPSI has focused
its marketing efforts toward large companies who have begun to more
aggressively reengineer their business processes. TPSI believes that as the
trend toward network-based computing environments as the primary computing
resource continues, the demand for its products, especially its recently
developed proprietary products, will continue. TPSI delivers its products
primarily through a direct sales force. TPSI currently has over 200 active
accounts, primarily in the Fortune 1500.
The following summarizes the key products and services currently delivered
by TPSI:
- Document-based Information Management
1. Tools for Creation of Document-based
Data
2. Enterprise Document Management
Systems
- Library Management
- Configuration Management
- Workflow Management
3. Digital Document Distribution
- Digital Document Distribution
1. CD-ROM Distribution
2. Enterprise Viewing Tools
3. Internet Publishing Solutions
- Data/Document Warehousing
- Demand Publishing
- Electronic Distribution and Fulfillment
- Enterprise Backup and Disaster Recovery Strategies
1. Hierarchical Storage Management and
Backup Software
2. RAID Disk Arrays, Optical Disk, and
Tape Jukeboxes
- Network Integration Products and Services
1. Network Design
2. Servers, Workstations
3. Network Management Software
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<PAGE> 35
- Single Source-Services
1. Support and Maintenance
2. Custom Development
3. Installation and Training
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<PAGE> 36
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
(F/K/A TECHNICAL PUBLISHING SOLUTIONS, INC)
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The selected statement of operations data for the years ended March 31, 1994,
1995, and 1996, and the balance sheet data at March 31, 1995 and 1996, are
derived from, and should be read in conjunction with, the more detailed
consolidated financial statements for IIGI and the notes thereto, which have
been audited by Lund Koehler Cox & Company, PLLP, Independent public
accountants, whose report is located elsewhere in this Proxy Statement. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
ENDED MARCH 31,
1996
YEAR ENDED MARCH 31, PRO FORMA (2)
---------------------------------------------------- -----------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $14,235,742 $14,235,742
Cost of revenues 5,223,914 7,600,690 10,708,253 10,708,253
---------- ----------- ----------- -----------
Gross profit 2,021,309 2,845,971 3,527,489 3,527,489
Operating expenses 1,830,720 2,612,262 3,670,773 3,670,773
Interest expense 23,143 97,033 230,293 230,293
---------- ----------- ----------- -----------
Income (loss)
before income taxes 167,446 136,676 (373,577) (373,577)
Provision for
(benefit of) income
taxes 64,000 64,553 (125,770) (125,770)
---------- ----------- ----------- -----------
Net income (loss) $103,446 $72,123 $ (247,807) $ (247,807)
========== =========== =========== ===========
Net income (loss)
per share $0.01 $0.00 $ (0.02) $ (0.01)
========== =========== =========== ===========
Shares used in per
share calculation 20,000,000 20,467,290 12,916,667 29,700,003
========== =========== =========== ===========
<CAPTION>
MARCH 31, 1995 MARCH 31, 1996
-------------- --------------------------------
ACTUAL ACTUAL PRO FORMA(1)
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) ($11,801) ($1,076,767) $1,723,233
Total assets 3,878,832 5,712,866 8,512,866
Total liabilities 3,471,108 5,734,049 5,734,049
Retained earnings (deficit) 396,160 (22,265) (22,265)
Shareholders' equity (deficiency) 407,724 (21,183) 2,778,817
</TABLE>
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<PAGE> 37
- ----------------
(1) On January 16, 1996, TPSI and its then sole shareholder
entered into an Agreement and Plan of Merger with MacGregor.
MacGregor is a publicly traded non-operating entity.
At Closing, TPSI's shareholders will receive approximately
60% of the then outstanding common stock of MacGregor in exchange
for their 10,000,000 outstanding shares of TPSI common stock. Pro
forma adjusted to record (i) MacGregor's transactions in
anticipation of the merger and (ii) this transaction as an
acquisition and recapitalization including estimated transaction
costs.
(2) As pro forma adjusted to reflect the reverse merger
identified in Note 1, above, as if it had occurred on April 1, 1995.
Since MSF will be a nonoperating entity at the date of the
transaction, none of the revenues or expenses of MSF would have
resulted during the period had the transaction occurred on April 1,
1995. Accordingly, the pro forma adjustments reflect the removal of
these revenue and expense items.
TPSI's Common Stock is closely held by five (5) individuals and is not
publicly traded or traded on any market. No cash dividends have been declared
on TPSI's Common Stock for the last two (2) fiscal years.
THE MERGER
Background of the Merger. MacGregor has been evaluating possible options
for the continuation of its operations in contemplation of a possible sale of
the MacGregor Rights since December of 1994, when it began to discuss a sale of
the MacGregor Rights with Roadmaster. While that transaction was evaluated on
its own merits with respect to the future best interests of MacGregor and its
shareholders, it was nonetheless contemplated that under certain unanticipated
circumstances the sale of the MacGregor Rights could leave MacGregor in a
difficult position to continue business operations. In an effort to find
beneficial alternatives to such difficulties, the Directors explored various
strategies, including bank financing, the raising of additional equity and the
investigation of merger partners or other business combinations. In that
regard, management concluded that it had no assets on which to borrow.
Moreover, in the judgment of management, MacGregor would not have been able to
raise additional equity without expanding or changing its line of business. To
that end, with the assistance of various advisors, including Wayne Mills of
R.J. Steichen & Co., various acquisition candidates were identified and
evaluated. MacGregor selected Mr. Mills to assist in the identification and
evaluation of such candidates based upon his longstanding relationship with the
Company, dating back to his role in introducing MacGregor to Vida Ventures,
Ltd., MacGregor's predecessor, in 1990. In addition, Mr. Mills is widely
recognized and knowledgeable in the area of emerging and growth companies. Mr.
Mills' role included identifying companies whose capital needs would benefit
from a merger with MacGregor, while providing the best growth outcome for
MacGregor shareholders, and evaluating such identified candidates in light of
those criteria. As is more fully set forth below, Mr. Mills introduced
MacGregor representatives to TPSI in August of 1995. Initial contacts between
the parties indicated to MacGregor that TPSI fulfilled its evaluation criteria,
in that TPSI could use MacGregor's capital base (if the MacGregor Rights could
be converted into cash), while maximizing the benefits to MacGregor
shareholders, in light of MacGregor's evaluation of the TPSI
23
<PAGE> 38
products, the strength of the TPSI management team and the growth
potential of the TPSI market and business. MacGregor and its advisors
identified a number of other potential acquisition candidates from time to time
during this period, but, of such candidates, found that TPSI best fulfilled the
MacGregor evaluation criteria due to the TPSI products, the strength of TPSI's
management team and the growth potential of the TPSI market and business.
The negotiations between the parties leading up to the Merger Agreement
were conducted primarily by Henry Fong and Wayne Mills, on behalf of MacGregor,
and by Jeff Sjobeck and Robert F. Olson on behalf of TPSI. The first meeting
between the parties occurred on August 16, 1995. Henry Fong of MacGregor and
Wayne Mills of R.J. Steichen met with Robert Olson of TPSI to discuss the
possibility of a transaction between TPSI and MacGregor. Most of the meeting
involved Robert Olson presenting the nature of TPSI's business and operations,
its historical results of operations, and its needs for additional equity
financing. Mr. Fong was encouraged by the growth potential of TPSI and the
technology industry in which it participated. The parties concluded that
further discussions were warranted as a result of the meeting. Subsequent to
the initial meeting, initial due diligence was performed and several
teleconference calls were conducted during the first two weeks of September
1995. Shortly thereafter, Robert C. Engelstad, one of MacGregor's independent
directors, made a due diligence visit to TPSI and reported favorably to the
MacGregor Board of Directors. The result of these calls and due diligence was
a tentative offer presented by MacGregor to TPSI for the companies to combine
through a tax-free merger transaction. The proposal was to result in TPSI
shareholders holding approximately 55% of the post-merger entity. Although
MacGregor did not obtain or perform an appraisal, it consulted standard
valuation methodologies used in the evaluation of private companies such
as capitalized earnings and discounted cash flow. Subsequently MacGregor
engaged Summit Investment Corporation to provide a fairness opinion. The
results of Summits analysis are set forth at the section of this Proxy
entitled "Opinion of MSF's Financial Advisor." On September 21, 1995,
TPSI mailed a business plan that included a draft letter of intent with
the merger terms proposed by MacGregor included. On October 2, 1995, the
TPSI board members met and authorized Olson to continue negotiations with
MacGregor concerning the proposed merger. On October 3, 1995, Henry Fong met
with Robert Olson and Jeffrey Sjobeck of TPSI and Wayne Mills of R.J. Steichen
to review the draft letter of intent. On October 5, 1995, the parties
consummated and made public through a press release the negotiated letter of
intent. During the months of November and December 1995, both parties
continued to conduct further due diligence. On January 10 and 11, 1996 Henry
Fong and MacGregor's legal counsel met with Jeffrey Sjobeck and TPSI's legal
counsel and independent accountants, and Wayne Mills of R.J. Steichen, to
negotiate a definitive agreement between the parties. On January 16, 1996 the
parties consummated and made public through a press release the definitive
agreement between the parties. On March 20, 1996 and May 31, 1996 the Merger
Agreement was amended to, among other items, extend the time for the
consummation thereof.
General. At the Effective Time (as defined below), Subsidiary will be
merged into TPSI and each outstanding share of TPSI common stock will be
converted into 1.736 shares of MacGregor Common Stock and each option or
warrant to purchase one share of TPSI Common Stock shall become an option or
warrant to purchase 1.736 shares of MacGregor Common Stock. Based on the
closing bid price of $3.1875 of MacGregor Common Stock on the NASDAQ Small Cap
Market ("NASDAQ") composite tape on January 16, 1996, the Exchange Ratio would
have resulted in TPSI shareholders receiving approximately $57,375,000 in
market value of MacGregor Common Stock, if the Merger had been effective on
that date. Based on the closing bid price of $5.00 of MacGregor Common Stock
on the NASDAQ Small Cap Market ("NASDAQ") composite tape on May 31, 1996, the
Exchange Ratio would have resulted in TPSI shareholders receiving approximately
$90,000,000 in market value of MacGregor Common Stock, if the Merger had been
effective on that date. Because the Exchange Ratio is fixed by the Merger
Agreement and the market price of MacGregor Common Stock is subject to
fluctuation, the market price of MacGregor Common Stock may increase or
decrease prior to the Merger, thereby increasing or decreasing the market value
of the shares of MacGregor Common Stock which TPSI shareholders will receive in
the Merger. Consummation of the Merger does not require compliance with any
federal or state regulatory requirements or the approval of any federal or
state regulatory authority.
24
<PAGE> 39
TPSI will record the transaction as an acquisition and recapitalization.
Accordingly, for accounting purposes, TPSI is assumed to be the acquirer.
Subsequent to the transaction, the historical financial statements will be
those of TPSI. MacGregor will change its fiscal year end to March 31.
Exchange of Shares; Fractional Shares. Holders of MacGregor Common Stock
will receive subsequent correspondence from Norwest Stock Transfer, South Saint
Paul, Minnesota, as exchange agent (the "Exchange Agent"), regarding the
exchange of new certificates for existing certificates for MacGregor Common
Stock.
Fractional shares of MacGregor Common Stock will not be issued. Instead,
any fractional shares of MacGregor Common Stock resulting from application of
the Exchange Ratio shall be rounded to the next higher or lower whole share, as
the case may be.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE TRANSACTION
The Board of Directors of MacGregor believes that the Merger is fair to
and in the best interests of MacGregor and its shareholders. THE MEMBERS OF
MACGREGOR'S BOARD ALSO RECOMMEND THAT SHAREHOLDERS OF MACGREGOR VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
In reaching its conclusions to enter into the Merger Agreement and to
recommend approval of the Merger Agreement by MacGregor shareholders, at and
prior to the January 16, 1996, special meeting at which the MacGregor's Board
approved the Merger Agreement, the Board considered a number of factors of
which MacGregor's shareholders should be aware in determining whether to vote
for approval of the Merger Agreement, including, without limitation, the
following:
1. The amount of consideration to be received by the shareholders of
MacGregor in the Merger was considered in conjunction with the review of the
analysis presented by Summit, which is discussed in greater detail below,
regarding the fairness, from a financial point of view, to the shareholders of
MacGregor of the consideration to be received in connection with the Merger.
See: "The Merger-Opinion of MacGregor's Financial Advisor."
2. MacGregor's Board reviewed the historical market trends and prices of
MacGregor's Common Stock in its review of the Exchange Ratio proposed in the
Merger Agreement. MacGregor's Board also considered the fact that the market
value of MacGregor Common Stock increased significantly over the market price
of MacGregor Common Stock prevailing immediately prior to the announcement of
the Merger.
3. MacGregor's Board also believes the tax structure of the transaction is
favorable in that it allows MacGregor's shareholders to participate in the
Merger on a tax-deferred basis. See: "The Merger-Certain Federal Income Tax
Consequences."
In its evaluation of the Merger Agreement, MacGregor's Board was advised
by both R.J. Steichen & Co. and Summit. On March 20, 1996, Summit rendered an
opinion regarding the fairness, from a financial point of view, to the
shareholders of MacGregor of the consideration to be received in the Merger.
See: "The Merger-Opinion of MacGregor's Financial Advisor."
25
<PAGE> 40
AFTER CONSIDERING ALL OF THE FACTORS DISCUSSED ABOVE MACGREGOR'S BOARD OF
DIRECTORS HAS DETERMINED TO APPROVE THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
After the mailing of this Proxy Statement and prior to the MacGregor's
Special Shareholder Meeting called to consider the Merger, the Board of
Directors of MacGregor will consider the fairness of the Merger to MacGregor
and its shareholders in light of circumstances as they may change during this
period. Changed circumstances after the date of this Proxy Statement which
might be relevant to MacGregor's Board of Directors in its future consideration
of the fairness of the Merger include changes in the market value of MacGregor
Common Stock and the prospects of MacGregor, changes in the value and prospects
of MacGregor, changes in the value of companies comparable to MacGregor and
changes in the value of recently completed acquisitions of other comparable
companies. MacGregor's Board of Directors further consideration of the
fairness of the Merger may include seeking an updated opinion from Summit on or
about the Effective Time of the Merger to the effect that, at such time, the
consideration to be received by MacGregor's shareholders pursuant to the Merger
Agreement is fair to the MacGregor's shareholders from a financial point of
view. In connection with any further review of the Merger, the Board of
Directors of MacGregor will review all factors that it then considers to be
relevant to its consideration of the fairness of the Merger. In light of the
nature and extent of these factors, MacGregor's Board of Directors is unable to
determine at present their relative importance.
In the event that the MacGregor Board of Directors, after the mailing of
this Proxy Statement, in the exercise of its fiduciary duties determines that
it must withdraw its recommendation and recommend against the approval of the
Merger, it will communicate its changed recommendation to the shareholders in
supplemental proxy materials. Shareholders will be resolicited in such
supplemental proxy materials, and will be afforded the opportunity to change
their votes without being required to attend the Meeting to do so. In the
event that MacGregor shareholders did not approve the Merger, MacGregor would
be entitled to terminate the Merger Agreement (and would not be required to pay
any termination fee to Company). See: "The Merger-Conditions for Merger and
Other Provisions."
OPINION OF MSF'S FINANCIAL ADVISOR
GENERAL. Summit was engaged by the MSF Board of Directors to undertake an
analysis of value relating to the merger of MacGregor and TPSI and to provide
an opinion as to whether the exchange ratio is fair, from a financial point of
view, to MSF and its shareholders. Summit was not instructed to seek other
potential parties interested in acquiring MacGregor. MSF determined the amount
of consideration to be paid in the Merger. Summit's role was to analyze and
provide an opinion as to the fairness of the exchange ratio to the MacGregor
shareholders from a financial point of view.
Summit was selected by the MSF Board of Directors from the candidates
identified to them by R.J. Steichen & Co. Summit was chosen because it is a
widely recognized investment banking firm in the Twin Cities with substantial
experience in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. There were no limitations
imposed on the scope of Summit's investigation by MSF. Summit will be paid a
fee of $18,500 for its services. Summit's fee is not contingent upon
completion of the Merger.
26
<PAGE> 41
BACKGROUND. On March 20, 1996, Summit submitted to the MSF Board of
Directors its written opinion. The opinion states that, as of the date of the
opinion and based upon and subject to the matters discussed therein, it is
Summit's opinion that the 1.736 exchange ratio in the Merger is fair to MSF and
its shareholders from a financial point of view.
In conducting the review and in performing the analyses described below,
Summit did not attribute any particular weight to any information or analysis
considered by it, but rather made qualitative judgments as to the significance
and relevance of each factor and analysis. Accordingly, Summit believes that
the information reviewed and the analysis conducted must be considered as a
whole and that considering any portion of such information or analyses, without
considering all of such information and analyses, could create a misleading or
incomplete view of the process underlying the opinion.
A written report was also submitted by Summit to MSF's Board of Directors
on March 20, 1996. This report detailed Summit's equity valuation analysis of
TPSI based on two approaches. Summit utilized the comparable public company
and the discounted cash flow methods. For purposes of determining the equity
value of MSF, Summit utilized the net asset method.
COMPARABLE PUBLIC COMPANY ANALYSIS. Summit estimated the equity value per
share for TPSI using actual and estimated financial, operating and stock market
information of certain comparable public companies. Summit determined a range
of values within which it believed TPSI's common stock would trade in the
public market based on a comparison of TPSI's financial condition, operating
performance, and prospects with corresponding data for two groups of public
companies selected by Summit as having business operations and other
characteristics similar to those of TPSI. Summit used this analysis to derive
implied equity values for TPSI by multiplying certain ratios derived from the
comparable public companies by TPSI's own financial data.
Those public companies deemed to be the most comparable to the document
management software business of TPSI were Documentum, Inc., FileNet
Corporation, Infodata Systems, Inc., Interleaf, Inc., Open Text Corporation and
PC Docs Group International, Inc. Those public companies deemed to be the most
comparable to the printing/publishing business of TPSI were Consolidated
Graphics, Inc., Graphic Industries, Inc., IPI, Inc. and Merrill Corporation.
Summit calculated equity market values as multiples to latest fiscal year
net income, current fiscal year estimated net income, and next fiscal year
estimated net income for both the document management software and
printing/publishing industries. The respective multiples of the document
management software comparable public companies were between the following
ranges: (i) latest fiscal year net income: 8.5x to 46.2x (with a median of
44.3x); (ii) current fiscal year estimated net income: 28.8x to 41.3x (with a
median of 35.1x); and (iii) next fiscal year estimated net income: 17.7x to
27.7x (with a median of 20.8x). The respective multiples for the
printing/publishing comparable public companies were between the following
ranges: (i) latest fiscal year net income: 9.8x to 18.1x (with a median of
14.1x); (ii) current fiscal year estimated net income: 11.1x to 17.2x (with a
median of 11.3x); and (iii) next fiscal year estimated net income: 8.5x to
11.7x (with a median of 9.7x). Summit calculated aggregate value (defined as
equity market value plus net debt) as multiples to latest 12 months ("LTM")
revenue and LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") of the comparable public companies. The respective multiples of the
document management software comparable public companies were between the
following ranges: (i) LTM revenue: .32x to 22.5x (with a median of 4.9x) and
(ii) LTM EBITDA: 1.7x to 24.0x (with a median of 19.7x). The respective
multiples for the printing/publishing comparable public companies were between
the following ranges: (i) LTM revenue: .62x to 2.4x (with a median of 1.4x)
and (ii) LTM EBITDA: 4.7x to 8.2x (with a median of 5.6x).
27
<PAGE> 42
Summit also presented an analysis of operating statistics of the
comparable public companies including, among other things, operating margins,
net profit margins, three-year historical revenue growth, return on equity, and
debt capitalization ratios, in each case as compared to TPSI.
Based on this analysis, Summit calculated an implied equity value per
share of between $0.40 and $1.23. Summit also calculated an implied equity
value per share assuming the exercise of TPSI options and warrants ("fully
diluted" basis). Based on this analysis, Summit calculated an implied equity
value per fully diluted share of between $0.33 and $0.98.
No company used in the comparable public company analysis is identical to
TPSI. Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning the differences in financial and operating characteristics of the
comparable public companies and other factors that can affect the public
trading value of the comparable public companies to which TPSI is being
compared.
COMPARABLE MERGER AND ACQUISITION TRANSACTIONS. Summit reviewed publicly
available financial information for recent merger and acquisition transactions
involving document management software companies and printing/publishing
companies. Such analysis resulted in two comparable transactions, both of
which involved the sale of a privately held, document management software
company to publicly traded companies. These transactions, completed between
October, 1995, and January, 1996, were the acquisition of Odesta Systems
Corporation by Open Text Corporation and the acquisition of Saros Corporation
by FileNet Corporation. Summit compared selected financial data including
equity value as a multiple of LTM net income and aggregate value as a multiple
of LTM revenues and LTM EBITDA for the two acquisition transactions. Equity
value as a multiple of net income and aggregate value as a multiple of EBITDA
were not meaningful for Odesta Systems Corporation and Saros Corporation due to
operating losses for each company. Aggregate value as a multiple of LTM
revenue was 12.6x and 7.2x for Odesta Systems Corporation and Saros
Corporation, respectively. However, because the reasons for and the
circumstances surrounding each of the transactions analyzed were specific to
each transaction and because of the inherent differences between the business,
operations and prospects of TPSI, and the acquired companies in such
transactions, Summit believed that an appropriate use of a comparable
transaction analysis in this instance also would involve qualitative judgments
concerning differences between the characteristics of the merger and these
transactions.
Based on the foregoing and an insufficient number of comparable
transactions, Summit concluded that the comparable merger and acquisition
transaction method did not provide a reliable indication of value for TPSI.
DISCOUNTED CASH FLOW ANALYSIS. Summit performed a discounted cash flow
analysis of TPSI based upon estimates of projected financial performance
prepared by TPSI (the "Base Case Projections"). Summit calculated a range of
implied equity values of TPSI based upon the discounted present value of the
sum of (i) the projected three-year stream of unleveraged free cash flow, (ii)
the projected terminal value at the year 2000 based upon a range of unleveraged
free cash flow growth rates in perpetuity and (iii) an assumed cash balance net
of debt. In conducting this analysis, Summit applied discount rates ranging
from 21% to 23% and unleveraged free cash flow growth rates, in perpetuity,
ranging from 8.0% to 12.0%. To test the sensitivity of value to changes in
revenue growth and operating margins, Summit constructed its own set of
projections for TPSI (the "Conservative Case Projections"). Summit decreased
by one-half the estimated growth rate in revenue over the 1998 and 1999
forecast period, and decreased the operating margin 6.0 percentage points below
that used in the Base Case Projections. In calculating the projected terminal
value at the year 2000, Summit applied unleveraged free cash flow growth rates,
28
<PAGE> 43
in perpetuity, ranging from 6.0% to 10.0%. Summit then calculated ranges
of implied equity value per share by dividing the implied equity values by
TPSI's shares outstanding.
Based on this analysis, Summit derived an implied median equity value per
share of (i) $2.14 ($1.64 per fully diluted share) based on the Base Case
Projections and (ii) $0.79 ($0.66 per fully diluted share) based on the
Conservative Case Projections.
STOCK TRADING ANALYSIS. Summit reviewed MSF's stock price and volume
history from January 3, 1994 to September 28, 1995 (five trading days prior to
the announcement of the Merger). Summit's analysis indicated the stock trading
price generated market valuations for MSF that were not supportable based upon
MSF's operating and net losses, cash flow deficits and book value. In
conducting its analysis, Summit considered, among other things, MSF's (i)
fiscal 1995 net loss of $1,144,803 and cash flow deficit (net loss plus
depreciation and amortization expense) of $863,392; (ii) book value of
$1,272,635 or $0.15 per share (as of July 31, 1995); (iii) working capital
deficit of $2,166,528 (as of July 1, 1995); and (iv) projected net losses.
Summit noted that MSF's market value of $10 million (using the average bid
price for 30 day period ended September 28, 1995) equaled a multiple of 7.9x
the July 31, 1995 book value. Summit noted further that, based on generally
accepted valuation methodologies, the actual and projected financial
performance of MSF did not justify the public market trading values. Thus,
MSF's stock price was deemed by Summit to be trading based predominantly on
speculation.
NET ASSET VALUE. Summit calculated the implied equity value of MSF based
upon the value of MSF's net assets pursuant to the terms of the merger. MSF's
assets, as of the effective date of the Merger, are as follows: (i) $1.0
million cash and (ii) $1.91 million promissory note. Subtracting a $100,000
current liability, Summit calculated the value of MSF's net assets to be $2.81
million or $0.23 per share (based on outstanding shares of common stock as
defined pursuant to the terms of the Merger). Summit concluded that the value
of MSF's equity is a function of the value of MSF's net assets of $2.81 million
or $0.23 per share.
IMPLIED EXCHANGE RATIO. Summit compared the implied equity values per
share of TPSI to the implied equity value per share of MSF and calculated a
range of implied exchange ratios for MSF common stock. Based upon the
comparable public company method, Summit calculated an implied exchange ratio
for MSF common stock of 1.739 to 5.348 (1.435 to 4.261 based on TPSI's fully
diluted per share values). Based upon the discounted cash flow method, Summit
calculated an implied exchange ratio for MSF common stock of 3.435 to 9.304
(2.870 to 7.130 based on TPSI's fully diluted per share values). Summit
concluded, therefore, that the Implied Exchange Ratio based on Summit's
valuation analysis resulted in exchange ratios that exceed the Exchange Ratio
of 1.736 in the Agreement.
TREATMENT OF MACGREGOR AND TPSI OPTIONS AND EMPLOYEE STOCK OPTION PLANS.
At the Effective Time, there will be options to purchase 50,000 shares of
MacGregor Common Stock outstanding under MacGregor's existing Stock Option Plan
and options to purchase 3,315,780 shares of Company Common Stock, which will
become options to purchase approximately 5,756,194 shares of MacGregor Common
Stock at the Effective Time, outstanding under TPSI's existing 1994-97 Stock
Option Plan. Participants under the existing MacGregor and TPSI Stock Option
Plans shall be entitled to have the stock options outstanding under such plans
exchanged, pursuant to applicable exchange ratios, for stock options under the
1994-97 Stock Option and Compensation Plan. See: "Proposal Number V-Adoption
and Ratification of a MacGregor Stock Option Plan."
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<PAGE> 44
INTERESTS OF CERTAIN PERSONS IN THE MERGER
No officers, directors or persons holding more than 5% of the voting power
of either MacGregor or TPSI will have any material interest in the Merger
except in their respective capacities as Shareholders of either MacGregor and
TPSI as disclosed in the Section entitled "Security Ownership of Certain
Beneficial Ownership and Management," which interests are shared pro rata by
all holders of the same class of securities.
CONDITIONS TO THE MERGER; TERMINATION
The respective obligations of MacGregor and TPSI to effect the Merger are
subject to a number of conditions, including, among others: (i)Ethe approval of
the Merger and other transactions contemplated by the Merger Agreement by the
respective shareholders of each of MacGregor and TPSI, (ii)Eas of the Effective
Time, MacGregor's balance sheet shall show a tangible net worth less
non-current assets of at least $3,000,000, (iii) MacGregor shall have paid or
otherwise satisfied all debt and all current liabilities, or otherwise removed
them from MacGregor's balance sheet, (iv) MacGregor shall, subject to its
shareholders' approval, have completed the sale of substantially all of its
assets to Hutch, (v) certain of MacGregor's affiliates shall have agreed not to
sell or otherwise transfer the shares of MacGregor Common Stock held by them,
(vi) shareholders who exercise statutory dissenter's rights shall not aggregate
more than 5% of the total outstanding MacGregor Common Stock, and
(vii) MacGregor shall be approved for listing in the NASDAQ SmallCap Market(TM)
on a consolidated post-merger basis.
As stated above, the Merger Agreement requires that MacGregor's balance sheet
be free of liabilities prior to consummation of the Merger and to have tangible
net worth less non-current assets of at least $3,000,000. With respect to
tangible net worth, MacGregor expects to satisfy the $3,000,000 tangible net
worth condition with the proceeds of (i) the sale to MSP of 394,300 shares of
MacGregor Common Stock at a price of $3.06 (based on the January 31 closing
price) per share for an aggregate price of $1,206,558 which MSP will pay out of
the proceeds of the sale of the MacGregor Rights; (ii) a dividend from MSP of
the remaining proceeds from the sale of the MacGregor Rights in the amount of
$1,693,442; and (iii) the sale of 228,667 shares of its common stock previously
pledged to BB&T Bank of Greenville, CTS' lender, for an aggregate price of
$274,800.80, resulting in the repayment of the BB&T loan, thereby removing that
liability from MacGregor's consolidated balance sheet. The market price of the
shares at the time the Company entered the BB&T Pledge Agreement was
approximately $1.00. The Pledge Agreement with BB&T provided that Equitex
would repurchase, or find a purchaser for, the pledged shares, at not less than
$1.00 per share (the number of shares pledged being equal to the amount of the
remaining indebtedness on a $1 per share basis). At the time the BB&T loan
became due, MacGregor sought to maximize the benefit to it of the pledge
arrangement by seeking buyers for the pledged shares at the highest obtainable
price. While the market price for unrestricted shares at that point was in the
$3.00 range, given MacGregor's inability to "auction" the shares as in a public
offering (which MacGregor was unable to afford at such time) the highest offer
MacGregor was able to elicit was $1.20 per share. MacGregor considered that
offer reasonable because these investors were being asked to take on the
following additional risks, as well to those outlined in this Proxy Statement:
(i) the shares were restricted and would not be freely tradeable for two years
(which timeframe differed significantly from the immediate turnaround
possibility of those paying $3.00 per share in the open market, thereby
necessitating a much higher risk-adjusted rate of return); (ii) the cash which
the purchasers were going to invest was subject to considerable risk of loss in
light of the "going concern" opinion rendered by MacGregor's auditors; and
(iii) the possibility that the Merger (which had been contemplated since
October, but was yet to be consummated), would not be consummated. The shares
were purchased by the following individuals at $1.20 per share: Wayne R.
Mills, 83,000; Russell Casement, 22,500;
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<PAGE> 45
George Arellano, 19,167; Joseph Hovorka, 15,000; Bertrand T. Ungar,
33,333; K. Keating, 50,833; and David Olson, 4,834.
In order for MacGregor's balance sheet to be free from liabilities, it was
necessary for MacGregor to satisfy the obligations and liabilities of MSP and
CTS or otherwise remove such obligations and liabilities from MacGregor's
balance sheet. As of January 31, 1996, MSP and CTS had aggregate accrued
rental obligations, accrued trade payables, accrued legal and accounting fees
and asserted and non-asserted claims in the range of $500,000 to $1,200,000.
MSF approached Resource Preservation, L.L.C. for the purpose of having Resource
Preservation, L.L.C. acquire the stock of MSP and CTS in order to so remove
such liabilities and obligations from MSF's balance sheet and to liquidate MSP
and CTS. To that end, MSF and Resource Preservation, L.L.C. entered into a
Stock Purchase Agreement dated February 2, 1996 whereby MSF sold shares to MSP,
and Resource Preservation, L.L.C. purchased MSP and CTS in return for the
payment of $10 and the provision of liquidation services with respect to the
obligations and liabilities. Pursuant to Accounting Principles Board Opinion
("APB") 16, MacGregor has accounted for the transaction as having been
completed as of February 2, 1996, the effective date of the Stock Purchase
Agreement transferring the MSP and CTS shares.
The consummation of the purchase of MSP and CTS by Resource Preservation,
L.L.C. was conditioned on (1) MSP owning at the Closing all of the shares of
CTS. To meet this condition, MacGregor authorized the capital contribution
to MSP of the CTS shares MSF owned and as a result, CTS has become a
wholly-owned subsidiary of MSP; and (2) MSP having sufficient shares of
MacGregor Common Stock to satisfy the asserted and non-asserted liabilities and
claims of MSP and CTS within the foregoing range. This condition was satisfied
pursuant to the above referenced Stock Purchase Agreement between MSP and
MacGregor on February 2, 1996. The MacGregor Common Stock sold by MacGregor to
MSP is intended to provide MSP and CTS with sufficient capital to repay the
existing and potential liabilities of MSP and CTS and provide a reasonable fee
for liquidation services. Management considered alternatives to selling
MacGregor Common Stock to MSP, including bank financing and raising additional
equity and then contributing the funds to MSP. In that regard, management
concluded that it had no assets on which to borrow. Moreover, in the judgment
of management, MacGregor would not have been able to raise additional equity
without expanding or changing its line of business.
When Resource Preservation, L.L.C. purchased MSP and CTS, CTS owned
no assets. In light of the sale of the MacGregor Rights to Hutch effective as
of January 31, MSP's only asset was the 394,300 shares of MacGregor Common
Stock. MSP and CTS had $176,379 and $356,312 in liabilities respectively at
January 31, 1996. Pursuant to APB 16, such liabilities have been removed from
MacGregor's consolidated balance sheet as a result of such purchase. The
market value (based upon the average of the high ask and low bid prices as of
January 31, 1996) of the MacGregor Common Stock purchased by MSP is $1,219,866
and on the date of sale of MSP and CTS exceeded the January 31, 1996 balance
sheet liabilities of CTS and MSP by approximately $ 685,175. However, MacGregor
believes that the amount of MacGregor Common Stock is reasonable taking into
account the range of accrued and potential liabilities; the fact that
liabilities of such entities will continue to accrue until fully satisfied, the
two year restriction on transfer to which such shares will be subject and the
possibility that the value of the MacGregor Common Stock could decline during
the two year restricted period. MSP will own approximately 3.33% of the
MacGregor Common Stock before the Merger and 1.3% of the MacGregor Common Stock
after the Merger. Resource Preservation, L.L.C. is owned by David E.
Schaper and Frederick LeBaron. Mr. Schaper is an officer of Roadmaster and Mr.
LeBaron is a partner in the law firm of Ross & Hardies. Ross & Hardies
represents MSF and Subsidiary in the transaction.
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As of January 31, 1996, the net book value of MSP and CTS were $475,135
and negative $828,413, respectively. Taking into account (i) the sale by MSP
of the MacGregor Rights, (ii) the purchase by MSP of 394,300 shares of
MacGregor Common Stock, (iii) the distribution by MSP of a dividend in the
amount of $1,206,558, and (iv) the forgiveness by MacGregor of intercompany
loans; the net book values of MSP and CTS are $1,036,582 and negative
$355,481 respectively. Although the historical net book values of the MSP and
CTS subsidiaries bear little relationship to the purchase price to be paid by
Resource Preservation, L.L.C. MacGregor believes this relationship to be
irrelevant. Rather, it is the relationship between the amount of the
liabilities and the current value of the assets which is important. Utilizing
this criterion, MacGregor believes that the terms of this transaction which
fulfilled an important condition to the Merger by removing all of its operating
company liabilities, known or unknown, accrued and unaccrued, are fair.
In addition to the foregoing, the obligations of MacGregor and TPSI to
effect the Merger are subject to the completion of satisfactory due diligence
and absence of material adverse changes in the business, operations and
condition (financial and otherwise) of the respective parties and the receipt
by MacGregor of a Fairness Opinion of Summit Investment Corporation.
FEES AND EXPENSES
If the Merger is not consummated, but is terminated in accordance with the
provisions of the Merger Agreement, MacGregor and TPSI shall equally share the
costs and out-of-pocket expenses related to the Merger. If, however, any party
(i) breaches any of its representations, warranties, covenants, conditions or
other obligations to the other pursuant to the Merger Agreement; or (ii) prior
to July 16, 1996 (a) receives an offer, whether written or oral, from any other
party (a "Third Party") and sells substantially all of its assets to or merges
or consolidates with such Third Party (or agrees to do so), (b) enters into a
binding or non-binding letter of intent with any such Third Party to merge,
consolidate, transfer assets or conduct any type of business combination, or
(c) agrees to the purchase by such Third Party of a controlling interest in its
stock, then the breaching party shall pay the non-breaching party the amount of
the non-breaching party's out-of-pocket expenses related to the Merger plus
$100,000, all in cash.
NO SOLICITATION
MacGregor will not directly or indirectly solicit, encourage or, except as
may be necessary to fulfill the fiduciary duties of the directors of MacGregor,
recommend the approval of any offer from, or provide any confidential
information to, any entity other than TPSI relating to a business combination
or the sale of MacGregor's assets or MacGregor Common Stock.
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved and adopted at the Meeting, and all
other conditions to the Merger have been met or waived, the parties expect the
Merger to be effective upon the filing of Articles of Merger with the Minnesota
Secretary of State. The time of such filing is referred to in this Proxy
Statement as the "Effective Time."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Merger to the holders of MacGregor Common Stock.
At the closing of the Merger the law firm of Ross & Hardies will deliver its
opinion on the material federal income tax consequences of the Merger
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<PAGE> 47
to the holders of MacGregor Common Stock. The opinion of Ross & Hardies will be
subject to various assumptions and qualifications and is based on current law.
Unlike a ruling from the IRS, an opinion of counsel is not binding on the IRS
and there can be no assurance that the IRS will not take a position contrary to
one or more of the positions reflected herein, or that the positions herein
would be upheld by the courts if challenged by the IRS. This discussion is
based on the current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations, judicial authority and
administrative rulings and practice. No ruling from the IRS has been or will be
sought with respect to any aspect of the Merger. Furthermore, legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements set forth herein.
The following does not consider the tax consequences of the Merger under
state, local and foreign law or the tax consequences to MacGregor as the result
of various transactions required pursuant to the Merger Agreement. Moreover,
special considerations not described herein may apply to certain taxpayers,
such as financial institutions, broker-dealers, insurance companies, tax-exempt
organizations, investment companies and persons who are neither citizens nor
residents of the United States, or who are foreign corporations, foreign
partnerships or foreign estates or trusts as to the United States.
In rendering its opinion, Ross & Hardies relied upon the following
assumptions, based upon representations made by the respective parties: (i)
that MacGregor has no present intention to dispose of any of the TPSI shares
that it will receive in connection with the Merger; (ii) that following the
Merger IntraNet will hold at least ninety percent of the fair market value of
the net assets and at least seventy percent of the fair market value of the
gross assets held by Subsidiary and by TPSI, respectively, prior to the Merger;
(iii) that TPSI has no present intention to dispose of any of the assets that
it will hold immediately after the Merger, except for dispositions made in the
ordinary course of business; (iv) that neither TPSI or Subsidiary disposed of
any assets within the period beginning two years prior to the Merger, except
for dispositions made in the ordinary course of business; (v) that TPSI
disposed of no assets in contemplation of the Merger or in contemplation of an
acquisition by or with any other party; (vi) that TPSI and MacGregor intend
that IntraNet continue its present business for an indefinite period after the
Merger and have no current intent that IntraNet discontinue said business;
(vii) that no shareholder of TPSI has a present intention to dispose of more
than fifty percent of the shares of MacGregor stock that such shareholder will
receive in the Merger; (viii) that each shareholder will in fact retain at
least fifty percent of the shares of MacGregor stock that such shareholder will
receive in the Merger for a period of at least two years after the Merger; (ix)
that MacGregor and TPSI are engaging in the Merger for the business purposes
specified herein; and (x) that MacGregor currently owns no shares of TPSI.
EACH HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
Ross & Hardies, counsel to MacGregor in this transaction, expects the
Merger, subject to the qualifications set forth above, to qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. As
such, in the opinion of Ross & Hardies, and subject to such qualifications, no
gain or loss will be recognized by the shareholders of MacGregor for tax
purposes upon consummation of the Merger.
DISSENTER'S RIGHTS
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Under Minnesota law, MacGregor's shareholders are entitled to dissenter's
rights in connection with the sale of the MacGregor Rights and the Merger. See:
"The Sale of Substantially all of the Assets of MacGregor to Hutch -
Dissenter's Rights."
CERTAIN RISK FACTORS TO CONSIDER
A decision to approve the Merger involves substantial risks. The risk
factors set forth below are not intended to be an exhaustive list of the
general or specific risks involved, but merely to identify certain risks that
are currently foreseen by MacGregor and TPSI. It must be recognized that other
risks, not now foreseen, might become significant in the future and that the
risks which are now foreseen might affect the merged entities to a greater
extent than is now foreseen or in a manner not now contemplated. Each
shareholder should carefully consider all information contained in this Proxy
and should give particular consideration to the following factors before
deciding to approve the Merger. Among the risks which shareholders should
consider are the following:
1. Dependence Upon Continued Market Expansion. The continued expansion of
TPSI's business is dependent on the continued expansion of the markets for
which its products were developed. As such, TPSI's future success is dependent
upon a continuation of the trend toward network-based computing environments
and the continued willingness of large businesses to reengineer the processes
they employ to create, store and manage data. In addition, TPSI's future
success is dependent upon the continued expansion of the on-demand printing
market. Any factors which have an adverse impact on the continued expansion of
these markets generally could have a material adverse impact on TPSI.
2. Dependence on Narrow Product Line; Technology Risks; Risk of Market
Acceptance. TPSI's future success will depend, to a large extent, on its
ability to increase sales from existing products and derive sales from new
products. There can be no assurance that TPSI will be able to further penetrate
the market with its existing products and to introduce and gain acceptance of
its new products. The market is highly competitive and characterized by rapid
innovation and technological change. TPSI's products were specifically designed
to meet the needs of the document management market, but other companies have
also introduced or announced the development of products designed to address the
same markets as TPSI's products. TPSI's ability to maintain a competitive
position will also depend on its ability to develop enhancements and upgrades to
its existing product line. In addition, technological advances that would make
TPSI's products less attractive to current and potential customers could
adversely impact the business of TPSI. TPSI's plans with respect to the
development of new products are subject to the risks inherent in the development
and marketing of complex software products, including the risks that the release
of the product may be delayed, errors may be found in the product after its
release despite extensive testing, and discovered errors may not be corrected in
a timely manner. Further, the commercial success of TPSI's products will depend
on the willingness of potential customers to perform and accept the use of
TPSI's products to create, manage and distribute unstructured business-critical
data.
3. Dependence on Development of New Products. TPSI's future strategy to
extend its product line will depend on its ability to design, develop and
market new and innovative products. There can be no assurance that TPSI will
be successful in introducing new products. TPSI devotes resources to research
and development and believes it will have sufficient resources to support its
research and development efforts. However, there can be no assurance that the
level of research and development expenses necessary for TPSI to remain
competitive will be as currently anticipated or that TPSI's revenues will be
sufficient to cover its research and development costs.
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4. Intellectual Property. In the absence of significant patent or
copyrights protection, TPSI may be vulnerable to competitors who attempt to
develop functionally equivalent products. Although TPSI believes that it has
all rights necessary to market its products without infringing upon any patents
or copyrights held by others, there can be no assurance that conflicting patent
or copyright rights do not exist.
TPSI relies upon trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to TPSI's trade secrets or disclose such
technology, or that TPSI can meaningfully protect its trade secrets.
It is TPSI's policy to require its employees, consultants, and advisors to
execute confidentiality agreements upon the commencement of employment or other
relationships with TPSI. These agreements include standard non-disclosure and
non-competition provisions prohibiting employees or former employees from
disclosing TPSI's Confidential Information (as defined therein) and prohibiting
employees, and former employees for a period of one year following termination
of their employment with TPSI from organizing or participating in a Competing
Business (as defined therein) or developing or selling Competing Products (as
defined therein).
TPSI has applied for trademark registration for the following matters:
IntraNet and IntraNet Solutions. TPSI also intends to file trademark
applications for the following marks: IntraNet Web-Based Management System,
IntraNet WBMS, IntraNet Document Refinery, IntraNet Web Refinery and IntraNet
Web Vault. There can be no assurance that any trademarks which have been
applied for but not yet issued will be issued. In the absence of trademark
protection, TPSI may be unable to take advantage of the brand name recognition
it is attempting to build. Further, even if all trademarks applied for are
issued, there can be no assurance that such trademarks will prove valuable to
TPSI.
5. Significant Competition. Some of TPSI's competitors currently
marketing products into the document management market are more established
than TPSI and have the benefits of pre-existing relationships with potential
customers and greater name recognition than TPSI. Some of TPSI's current and
potential competitors have significantly greater technical, financial, and
marketing resources than TPSI. Although TPSI believes it competes effectively
with respect to such factors, there can be no assurance that TPSI will have the
financial resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future.
6. Dependence Upon Key Vendor Relationships. TPSI is materially dependent
on Sun Microsystems, Inc. and Interleaf, Inc. for the supply of the hardware
and non-proprietary software products sold as part of its systems. TPSI does
not currently have a secondary source of supply for these products. Any
disruption in the relationship between TPSI and either of Sun Microsystems,
Inc. or Interleaf, Inc. would have a material adverse impact on TPSI.
7. Former Shareholder Lien. TPSI redeemed 50% of its outstanding shares
of its Common Stock from a former shareholder and director for $200,000 on July
31, 1995. TPSI paid $150,000 of the purchase price in cash and delivered a
$50,000 note to the former shareholder for the balance of the purchase price.
The note requires annual principal payments of $10,000 and matures in August,
2000. TPSI also entered into Consulting and Non-Competition Agreements with
the former shareholder. To secure the purchase price of the redeemed shares
and TPSI's monetary obligations under the agreements, TPSI pledged the redeemed
shares to the former shareholder as collateral. Although TPSI has and intends
to meet its monetary obligations to the former shareholder, in the event it
should fail to do so, the former shareholder may be able to assert a claim of
up to a 50% ownership interest in TPSI. TPSI and its
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subsidiaries will be the only asset of the post-merger entity. If TPSI were to
fail to make payment to the former shareholder and the former shareholder were
successful in obtaining a 50% ownership interest in TPSI, the value of the
shares of Common Stock of the post-merger entity would be reduced substantially.
MacGregor cannot currently estimate the potential loss in value.
8. Dependence on Key Personnel; Need for Additional Employees. TPSI is
currently greatly dependent on the personal knowledge and experience of Messrs.
Olson and Sjobeck. TPSI believes that its senior management team has knowledge
which, due to TPSI's relatively small size, is personal to such individuals and
has not been institutionalized. As such, the loss of any of these key
personnel could be detrimental to TPSI. To avoid the negative impact which the
loss of a senior manager could have on TPSI, as well as to achieve its business
plan, TPSI must hire additional employees at various operational levels. The
future development and success of TPSI will depend in part upon its ability to
attract new employees and retain its key personnel. There can be no assurance
that TPSI will be able to attract or retain such personnel or that the hiring
and retention of such personnel will result in the institutionalization of
vital information.
9. Potential Dilution Upon Exercise of Options and Warrants. TPSI
currently has options and warrants to purchase 3,472,530 shares of TPSI Common
Stock outstanding. Applying the Exchange Ratio, such options and warrants will
become rights to acquire approximately 6,028,312 shares of MacGregor Common
Stock upon approval of the Merger. The exercise price of these options and
warrants will range from $0.05 to $2.60 following the Merger. If such options
are exercised, the percentage ownership of MacGregor's current shareholders in
the post-merger entity will be reduced from approximately 40% to approximately
33%. In addition, TPSI has an additional 6,684,220 authorized but unissued
options under its current stock option plan. It is anticipated that MacGregor
will assume TPSI's obligations under this plan.
10. Fluctuations in Future Operating Results. TPSI's future operating
results may vary substantially from quarter to quarter. At its current stage of
operations, TPSI's quarterly revenues and results of operations may be
materially affected by the timing of the development, introduction and market
acceptance of TPSI's and its competitors' products. Product development and
marketing costs are often incurred in periods before any revenues are recognized
from the sales of products. Operating expenses are higher during periods in
which such product development costs are incurred and marketing efforts are
commenced. In addition, the irregular receipt of significant contracts could
add to quarter to quarter variation in operating results. Due to these and
other factors, including the general economy, stock market conditions and
announcements by TPSI or its competitors, the market price of the securities
offered hereby may be highly volatile.
11. Control by Founder. After completion of the Merger, TPSI's founder
will hold approximately 53% of the MacGregor's outstanding common stock. As
such, Mr. Olson will be able to exercise control over the business policies and
affairs of IntraNet.
12. Effects of Delisting from Nasdaq SmallCap Market; Lack of Liquidity of
Low Priced Stocks. If MacGregor fails to maintain the qualification for its
common stock to trade on the Nasdaq SmallCap Market, its securities would be
delisted from the Nasdaq SmallCap Market. Factors giving rise to such delisting
could include, but not be limited to, a reduction of MacGregor's assets to
below $1,000,000, stockholder's equity being reduced to below $2,000,000, a
minimum bid price being less than $1.00 per share, a reduction to one active
market maker or a reduction in the value of the MacGregor's publicly held
securities to less than $250,000. In such event, trading, if any, in the
common stock would thereafter be conducted in the over-the-counter markets in
the so-called "pink sheets" or the National
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Association of Securities Dealer's "Electronic Bulletin Board." Consequently,
the liquidity of the MacGregor's common stock would likely be impaired, not only
in the number of shares which could be bought and sold, but also through delays
in the timing of the transactions, reduction in security analysts' and the news
media's coverage if any, of MacGregor, and lower prices for MacGregor's
securities than might otherwise prevail. If MacGregor's common stock were to be
delisted from the Nasdaq SmallCap Market, it would become subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended, (the "Penny Stock
Rules"), which imposes additional sales practice requirements on broker-dealers
which sell such common stock to persons other than established customers and
certain institutional investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchasers
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the Penny Stock Rules may adversely affect the ability of
broker-dealers to sell MacGregor's common stock and may adversely affect the
ability of IntraNet's shareholders to sell any of the shares of MacGregor Common
Stock in the secondary market.
13. Demand and Piggy-Back Registration Rights. In addition to the
registration rights applicable to MacGregor's currently outstanding Common
Stock, certain shareholders and warrant holders of TPSI, including, without
limitation, Robert F. Olson and TPSI's 1995 bridge loan financing investors,
will have the right following the merger, subject to certain conditions, to
participate in and demand registrations and to cause MacGregor to register
certain shares of Common Stock owned by them. MacGregor estimates that such
registration rights would encompass approximately 18 million shares of its
Common Stock on a post-merger basis. Pursuant to these registration rights, if
MacGregor proposes to register any of its Common Stock, other than in certain
specified instances, on its own behalf or on account of others, such holders
are entitled to notice of such registration and must be given the opportunity
to participate. In certain circumstances, the holders also have the right to
demand that MacGregor file a registration statement covering such shares.
These demand and piggyback registration rights are subject to certain customary
terms and limitations.
14. Need for Additional Financing. TPSI anticipates that the cash it will
obtain through the Merger will be adequate to satisfy its short-term operating
and capital requirements, assuming that TPSI performs substantially in
accordance with its current business plan, of which there can be no
assurance. Changes in TPSI's business or business plan could affect TPSI's
capital requirements. TPSI's future capital requirements will depend on many
factors, including, but not limited to, potential acquisitions, the cost of
manufacturing and marketing activities, its ability to successfully market its
products, managing its growth, the size of its research and development
programs, the length of time required to collect accounts receivable and
competing technological and market developments. TPSI currently has no
probable or pending acquisitions. TPSI could also be adversely affected if its
current credit facilities are terminated or the terms thereof are substantially
changed. There can be no assurance that TPSI will perform in accordance with
its business plan. There can be no assurance that TPSI will be able to raise
any additional funds required to conduct its operations, that any such funds
will be available on terms acceptable to TPSI or at all, or that existing
shareholders would not suffer substantial dilution as a result of subsequent
financings. If TPSI needs and is unable to raise additional working capital
before it generates positive cash flow from operations, it could be required to
curtail its operations.
The complete mailing address and telephone number for each of MacGregor
and TPSI are as follows:
<TABLE>
<S> <C>
MacGregor Sports & Fitness, Inc. IntraNet Integration Group, Inc.
8100 White Horse Road 5500 Lincoln Drive
Greenville, South Carolina 29611 Suite 110
</TABLE>
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(864) 294-5230 Minneapolis, Minnesota 55436
(612) 938-4490
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MACGREGOR.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY
31, 1995
Due to the distributorship agreement with Roadmaster and TPSI's future
plans, it is anticipated that the reported financial information indicated
herein will not be indicative of future operating results.
The independent auditor's report on the MacGregor's financial statements
for the year ended July 31, 1995, included a "going concern" explanatory
paragraph, which means that the auditors have expressed substantial doubt about
the MacGregor's ability to continue as a going concern. Management's plans in
regard to the factors which prompted the explanatory paragraph are discussed in
Note 2 to the MacGregor's July 31, 1995 financial statements.
Revenues were significantly less in fiscal year ended July 31, 1995
compared with July 31, 1994 as management reacted to the changing institutional
sporting goods market. As more and more sporting goods manufacturers and
distributors sell direct to the institutional accounts, those accounts no
longer require sporting goods dealers such as CTS. In December 1993, CTS
eliminated its team division sales organization and novated a government
contract. During the fourth quarter of the current fiscal year, management took
actions to curtail its retail operations.
RESULTS OF OPERATIONS. MacGregor's sales were $518,971 and $2,237,601 for
the fiscal years ended July 31, 1995 and 1994, respectively which were mostly
derived from CTS. The decline in revenues was attributable to the December 1993
decision to eliminate its unprofitable team sales division and the novation of
a government contract. The revenues in fiscal year July 31, 1994 attributed to
such activities were $1,022,148 and $212,791, respectively.
Gross profits were $572,500 and $365,403 or 14.0% and 16.3% of sales for
the fiscal years ended July 31, 1995 and 1994, respectively.
Royalty income decreased to $246,664 from $447,332 in year ended July 31,
1995 compared with July 31, 1994. During 1994, MacGregor received non-recurring
royalties of approximately $282,000 (see Note 11 to the financial statements).
In 1994, MacGregor earned royalties under its distribution agreement with
Roadmaster of $165,000 which increased by approximately $82,000 to $247,000 in
1995.
General and administrative expenses decreased to $517,246 in the year
ended July 31, 1995 from $1,758,205 in 1994. The decrease is directly
attributable to MacGregor's curtailment of CTS activities during 1994 and
continuing into 1995. During the year ended July 31, 1995, as further
discussed under Liquidity and Capital Resources, MacGregor wrote down its
trademark and license agreement by $500,000. Also, during the fiscal year ended
July 31, 1994 charges of $281,710 were incurred for the write-off of goodwill,
and $148,689 for the write-down of trademarks.
38
<PAGE> 53
MacGregor experienced net losses of $1,145,000 and $1,855,267 for the
fiscal years ended July 31, 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES. At July 31, 1995, MacGregor's current
liabilities exceeded its current assets by approximately $2,167,000. As
discussed in Note 1 to the financial statements, MacGregor has entered into a
distribution agreement with Roadmaster. Under the terms of the distribution
agreement, MacGregor will receive royalties from Roadmaster Corporation,
including certain cumulative minimum royalties throughout the term of the
agreement. Through July 31, 1995, Roadmaster has paid 1994 and 1995 minimum
royalties totaling approximately $412,000 and has advanced approximately
$64,000 against future royalties. $300,000 of the proceeds were used to
terminate MacGregor's license with MacGregor Golf Company in exchange for its
releasing MacGregor from future minimum royalties of $395,000 and $520,000 for
the twelve months ended February 1995 and 1996, respectively. Additionally,
proceeds were used to pay quarterly minimum license payments to Equilink under
its license agreement and certain trade liabilities of MacGregor. In
connection with the Roadmaster distribution agreement, MacGregor has
established and implemented a program whereby the selling, general and
administrative expenses related to the former distribution operations of MSP
have been substantially eliminated.
In August through October 1995, MacGregor sold 308,000 shares of its
stock at an average price of $.59 for proceeds of $181,000, pursuant to prior
agreements as follows: Ralph Grills Family Ltd. Partnership, Wayne R. Mills,
and Bruce Reichert. The average price reflects a modest discount from the then
prevailing market price in light of the restricted nature of the shares.
MacGregor also received $50,000 from a shareholder in exchange for a 10% note.
The total proceeds of $231,000 were used to pay certain liabilities of
MacGregor, as well as MacGregor's obligation under its license from Equilink.
In February 1994, MacGregor issued 344,000 shares of Common Stock to BB&T
Bank of Greenville, CTS' lender ("BB&T") to collateralize $175,000 of BB&T's
then outstanding $400,000 line of credit to CTS. In October 1995, BB&T required
MacGregor to cause the shares to be purchased by Equitex's designee at a price
of $.50 per share. The proceeds of $172,000 reduced the BB&T indebtedness. In
October 1995, MacGregor agreed to issue 228,677 shares of its Common Stock to
CTS, as a capital contribution, and CTS pledged these shares to the bank as
collateral for its remaining indebtedness.
A prepayment of the minimum royalty payments due from Roadmaster for the
remainder of calendar year 1995 in the amount of $116,420 was received in
fiscal 1995 to enable MacGregor to pay certain current obligations.
MacGregor's business and operations have not been materially affected by
inflation.
NINE MONTHS ENDED APRIL 30, 1995 COMPARED TO NINE MONTHS ENDED APRIL 30, 1996
RESULTS OF OPERATIONS. There were no sales revenue for the three and nine
months ended April 30, 1996. Revenues from CTS retail operations for the three
and nine months ended April 30, 1995 were $129,931 and $450,450, respectively.
39
<PAGE> 54
Royalty income decreased by $76,665 and $34,998 for the three and nine
months ending April 30, 1996 compared with April 30, 1995 as MacGregor did not
record the minimum royalty under the Roadmaster agreement in the current
quarter. MacGregor did not record the royalties because the Hutch transaction
was considered by the parties, and, pursuant to APB 16, has been accounted for,
as completed as of the date the Hutch agreement was signed, January 31, 1996,
and therefore no further royalties would accrue after that date.
Operating expenses for three months ended April 30, 1996 and 1995 were
$1,459,109 and $194,236 respectively. Operating expenses for the nine months
ended April 30, 1996 were $3,164,998 compared with $575,311 for the nine months
ended April 30, 1995. The main reason for the increase in the comparable
quarters ended April 30 was that in 1996 MacGregor issued 595,200 warrants to
acquire shares of the Company's common stock. The exercise prices of such
warrants were $695,000 in the aggregate, which was approximately $1,090,400
below the trading price of the Company's common stock. The Company recognized
this amount as an expense of financial consulting and other services provided
the Company in connection with the Merger as further described in Note 3 to its
financial statements for the period. The increase is also attributable to the
facts that MacGregor accrued the remainder of office rent ($134,159) due for
its lease through March 31, 1998; and incurred additional accounting and legal
services of approximately $98,000.
For the nine month period, in addition to the above, MacGregor also
realized operating services provided by an affiliate of approximately $256,000,
and as further described below in Liquidity and Capital Resources, wrote down
its trademark and license agreement by $1,200,000.
Net loss for the quarter ended April 30, 1996 was $1,468,421 compared with
a net loss of $130,205 for the quarter ended April 30, 1995. Net loss for the
nine months ended April 30, 1996 was $2,953,874 compared with a net loss of
$368,516 for the nine months ended April 30, 1995. The main reasons for the
increase in the losses were the write-down of the trademark costs of $1,200,000
and the costs recorded to conclude the sale of the MacGregor Rights. This was
partially offset by gains realized on certain extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES. At April 30, 1996, MacGregor had current
assets of $81,336 with no current liabilities. As discussed in Note 5 to the
financial statements, MacGregor has entered into a distribution agreement with
Roadmaster. However, the level of cash flow from the royalties under the
distribution agreement does not provide assurance on an ongoing basis that
MacGregor will have sufficient cash flow to pay for its operating and other
expenses. Additionally, it does not provide a capital base for MacGregor to
engage in other business opportunities. Under the terms of the definitive
agreement for MacGregor to sell its MacGregor Rights, as further discussed in
Note 4 to the financial statements, MacGregor will receive $1,000,000 in cash
at closing and a $1,910,000 note, payable in twelve equal installments. This
transaction will enable MacGregor to meet the one of the conditions necessary
to effect the Merger as described in Note 3 to the financial statements. As a
result of the agreement to sell the MacGregor Rights, MacGregor has reduced the
carrying amount of its intangible assets by $1,200,000.
From August, 1995 through April, 1996, MacGregor sold 1,200,667 shares of
its stock at prices from $.50 to $1.25 for proceeds of $992,800 and received
$164,000 from a shareholder in exchange for a 10% note. The total proceeds of
$1,156,800 were used to repay the $164,000 shareholder note, pay off its
indebtedness to BB&T Bank of $402,786, and certain liabilities of MacGregor, as
well as to fulfill MacGregor's obligation under its license from Equilink.
In February, 1994, MacGregor issued 344,000 shares of Common Stock to BB&T
to collateralize $175,000 of the $400,000 line of credit to CTS. In October,
1995, BB&T required MacGregor to cause the shares to be purchased by Equitex's
designee at a price of $.50 per share. The
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<PAGE> 55
proceeds of $172,000 reduced the BB&T indebtedness. In October, 1995,
MacGregor agreed to issue 228,667 shares of its Common Stock to CTS, and CTS
pledged these shares to the bank as collateral for its remaining indebtedness
of approximately $225,000. In February, 1996, BB&T required MacGregor to cause
the shares to be purchased by Equitex's designee. Of the total proceeds of
$274,800, $230,786 inclusive of interest accrued was used to pay off in full
the remaining indebtedness to BB&T.
As disclosed in MacGregor's statement of cash flow for the nine months
ended April 30, 1996, the Class A preferred stock, the Class C preferred stock
and certain other liabilities were converted to MacGregor's Common Stock.
TPSI.
YEAR ENDED MARCH 31, 1995 COMPARED TO THE YEAR ENDED MARCH
31, 1996
REVENUES. Total revenues increased to $14.2 million in 1996 from $10.4
million in 1995, or $3.8 million (36.3%). This increase related primarily to
increases in hardware integration of $3.2 million ($5.0 million in 1995
compared to 8.2 million in 1996) and on-demand printing services $800,000
($700,000 in 1995 and $1.5 million in 1996). TPSI's on-demand printing
subsidiary formed in August of 1994, IDG, operated for only eight months of the
comparable 1995 period. TPSI's software, technical and support revenues
declined slightly $200,000 ($4.7 million in 1995 compared to $4.5 million in
1996) primarily due to a focus on development of proprietary software products.
COST OF REVENUES. Cost of hardware integration revenues were $4.4 million
in 1995 and $6.8 million in 1996. Cost of hardware integration revenues as a
percent of hardware integration revenues was 86.7% in 1995 compared to 82.9% in
1996. Higher margins on hardware integration revenues were achieved
primarily through taking advantage of larger vendor discounts and other
volume incentives.
Cost of software, technical services, and support revenues were $2.9
million in 1995 and $2.8 million in 1996. Cost software, technical services,
and support revenues as a percent of software, technical services, and support
revenue was 60.8% in 1995 compared to 61.9% in 1996. Lower margins on
software, technical services and support were primarily due to competitive
pricing on non-custom software products and lower technical service billings.
Cost of on-demand printing services revenue were $400,000 in 1995 compared
to $1.1 million in 1996. Cost of on-demand printing services revenues as a
percent of on-demand printing services revenue were 53.6% in 1995 compared to
73.4% in 1996. Lower margins on on-demand printing services were primarily due
to large fixed costs associated with a second high speed laser printing
device added in January, 1995.
OPERATING EXPENSES.
SALES AND MARKETING. Sales and marketing expenses were $1.2 million in
1995 compared to $1.8 in 1996. Sales and Marketing expenses as a percent of
total revenues were 11.9% in 1995 compared to 12.8% in 1996. Sales and
marketing expenses increased as a percent of revenues primarily due to
increases in staffing and marketing programs.
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<PAGE> 56
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $300,000, from $900,000 in 1995 compared to $1.2 million in 1996. General
and administrative expenses as a percent of total revenue were 8.8% in 1995
compared to 8.3% in 1996. Increases in general and administrative expenses
were primarily attributable to growth in the business infrastructure including
an overall 46% increase in staffing.
RESEARCH AND DEVELOPMENT. Research and development expenses were $500,000
in 1995 compared to $300,000 in 1996. Research and development expenses as a
percent of total revenue were 3.3% in 1995 and 3.5% in 1996. Total research
and development expenses increased $200,000 in 1996 compared to 1995 due to a
focus on development of proprietary software products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$100,000 in 1995 compared to $159,000 in 1996. Depreciation and amortization
expense increased by $59,000 in 1996 compared to 1995 primarily due to the
acquisition of office and computer equipment.
INTEREST EXPENSE. Interest expense was $100,000 in 1995 compared to
$200,000 in 1996. Interest increased by $100,000 in 1996 compared to 1995
primarily due to increased borrowings on TPSI's working capital
revolving line of credit.
LIQUIDITY AND CAPITAL RESOURCES. Since its inception, TPSI has
funded its operations primarily through revolving working capital and term
loans through banking institutions and capital equipment leases. In December
1995, TPSI issued $550,000 of unsecured convertible notes to a limited
number of accredited investors. The unsecured notes accrue interest rate of
10%, are due on August 30, 1996, and are convertible into TPSI common stock
at $1.50 per share.
As of March 31, 1996 TPSI had cash and cash equivalents of $37,513.
Net cash used in operating activities for the year ended March 31,1995 was
$35,000 compared to net cash used in operations for the year ended March 31,
1996 of $300,000. Capital expenditures for the years ended March 31, 1995 and
1996, including equipment financed with capital lease obligations, were $1.1
million and $500,000 respectively. Capital expenditures for the year ended
March 31, 1995 were primarily production equipment related to the start up of
the on-demand printing operations and general office and computer equipment.
In July 1995, TPSI repurchased 50% of the outstanding common stock of
TPSI for $200,000. TPSI paid $150,000 at the close of this
transaction and is obligated to pay an additional $10,000 per year for five
years. In addition, TPSI entered into a non-compete arrangement with
this former stockholder for $200,000 in consideration. TPSI also
acquired certain assets of a printing business in Denver, Colorado in December
1995 for $200,000. TPSI allocated the purchase price $75,000 to
inventory and equipment, $40,000 to a non-compete agreement and $85,000 to
goodwill.
TPSI's revolving working capital line of credit allows for
borrowings of up to $1.5 million based on available collateral at the bank's
base lending rate plus 2.5%. At March 31, 1996, TPSI had advances of
$1.1 million, which are due on demand. At March 31, 1996, TPSI also had
a term loan outstanding in the amount of $208,337. The term loan requires
monthly principal payments of $8,333 plus interest at the bank's base lending
rate plus 2.5%. At March 31, 1996 TPSI also had a demand note payable
to its majority stockholder in the amount of $27,500 which accrues interest
at a rate of 12%.
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<PAGE> 57
TPSI acquired a substantial portion of its on-demand printing
services production equipment with capital lease obligations. These leases
require total monthly payments of $19,556 and carry interest rates between
14.6% and 16.6%.
TPSI also has had a long-term consulting agreement with a former
stockholder that requires monthly payments of $10,300 through July 2000.
TPSI believes that the approximately $3.0 million in gross proceeds
to be derived from the anticipated reverse merger with MacGregor Sports and
Fitness, Inc., along with its existing line of credit, will meet its immediate
anticipated needs for working capital and capital expenditures through
TPSI's third quarter ending December 31, 1996. TPSI however plans to
expand its IDG distribution concept to regional centers throughout the United
States over the next three years. TPSI also plans to evaluate several
potential acquisitions, primarily in complimentary software development areas,
which it believes is necessary to expand its presence in the document
management marketplace. Future financings, if needed to pursue such objectives,
may result in dilution to holders of Common Stock. It is anticipated that
funds required for future acquisitions and expansion will be provided from
operating cash flow, the proceeds expected from future financings and proceeds
from future borrowings. However, there can be no assurance that suitable
acquisition candidates will be identified by TPSI in the future, that
suitable financing for any such acquisitions or expansion can be obtained by
TPSI or that any such acquisition or expansion will occur.
Current Directors and Executive Officers of MacGregor.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE POSITION WITH MACGREGOR EMPLOYMENT
<S> <C> <C> <C>
Henry Fong 59 Chairman of the Board, President, Chief
Director Executive Officer, and
Director of Roadmaster
Industries
Michael S. Casazza 46 President, Chief Executive President and Chief
Officer and Director Executive Officer,
California Pro Sports,
Inc.
Robert C. Engelstad 63 Director Chief Executive Officer
of Pet Food Warehouse,
Inc.
David C. Johnston 62 Director Retired tax partner,
Arthur Andersen & Co.
Barry S. Hollander 38 Chief Financial Officer Treasurer and Chief
Financial Officer,
California Pro Sports,
Inc.
</TABLE>
43
<PAGE> 58
Current Directors and Executive Officers of TPSI.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE POSITION WITH TPSI EMPLOYMENT
<S> <C> <C> <C>
Robert F. Olson 40 Chairman, President, Chairman, President,
Chief Executive Officer Chief Executive Officer
and Director and Director of TPSI
Chief Financial Officer,
Chief Financial Officer, Secretary and Director of
Jeffrey J. Sjobeck 36 Secretary and Director TPSI
</TABLE>
Proposed Directors and Executive Officers of IntraNet Following the
Merger.
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE INTRANET PRINCIPAL OCCUPATION OR EMPLOYMENT
<S> <C> <C> <C>
Henry Fong 59 Chairman of the President, Chief Executive Officer
Board, Director and Director of Roadmaster
Industries
Robert F. Olson 40 President, Chief President, Chief Executive
Executive Officer Officer, Chairman of the Board and
and Director Director of TPSI
Jeffrey J. Sjobeck 36 Chief Financial Chief Financial Officer, Secretary
Officer, Secretary and Director of TPSI
and Director
Ronald E.
Eibensteiner 45 Director President of Wyncrest Capital, Inc.
Private Investor and Business
David D. Koentopf 52 Director Consultant
</TABLE>
44
<PAGE> 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1996, the ownership of
MacGregor's Common Stock by each person or entity known by MacGregor to be the
beneficial owner of more than five percent (5%) of MacGregor's issued and
outstanding Common Stock and by each Executive Officer and Director of
MacGregor and TPSI and by all Executive Officers and Directors of MacGregor as
a group:
<TABLE>
<CAPTION>
BEFORE THE MERGER FOLLOWING THE MERGER
---------------------------- ----------------------------
Name and Address Number of Shares Percentage Number of Shares Percentage
- --------------------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Henry Fong(1)(2)
7315 E. Peakview Avenue
Englewood, CO 80111 3,592,717 29.9% 3,592,717 11.88%
Equitex, Inc. (1)(3)
7315 E. Peakview Avenue
Englewood, CO 80111 2,978,046 25.13% 2,978,046 9.90%
Michael S. Casazza (4)
139 Sun Meadow Road
Greer, SC 29650 50,000 .42% 50,000 .17%
Barry S. Hollander (5)
109 Brook Bend Court
Mauldin, SC 29662 100,000 .84% 100,000 .33%
Robert C. Engelstad
265 Lindawood Lane
Wayzata, MN 55391 200,000 1.70% 200,000 .67%
David C. Johnston
787 Northpoint Drive
Salt Lake City, UT 84102 250,000 2.13% 250,000 .83%
California Pro Sports, Inc.
8102 White Horse Road
Greenville, SC 29611 223,861 1.9% 223,861 .75%
Roadmaster Corporation
Radio Tower Rd. at East St.
Olney, IL 62450 140,610 1.20% 140,610 .47%
Robert F. Olson (9)
7073 Ticonderoga Trail
Eden Prairie, MN 55346 0 0 16,366,507 53.66%
David D. Koentopf
10425 Bluff Road
Eden Prairie, MN 55347 0 0 149,684 .50%
Ronald E. Eibensteiner (6)
Suite 266, IDS Center
80 South 8th Street
Minneapolis, MN 55402 0 0 739,029 2.46%
John R. Coleman (7)
1840 Crosby Road
Wayzata, MN 55391 0 0 165,241 .55%
Jeffrey J. Sjobeck (8)
1175 Benton Way
Arden Hills, MN 55112 0 0 43,273 .14%
All Officers and Directors
as a group (5 and 6
persons respectively) (1) 4,192,717 34.47% 21,056,451 68.16%
</TABLE>
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<PAGE> 60
(1) Mr. Fong, who owns no shares in his own name, may be, through his control
of certain entities, as described below, deemed to be a beneficial owner
of shares held by such entities. The shares of such entities are,
therefore, duplicated in the table above, and include 250,200 shares of
Common Stock subject to warrants exercisable within 60 days.
(2) Henry Fong is President and a Director of Equitex, Inc., and President
and Chairman of Roadmaster Industries, Inc. and Chairman of California Pro
Sports, Inc. The MacGregor shares held by such entities may be deemed to
be beneficially owned by Mr. Fong. California Pro Sports, Inc. owns
223,861 Common Shares, Equitex, Inc. owns 2,978,046 Common Shares, and
Roadmaster Industries, Inc., directly or indirectly through its
subsidiary Roadmaster Corporation, owns 140,610 Common Shares.
(3) Other portfolio companies of Equitex, Inc. own a total of 53,946 Common
Shares of MacGregor. Equitex disclaims direct and indirect beneficial
ownership of all such shares.
(4) Represents options to purchase 50,000 shares of Common Stock at $2.238
per share.
(5) Represents options to purchase 100,000 shares of Common Stock at $1.00
per share.
(6) Includes 115,756 shares of common stock and 49,485 shares of common stock
subject to currently exercisable warrants owned by Wyncrest Capital, Inc.,
an investment fund controlled by Mr. Eibensteiner.
(7) Includes 115,756 shares of common stock and 49,485 shares of common stock
subject to currently exercisable warrants.
(8) Includes 43,273 shares of common stock subject to currently exercisable
options.
(9) Includes 500,000 shares of common stock subject to warrants exercisable
within 60 days.
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<PAGE> 61
PROPOSAL NUMBER III:
AMENDMENT AND RESTATEMENT OF MACGREGOR'S ARTICLES OF INCORPORATION
IN THEIR ENTIRETY
GENERAL
Subject to approval of the Merger by MacGregor's shareholders, MacGregor's
Board of Directors has approved three amendments to MacGregor's Articles of
Incorporation and directed that such amendments be submitted to the holders of
MacGregor Common Stock for their approval. The proposed amendments are as
follows: (1) to amend MacGregor's Articles of Incorporation to change
MacGregor's name from "MacGregor Sports & Fitness, Inc." to "IntraNet
Solutions, Inc.", (2) to amend MacGregor's Articles of Incorporation by
revoking MacGregor's right to issue any class of capital stock other than
Common Stock, and (3) to amend MacGregor's Articles of Incorporation to change
the par value of MacGregor Common Stock from $0.02 per share to $0.01 per
share.
In the event the amendments are approved, MacGregor will file Amended and
Restated Articles of Incorporation with the Minnesota Secretary of State which
Amended and Restated Articles of Incorporation will reflect the amendments for
which approval is hereby sought as well as all previous amendments to
MacGregor's Articles of Incorporation. Approval of the amendments is sought in
a single vote and holders of MacGregor Common Stock will not be given an
opportunity to vote on the amendments separately. As such, all of the proposed
amendments must be approved or disapproved as a whole. If the amendments are
not approved, MacGregor will not file the attached Amended and Restated
Articles of Incorporation.
MANAGEMENT RECOMMENDATION AND RATIONALE FOR THE AMENDMENTS
The Board of Directors of MacGregor believes that the proposed amendments
to MacGregor's Articles of Incorporation are in the best interests of MacGregor
and its shareholders and are necessary to facilitate the transactions
contemplated by the Merger Agreement.
In reaching its conclusion to recommend amendment of the Articles of
Incorporation, the Board considered the following factors, among others:
1. With respect to proposed amendment number 1, the
Board believes the change of parent's name from "MacGregor
Sports & Fitness, Inc." to "Intranet Solutions, Inc." will
better reflect the composition and focus of MacGregor and its
subsidiaries subsequent to the Merger;
2. With respect to proposed amendment number 2, the
Board believes that MacGregor will benefit by having a
simplified capital structure and that limiting its authorized
classes of capital stock to one class of Common Stock will
eliminate any potential series of preferred stock as currently
authorized, allow MacGregor to operate more efficiently and
provide better return to MacGregor's shareholders; and
3. With respect to proposed amendment number 3, the
Board believes that changing the par value of MacGregor Common
Stock from $0.02 per share to $0.01 per
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<PAGE> 62
share will result in a simplified capital structure and
reduce administrative and other fees required in
connection with qualifying MacGregor as a foreign corporation
in various jurisdictions.
Pursuant to MacGregor's Articles of Incorporation prior to the Amendment
thereof, MacGregor's Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions, including voting rights, of unissued
shares of MacGregor's preferred stock and to issue such stock without any
further vote or action by MacGregor's shareholders. The ability of MacGregor's
Board of Directors could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of MacGregor. MacGregor's Board of Directors does not believe
the anti-take over attributes of the preferred stock are valuable at this time
and may, in fact, limit the price that certain investors are willing to pay in
the future for shares of MacGregor Common Stock.
AFTER CONSIDERING THE FACTORS DISCUSSED ABOVE, MACGREGOR'S BOARD OF
DIRECTORS HAS DETERMINED TO APPROVE THE AMENDMENTS AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE SAME.
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<PAGE> 63
PROPOSAL NUMBER IV:
ELECTION OF A NEWLY CONSTITUTED BOARD OF DIRECTORS
OF MACGREGOR CONSISTING OF FIVE (5) MEMBERS
The Merger Agreement provides for the election of five (5) new MacGregor
directors: Robert F. Olson, Henry Fong, Jeffrey J. Sjobeck, Ronald E.
Eibensteiner and David D. Koentopf. Such election by the shareholders of
MacGregor is a condition to the consummation of the Merger. In the event the
Merger Agreement is not approved by the shareholders of MacGregor, the members
of MacGregor's current Board of Directors will continue to serve until their
successors are duly elected and qualified. In the event MacGregor's
shareholders do not elect all nominees, the Merger cannot become effective
absent a waiver of the condition to closing requiring the election of all
nominees.
The nominees for election (or re-election), and their current affiliations
with MacGregor or TPSI are set forth below. All such nominees have consented
to serve as directors and to assume office at the Effective Time of the Merger.
ROBERT F. OLSON. Mr. Olson, age 40, has served as TPSI's Founder,
President, Chief Executive Officer and Chairman of the Board of Directors since
its inception in April 1990. From 1987 to 1990, Mr. Olson served as the
General Manager of the Greatway Communications Division of Anderberg-Lund
Printing Company, an electronic publishing sales and services organization.
From 1981 to 1987, Mr. Olson was involved in several electronic publishing
service and resale start-up organizations in general management and marketing
capacities. From 1979 to 1981, Mr. Olson served as Large Account Sales
Representative of Burroughs Corporation.
HENRY FONG. Mr. Fong, age 59, a founder and promoter of the entity that
merged with and into MacGregor on December 30, 1991, served as its Chairman of
the Board of Directors and Treasurer from February, 1991, until the merger, at
which time he was elected Chairman of the Board and Secretary of MacGregor.
From July 1989 until September 1990, he served as a Director of MacGregor
Sports, Inc., the wholly-owned operating subsidiary of MacGregor Sporting Goods
Corporation, which on February 15, 1991, filed for protection under Chapter 11
of the United States Bankruptcy Code. Mr. Fong has been the President, a
Director and controlling shareholder of Equitex, Inc., a Denver-based business
development company, since January 1983. He has been the President, Chief
Executive Officer and a Director of Roadmaster Industries, Inc., since 1987.
Equitex and Roadmaster are subject to SEC reporting requirements.
JEFFREY J. SJOBECK. Mr. Sjobeck, age 36, has served as Director of TPSI
since June 1995 and Chief Financial Officer of TPSI since December 1994. From
June 1993 to November 1994, Mr. Sjobeck served as Chief Financial Officer of
Innovative Gaming Corporation of America. From June 1990 to May 1993, Mr.
Sjobeck served as Controller and Chief Financial Officer of James Phillips
Company. From October 1984 to May 1990, Mr. Sjobeck was employed in the Audit
and Accounting division of Coopers & Lybrand LLP. From August 1982 to
September 1984, Mr. Sjobeck was an accountant for Larson, Allen & Weishair &
Co.
RONALD E. EIBENSTEINER. Since 1983, Mr. Eibensteiner, age 45, has been
involved in the formation of several technology companies and, as president of
Wyncrest Capital, Inc., has been a seed investor in numerous development stage
companies. Mr. Eibensteiner is a co-founder and a director of Diametrics
Medical, Inc., a manufacturer of blood gas systems; IVI Publishing, Inc., an
electronic publisher of health and medical titles in interactive multimedia
formats; Reality Interactive, an electronic
49
<PAGE> 64
publisher of Quality information for Fortune 5000 companies; and
was Chairman of Prodea Software Corporation, a data warehousing software
company, until its sale to Platinum Technology, Inc. in January, 1996.
Mr. Eibensteiner is also currently Chairman of Rezound Media, Inc. and a
Director of Bank Windsor. He also co-founded Arden Medical Systems, Inc. in
1983 and served as its Chief Financial Officer until its sale to Johnson &
Johnson in 1987.
DAVID D. KOENTOPF. Since 1993, Mr. Koentopf, age 52, has been a private
investor and business consultant to several companies primarily in industrial
and health care related industries. Mr. Koentopf is currently Chairman of the
Board of Everest Medical Corporation, a manufacturer of electrosurgical
instruments and related medical devices. Mr. Koentopf serves as a director of
Arden Industrial Products, Inc., a national distributor of fasteners to the
industrial market, and LifeRate Systems, Inc., a developer of software
operating systems for the health care industry. From 1985 to 1992, Mr.
Koentopf served as President and Chief Operating Officer of Lifetouch, Inc.,
the largest school photography business in the United States. From 1975 to
1985, Mr. Koentopf served in a number of executive positions for Steiger
Tractor, Inc., including President and Chief Executive Officer from 1979 to
1985.
MacGregor does not have standing audit, nominating or compensation
committees of the Board of Directors. In fiscal year 1995, the Board of
Directors had one special meeting, which was attended telephonically by all of
the directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- -------------------- -------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name and Annual Restricted Other
Principal Compensa- Stock Options/ LTIP Compen-
Position Year Salary $ Bonus $ tion $ Award(s) $ SARs (#) Payouts $ sation ($)
- -------- ---- -------- ------- ------ ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Casazza,
CEO 1995 None
1994 48,000
1993 134,000
==== =======
</TABLE>
CERTAIN TRANSACTIONS
As set forth in the foregoing table entitled Security Ownership Of Certain
Beneficial Owners And Management, and in the Section of this Proxy Statement
titled "Proposal Number I - The Sale of Substantially all of the MacGregor's
Assets To Hutch -- Related Parties", transactions between MacGregor and Mr.
Henry Fong are considered to be related party transactions. During the past
two years, MacGregor has engaged, or in the course of the transactions
contemplated by the Plan and Agreement of Merger will engage, in various
transactions as follows:
In April of 1995, Equitex, Inc. converted $1,000,000 of the indebtedness
owed to it by MacGregor into Class C Preferred Stock, and MacGregor agreed to
pay the remaining outstanding balance of principal and interest in the amount
of $805,254 subsequent to July 31, 1995. In contemplation of the Merger, and
in order to fulfill the conditions to the Merger that all preferred shares
be converted to
50
<PAGE> 65
MacGregor Common Stock, and that all outstanding indebtedness of MacGregor
be eliminated, Equitex converted the Class C preferred shares, as of January
31, 1996, into 1,000,000 MacGregor Common Stock. In addition, to satisfy the
remaining balance of its indebtedness to Equitex (which has been outstanding
since 1991, pursuant to various agreements between the parties), MacGregor
agreed in October of 1995, when the amount of the indebtedness was $824,021 to
convert its indebtedness to shares of common stock. On the conversion date of
January 31, the amount of the indebtedness (including accrued interest) was
approximately $916,000. In conversion of that amount, therefore, MacGregor
issued an additional 653,775 shares of Common Stock. The indebtedness was
converted at the rate of $1.40 per share, which Management believes
approximates the fair market price of the newly issued restricted MacGregor
Common Stock at the time of the conversion based on the price MacGregor was
able to obtain from the sale of a large block of similarly restricted stock to
unrelated third parties. Those shares (which were similarly restricted in that
as unregistered shares they would not be freely tradeable for two years) were
sold at at price of $1.20 per share to the following individuals in February of
1996: Wayne R. Mills, 83,000; Russell Casement, 22,500; George Arellano,
19,167; Joseph Hovorka, 15,000; Bertrand T. Ungar, 33,333; K. Keating, 50,833
and David Olson, 4,834.
In addition, MacGregor has agreed with Hutch Sports USA, Inc., a
wholly-owned subsidiary of Roadmaster, to undertake the transaction described
in the Section of this Proxy Statement titled "Proposal Number I - The Sale of
Substantially All Of MacGregor's Assets to Hutch."
Henry Fong is also Chairman of California Pro. Michael S. Casazza, the
President of MacGregor and Barry Hollander, Chief Financial Officer of
MacGregor, hold those same offices at California Pro. MacGregor has physically
occupied office space leased by California Pro, and has used office equipment,
employees and other facilities and services of California Pro in connection
with the MacGregor operations. In consideration of the provision of those
services, MacGregor incurred indebtedness of $313,000 to California Pro during
the quarter ended January 31, 1996. MacGregor similarly determined to convert
the amount of such indebtedness, as of January 31, 1996, to MacGregor Common
Stock at $1.40 per share, which Management believes approximates the fair
market price of newly issued restricted MacGregor Common Stock at the time of
the conversion based on the price MacGregor was able to obtain from the sale of
a larger block of similarly restricted stock to unrelated third parties.
On April 5, 1996 MacGregor issued 395,200 warrants for the purchase of
shares of MacGregor Common Stock, at an exercise price of $1.00 per share, of
which 250,000 were issued to Mr. Fong. The difference between the quoted
market price of the common stock at the date of grant and the exercise price of
the warrants will be recognized as compensation expense by MacGregor and its
statement of operations for the three months ended April 30, 1996.
51
<PAGE> 66
PROPOSAL NUMBER V:
ADOPTION OF INTRANET SOLUTIONS, INC. 1994-1997 STOCK OPTION PLAN
MacGregor (and IntraNet subsequent to the consummation of the Merger) has
determined to adopt, approve and set in place, as a condition to and
simultaneously with the effectiveness of the Merger, a 1994-1997 Stock Option
and Compensation Plan (the "Plan") for officers, directors (excluding outside
directors), employees and certain key consultants and advisors of MacGregor.
The purpose of the Plan is to enhance IntraNet shareholder value and to advance
the interests of IntraNet by furnishing a variety of economic incentives (the
"Incentives") designed to attract, retain and motivate those persons eligible
for Incentives under the Plan. Incentives under the Plan may consist of
opportunities to purchase or receive shares of IntraNet Common Stock, $.01 par
value per share, monetary payments or both. The Plan submitted to MacGregor
shareholders for approval is substantially equivalent to a plan previously
adopted and approved by the Board of Directors and shareholders of TPSI (the
"Existing Plan") MacGregor believes it is in the best interests of MacGregor,
and its shareholders, that MacGregor's shareholders adopt and approve the Plan
to continue to provide the Incentives already existing and granted under the
Existing Plan to certain TPSI employees, and certain other eligible
participants subsequent to the Merger. The foregoing is merely a summary of
the proposed Plan, and MacGregor shareholders are directed and encouraged to
review the complete and entire set of specific terms and conditions provided
for in such Plan as set forth in Exhibit H attached hereto and incorporated
herein by reference.
The Plan shall be administered by either a stock option committee of
disinterested persons of the Board of Directors of IntraNet (the "Committee"),
or by the entire IntraNet Board of Directors until such time as a Committee is
formed and established. The Committee, or the Board, as the case may be, will
have complete and final authority with respect to the interpretation and
administration of the Plan. MacGregor estimates that, immediately after the
Effective Date of the Merger approximately 70 persons, currently or soon to be
in its employ, or in key consulting relations with MacGregor (or with its
subsidiaries or affiliates), will be eligible to participate in the Plan.
Eligibility for Incentives under the Plan will be determined by the Committee,
or the Board, as the case may be, with respect to both individuals and groups
based on a variety of criteria, including, but not limited to, pay grade, job
performance, job responsibility, length of service and various other factors
that the Committee, or the Board, may deem appropriate at the time of granting
any Incentives.
To date, MacGregor estimates that grants of Incentives to 60 persons
currently in the employ of TPSI, or otherwise eligible under the Existing Plan
have been made by TPSI in the form of non-statutory or non-qualified stock
options. MacGregor estimates that such non-statutory or non-qualified stock
options represent incentives and options to acquire 3,315,780 shares of TPSI
Common Stock that will, upon consummation of the Merger, be eligible to be
substituted for comparable IntraNet non-qualified stock options to acquire
approximately 5,756,194 shares of IntraNet Common Stock. Anticipated receipt
of benefits under the Plan by certain officers, directors and employees of
MacGregor and TPSI as of May 1, 1996 is set forth below:
52
<PAGE> 67
INTRANET SOLUTIONS, INC.
1994-1997 STOCK OPTION AND COMPENSATION PLAN
<TABLE>
<CAPTION>
Name and Position Dollar Value(1) Options Granted(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Michael S. Casazza, Chief Executive Officer -0- -0-
- ------------------------------------- --------------- -------------------
Barry S. Hollander, Chief Financial Officer -0- -0-
- ------------------------------------- --------------- -------------------
Henry Fong, Chairman of the Board -0- -0-
- ------------------------------------- --------------- -------------------
Executive Officer Group -0- -0-
- ------------------------------------- --------------- -------------------
Non-Executive Officer Director Group -0- -0-
- ------------------------------------- --------------- -------------------
Non-Executive Officer Employee Group -0- -0-
- ------------------------------------- --------------- -------------------
Henry Fong, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
Robert F. Olson, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
Jeffrey J. Sjobeck, Nominated Director $ 877,697 186,916/324,486
- ------------------------------------- --------------- -------------------
Ronald E. Eibensteiner, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
David A. Koentopf, Nominated Director -0- -0-
- ------------------------------------- --------------- -------------------
OTHER PERSONS WHO RECEIVED, OR WILL
RECEIVE, 5% OF PLAN OPTIONS OR RIGHTS: - -
- ------------------------------------- --------------- -------------------
Vernon Hanzlik $ 3,908,494 809,968/1,406,104
- ------------------------------------- --------------- -------------------
John Huddock $ 3,221,418 518,552/1,073,806
- ------------------------------------- --------------- -------------------
All employees as a group, including
executive officers (58 persons) $11,335,741 2,592,228/4,500,108
=========================================== =============== ===================
</TABLE>
- ----------------
(1) Assumes an estimated fair market value of $3.00 per share for common
shares underlying non-qualified stock options granted to date.
(2) Sets forth both the number of options granted as of June 1, 1996 for
persons who have received, or will, receive at least 5% of Plan options
and the effect of the Merger on the number of such Options.
Incentives under the Plan may be granted in any one or more or any
combination of the following forms, as determined by the Committee, or the
Board, as the case may be: (a) incentive stock options; (b) non-statutory or
non-qualified stock options; (c) stock appreciation rights; (d) stock awards;
(e) restricted stock awards; (f) performance shares; and (g) cash awards
(collectively hereinafter the "Incentives"). Prices and expiration dates of,
and material conditions to, the granting of options under the Plan shall be
determined by the Committee, or the Board, based on its assessment of
employment, tax and other financial factors affecting IntraNet from time to
time. Incentives granted under the Plan shall
53
<PAGE> 68
generally not be transferable. Subject to certain adjustments set forth in
Section 11.6 of the Plan, the maximum number of shares of Common Stock that
may be issued under the Plan is 10,000,000.
As referenced above, the number of participants that have received grants
of non-qualified stock options and other Incentives since the adoption and
approval of the Existing Plan is approximately 60 persons. Participants in the
Existing Plan shall be entitled to have substituted for any stock options or
other Incentives held by them on the Effective Date of the Merger an equal
number and kind of Incentives under the Plan, subject to adjustment in
proportion to any changes in the number of outstanding shares of TPSI Common
Stock pursuant to the Merger, in accordance with Section 11.6 of the Plan. As
summarized above, and as set forth elsewhere in this Proxy Statement,
MacGregor estimates that the number of existing TPSI Incentives under the
Existing Plan will result in Plan equivalents granted subsequent to the Merger
of non-qualified stock options representing the right to acquire approximately
5,756,194 shares of IntraNet Common Stock.
Each existing and outstanding non-qualified stock option agreement
provides for the granting of options which do not qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Under the Plan, the IntraNet Board may grant
options in replacement of options surrendered as a result of the Merger.
Generally, an optionee may pay the exercise price to exercise a stock option in
the form of cash or the surrender of shares of Common Stock. Options granted
under the Plan shall be exercisable for up to a ten (10) year period from the
date of grant, or, in case the optionee ceases to be employed by IntraNet for
any reason, generally six (6) months after the date of such termination of
employment.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the federal income tax consequences to
participants who may receive awards under the Plan. This summary is based upon
the provisions of the Code in effect as of January 1, 1996, and regulations and
interpretations with respect to the applicable provisions of the Code as of
that date.
Non-Qualified Stock Options. A participant who is granted a non-qualified
stock option will not recognize income and IntraNet will not be allowed a
deduction at the time such option is granted. Except as discussed below under
"Participants Subject to Section 16 of the Act," when a participant exercises a
non-qualified stock option, the difference between the option price and any
higher market value of the stock on the date of exercise will be ordinary
income to the participant and will be allowed as a deduction for federal income
tax purposes to IntraNet or it subsidiary. The capital gain holding period of
the shares acquired will begin one day after the date such stock option or
stock appreciation right is exercised. When a participant disposes of shares
acquired by the exercise of the option, any amount received in excess of the
fair market value of the shares on the date of exercise will be treated as
short-term or long-term capital gain, depending upon the holding period of the
shares. If the amount received is less than the market value of the shares on
the date of exercise, the loss will be treated as short-term or long-term
capital loss, depending upon the holding period of the shares.
Incentive Stock Options. A participant who is granted an incentive stock
option also will not recognize income and IntraNet will not be allowed a
deduction at the time such an option is granted. When a participant exercises
an incentive stock option while employed by IntraNet or its subsidiary or
within the three-month (one year, in the case of disability) period after
termination of employment, no ordinary income will be recognized by the
participant at that time but the excess of the fair market value of the shares
acquired by such exercise over the option price will be an item of tax
preference for
54
<PAGE> 69
purposes of any federal alternative minimum tax applicable to
individuals. If the shares acquired upon exercise are not disposed of until
more than two years after the date of grant and one year after the date of
transfer of the shares to the participant (statutory holding periods), the
excess of the sale proceeds over the aggregate option price of such shares will
be long-term capital gain. Except in the event of death, if the shares are
disposed of prior to the expiration of the statutory holding periods (a
"Disqualifying Disposition"), the excess of the fair market value of such
shares at the time of exercise over the aggregate option price (but not more
than the gain on the disposition if the disposition is a transaction on which
a loss, if sustained, would be recognized) will be ordinary income at the time
of such Disqualifying Disposition (and IntraNet or its subsidiary will be
entitled to a federal tax deduction in a like amount).
Payment of Option Price in Shares. If a participant pays the exercise
price of a non-qualified or incentive stock option with currently-owned shares
of IntraNet's Common Stock and the transaction is not a Disqualifying
Disposition, the shares received equal to the number of shares surrendered are
treated as having been received in a tax-free exchange. The shares received in
excess of the number surrendered will not be taxable if an incentive stock
option is being exercised, but will be taxable as ordinary income to the extent
of their fair market value if a non-qualified option is being exercised. The
participant does not recognize income and IntraNet receives no deduction as a
result of the tax-free portion of the exchange transaction. If the use of
previously-acquired incentive stock option shares to pay the exercise price of
another incentive stock option constitutes a Disqualifying Disposition, the tax
results are as described under the heading "Incentive Stock Options."
Stock Appreciation Rights ("SARS"). A participant who receives stock
appreciation rights will not recognize income and IntraNet will not be allowed
a deduction at the time such stock appreciation rights are granted. Except as
discussed below under the heading "Participants Subject to Section 16 of the
Act," when a participant exercises stock appreciation rights, the amount of
cash and the fair market value of the shares of IntraNet Common Stock received
will be ordinary income to the participant and will be allowed as a deduction
for federal income tax purposes to IntraNet or its subsidiary.
Participants Subject to Section 16 of the Act. If a participant who is
subject to the insider trading rules of Section 16(b) of the Securities
Exchange Act of 1934 (the "Act") receives shares by reason of the exercise of a
non-qualified option or stock appreciation right, the participant will
recognize ordinary income equal to the excess of the fair market value of the
shares received over the amount paid for the shares, if any, on the first day
the sale of such shares at a profit is no longer subject to section 16(b) of
the Act, which may be the earlier of: (i) the date of exercise; or (ii) six
months less one day from the date of exercise of the option (the "Recognition
Date"), and IntraNet or its subsidiary will be entitled to a deduction of a
like amount for federal income tax purposes at that time. The income when
recognized will include any appreciation in the value of the stock prior to the
Recognition Date, and the capital gain holding period will not begin until the
Recognition Date. However, if the Recognition Date is not the date of
exercise, such a participant may elect to have the normal rules described with
respect to non-qualified stock option or stock appreciation rights apply by
filing a Section 83(b) election with the Internal Revenue Service within 30
days after the exercise of the non-qualified stock option or stock appreciation
right.
Restricted Stock Awards. A recipient of a restricted stock award will be
subject to tax at ordinary income rates on the fair market value of IntraNet's
Common Stock at the time the restricted shares are transferable or are no
longer subject to restrictions. However, a recipient who so elects under
Section 83(b) of the Code within 30 days of the date of the grant will have
ordinary taxable income on the date of the grant equal to the fair market value
of the shares as if such shares were unrestricted and could be sold
immediately. If the restricted shares subject to such election are forfeited,
the recipient will not be entitled to any deduction, refund or loss for tax
purposes with respect to the forfeited restricted shares.
55
<PAGE> 70
The holding period to determine whether the recipient has long-term or
short-term capital gain or loss upon sale of the restricted shares is
measured from the date the restriction period expired. However, if the
recipient timely elects to be taxed as of the date of the grant, the holding
period commences on the date of the grant and the tax basis will be equal to
the fair market value of the restricted shares on the date of the grant.
The Plan will become effective upon its adoption by shareholders holding a
majority of the outstanding shares of MacGregor Common Stock and the Plan shall
remain in effect until all Incentives granted under the Plan have either been
satisfied by the issuance of shares of IntraNet Common Stock or the payment of
cash or have been terminated under the terms and conditions of the Plan and all
restrictions imposed on shares of IntraNet Common Stock in connection with
their issuance under the Plan have lapsed. However, no Incentives may be
granted after December 31, 1997. Incentives may be accelerated under certain
circumstances described in the Plan at Section 11.12. Pursuant to Section 11.7
of the Plan, except in the case of stock awards or cash awards, the terms of
each Incentive shall be stated in an agreement approved by the Committee, or
the Board of Directors, as the case may be. Such Committee or the Board may
also determine to enter into agreements with holders of options to reclassify
or convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as non-statutory or non-qualified stock options, and
in order to eliminate SARS with respect to all or part of such options and any
other previously issued options.
56
<PAGE> 71
PROPOSAL NUMBER VI:
THE RATIFICATION AND APPOINTMENT OF LUND KOEHLER COX & COMPANY, PLLP
AS MACGREGOR'S INDEPENDENT AUDITORS FOR THE FISCAL YEARS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
MacGregor's auditor prior to the Merger is Gelfond Hochstadt Pangburn &
Co. A representative of this firm will be available by conference telephone
call at the meeting, and will have the opportunity to make a statement and to
answer any appropriate questions. The independent auditor's report on the
MacGregor's financial statements for the year ended July 31, 1995, included a
"going concern" explanatory paragraph, which means that the auditors have
expressed substantial doubt about the MacGregor's ability to continue as a
going concern. Management's plan in regard to the factors which prompted the
explanatory paragraph are discussed in Note 2 to the MacGregor's July 31, 1995
financial statements.
MacGregor has selected Lund Koehler Cox & Company, PLLP, as its
independent public accountants to perform an audit of the financial statements
of MacGregor for the years ending March 31, 1997 (including any applicable
transition periods created by the Merger) and March 31, 1998, and to
perform such other appropriate and specified accounting services requested by
MacGregor, for its then operating companies, assuming the Merger is approved.
Lund Koehler Cox & Company, PLLP has served as the independent public
accountants for TPSI since 1992. MacGregor wishes to emphasize that it is not
changing independent public accountants due to any disagreements with its
current independent public accountants during the preceding two fiscal years
and the most recent interim audit period. Rather, MacGregor has selected Lund
Koehler Cox & Company, PLLP based on its familiarity with TPSI's current
business and operations. A representative from Lund Koehler Cox & Company,
PLLP, will be present at the Special Meeting. The representative will have the
opportunity to make a statement if the representative desires to do so, and
will be available to answer any appropriate questions.
57
<PAGE> 72
PROPOSAL NUMBER VII:
A PROPOSAL TO ADJOURN THE MEETING TO A LATER DATE TO PERMIT
FURTHER SOLICITATION OF PROXIES IN THE EVENT AN INSUFFICIENT
NUMBER OF SHARES OF MACGREGOR COMMON STOCK IS PRESENT, IN PERSON
OR BY PROXY, AT THE MEETING TO APPROVE THE MERGER AGREEMENT
AND THE MATTERS SUMMARIZED ABOVE
In the event that there are not sufficient votes to approve and ratify the
Merger Agreement at the time of the Meeting, the proposal concerning the Merger
Agreement could not be approved unless the Meeting were adjourned in order to
permit further solicitation of proxies from MacGregor shareholders. In order
to allow proxies that have been received by MacGregor at the time of the
Meeting to be voted for such adjournment, if necessary, MacGregor is submitting
the question of adjournment under such circumstances to its shareholders as a
separate matter for their consideration. If it is necessary to adjourn the
Meeting and the adjournment is for a period of less than 30 days, no notice of
the time and place of the adjourned meeting is required to be given to
shareholders other than an announcement of such time and place at the Meeting.
A majority of the shares represented and voting at the Meeting is required to
approve any such adjournment, provided that a quorum is present. THE BOARD OF
DIRECTORS OF MACGREGOR RECOMMENDS THAT MACGREGOR SHAREHOLDERS VOTE FOR THE
PROPOSAL TO ADJOURN THE MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF
PROXIES.
OTHER BUSINESS
No business, other than set forth herein, is expected to come before the
Special Meeting. Should any other matter requiring a vote of the shareholders
arise, including any question related to any adjournment of the meeting, the
persons named in the enclosed proxy will vote thereon according to their best
judgment and the best interests of MacGregor and its shareholders.
EXPERTS
The consolidated financial statements and notes thereto of MacGregor
included herein, other than the quarterly report for the quarter ending April
30, 1996, have been audited by Gelfond Hochstadt Pangburn & Co., independent
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated financial statements of TPSI as of March 31, 1995 and
1996 and for each of the years in the three-year period ended March 31, 1996,
included herein, have been audited by Lund Koehler Cox & Company, PLLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
58
<PAGE> 73
CERTAIN LEGAL MATTERS
The legality of MacGregor's Common Stock to be issued in connection with
the Merger is being passed upon for MacGregor by Ross & Hardies, General
Counsel to MacGregor. The opinion of counsel described under "The
Merger-Certain Federal Income Tax Consequences" will also be rendered by Ross &
Hardies, which opinion is subject to various assumptions and qualifications and
is based upon current law.
BY ORDER OF THE BOARD OF DIRECTORS
Henry Fong,
Chairman
59
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EXHIBIT A: Financial Statements of MacGregor Sports & Fitness, Inc. F-1
EXHIBIT B: Financial Statements of IntraNet Integration Group, Inc. F-29
(formerly known as Technical Publishing Solutions, Inc.)
EXHIBIT C: Unaudited Pro Forma Condensed Financial Statements of F-43
Intranet Integration Group Inc. Following the Merger
EXHIBIT D: Agreement and Plan of Merger, as amended E-1
EXHIBIT E:* Amended and Restated Articles of Incorporation of MacGregor E-73
Sports and Fitness, Inc.
EXHIBIT F:* Fairness Opinion of Summit Investment Corporation E-76
EXHIBIT G:* Dissenter's Rights Pursuant to Minnesota Law E-78
EXHIBIT H:* Proposed 1994-1997 Stock Option Plan for MacGregor E-83
Sports & Fitness, Inc.
</TABLE>
* previously filed
60
<PAGE> 75
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
YEARS ENDED JULY 31, 1995 AND 1994
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditors' report F-1
Consolidated financial statements:
Balance sheet F-2
Statements of operations F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5
Notes to consolidated financial statements F-7
</TABLE>
<PAGE> 76
INDEPENDENT AUDITORS' REPORT
Board of Directors
MacGregor Sports and Fitness, Inc.
Greenville, South Carolina
We have audited the accompanying consolidated balance sheet of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended July 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended July 31, 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered recurring net
losses, and at July 31, 1995 its current liabilities exceed its current assets.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Gelfond Hochstadt Pangburn & Co.
Denver, Colorado
November 30, 1995
F-1
<PAGE> 77
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,846
Trade receivables, net of allowance for doubtful
accounts of $4,000 1,329
Inventories 6,450
-------------
Total current assets 10,625
-------------
Furniture and equipment 8,414
Less accumulated depreciation 6,723
-------------
1,691
-------------
Trademarks and license agreements, net of
accumulated amortization of $1,099,612
(Notes 1, 2, and 4) 4,272,492
-------------
$ 4,284,808
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit (Note 5) $ 380,677
Notes payable, shareholders (Note 6) 91,306
Current portion of long-tem debt, shareholder (Note 6) 27,000
Investment fees payable to related party (Note 10) 281,500
Accrued interest and other, related parties (Note 10) 379,180
Accounts payable and accrued expenses 953,013
Deferred royalty revenue 64,477
-------------
Total current liabilities 2,177,153
-------------
Long-term debt, shareholder (Note 6) 225,020
-------------
Commitments (Notes 4, 7, 10, and 11)
Class A 10% mandatory redeemable convertible preferred stock,
liquidation preference $610,000 plus unpaid dividends,
if and when declared; 610 shares issued and
outstanding (Note 7) 610,000
-------------
Shareholders' equity (Note 7):
Class C convertible preferred stock, liquidation
preference $1,000,000 plus dividend preference
of $70 per share per year, issued and
outstanding 1,000 shares 1,000,000
Common stock, par value $.02; authorized 25,000,000
shares, issued and outstanding 8,249,423 shares 164,988
Additional paid-in capital 7,397,429
Warrants 3,588
Deficit (7,293,370)
-------------
1,272,635
-------------
$ 4,284,808
=============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 78
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Sales $ 518,971 $ 2,237,601
Cost of Sales (446,471) (1,872,198)
-------------- ----------------
Gross profit 72,500 365,403
-------------- ----------------
Royalty Income:
Related party 246,664 165,548
Other 281,784
-------------- ----------------
246,664 447,332
-------------- ----------------
Operating expenses:
General and administrative 517,246 1,758,205
Depreciation and amortization 281,411 349,736
Write off of goodwill (Note 8) 281,710
Write down of trademark costs (Note 2) 500,000 148,689
-------------- ----------------
1,298,657 2,538,340
-------------- ----------------
Operating loss (979,493) (1,725,605)
-------------- ----------------
Other income (expense):
Interest expense:
Related parties (36,204) (113,276)
Other (112,650) (51,585)
Other (16,456) 35,199
-------------- ----------------
(165,310) (129,662)
-------------- ----------------
Net loss $ (1,144,803) $ (1,855,267)
============== ================
Loss per common share $ (.14) $ (.26)
============== ================
Weighted average number of common shares 8,169,622 7,376,483
============== ================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 79
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Class C preferred Stock Common stock paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balances,
August 1, 1993 6,857,283 $ 137,146 $ 6,709,271
Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 185,640 3,713 136,287
Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000 7,700 377,300
Common stock
issued as collateral for line
of credit (Note 5) 344,000 6,880 (6,880)
---------- ---------------- --------------
Net loss
Balances,
July 31, 1994 7,771,923 $ 155,439 $ 7,215,978
Common stock
issued in conversion of
accounts payable (Note 7) 477,500 9,549 181,451
Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000 $ 1,000,000
Net loss
---------- -------------- ---------- ---------------- ---------------
Balances,
July 31, 1995 1,000 $ 1,000,000 8,249,423 $ 164,988 $ 7,397,429
========== ============== ========== ================ ===============
<CAPTION>
Warrants Deficit Total
-------- ------- -----
<S> <C> <C> <C>
Balances,
August 1, 1993 $ 3,588 $ (4,293,300) $ 2,556,705
Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 140,000
Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000
Common stock
issued as collateral for line
of credit (Note 5)
Net loss (1,855,267) (1,855,267)
----------- ------------- ----------------
Balances,
July 31, 1994 $ 3,588 $ (6,148,567) $ 1,226,438
Common stock
issued in conversion of
accounts payable (Note 7) 191,000
Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000,000
Net loss (1,144,803) (1,144,803)
----------- ------------- ----------------
Balances,
July 31, 1995 $ 3,588 $ (7,293,370) $ 1,272,635
=========== ============= ================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 80
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,144,803) $ (1,855,267)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Proceeds from distribution agreement (Note 1) 1,626,523
Proceeds from sale of certain CTS assets (Note 8) 150,000
Write off of trademark license costs (Note 2) 500,000 148,689
Write off of goodwill (Note 8) 281,710
Marketing expense incurred on issuance of common
stock (Note 9) 140,000
Depreciation and amortization 281,411 349,737
Write off of obsolete inventory 17,440
Loss on sale of furniture and equipment 19,374 22,250
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivables 16,458 1,129,502
Inventories 247,568 402,809
Prepaid expenses 17,680 83,824
(Increase) decrease in liabilities:
Accounts payable and accrued expenses 101,041 (941,646)
Deferred royalty revenue (101,953) (112,514)
-------------- --------------
Total adjustments 1,099,019 3,280,884
-------------- --------------
Net cash provided by (used in) operating activities (45,784) 1,425,617
-------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (2,000)
Sale of furniture and equipment 12,056
Proceeds from sale of property and
equipment in connection with
distribution agreement (Note 1) 4,477
Proceeds from sale of certain CTS
equipment (Note 8). 58,000
-------------- --------------
Net cash provided by (used in) investing activities 12,056 60,477
-------------- --------------
Cash flows from financing activities:
Increase (decrease) in bank overdraft (17,474) 15,152
Net payments under revolving credit arrangement (13,073) (1,102,895)
Proceeds from issuance of notes payable 31,383 27,000
Principal payments of notes payable $ $ (389,613)
-------------- --------------
Net cash provided by (used in) financing activities $ 836 $ (1,450,356)
-------------- --------------
</TABLE>
(Continued)
F-5
<PAGE> 81
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Increase (decrease) in cash $ (32,892) $ 35,738
Cash, beginning of period 35,738
------------- ------------
Cash, end of period $ 2,846 $ 35,738
------------- ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 36,833 $ 78,627
============= ============
Supplemental disclosure of noncash investing and financing activities:
During 1994, the Company issued 344,017 shares of common stock to its lender
as additional collateral for its revolving credit arrangement. In addition,
the Company converted 385,000 shares of its Class B redeemable convertible
preferred stock to 385,000 shares of common stock.
During 1995, accounts payable of $191,000 were converted to 477,500 shares of
common stock (Note 7) and $1,000,000 of notes payable, shareholder were
converted to 1,000 shares of Class C preferred stock (Note 6).
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 82
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
BUSINESS OF THE COMPANY AND PRINCIPLES OF CONSOLIDATION:
MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Products, Inc.
("MSP") owns the worldwide rights to the use of the MacGregor name
(Note 4) and markets and distributes a broad range of sports,
recreational, and fitness products under its distribution agreement
with Roadmaster Corporation. Carolina Team Sports, Inc. ("CTS") is
also a wholly-owned subsidiary. Significant intercompany balances and
transactions have been eliminated.
ORGANIZATION AND MERGER:
The Company was formed on December 31, 1991 through a merger between
Vida Ventures, Ltd. ("Vida") and Sports Acquisition Corporation
("SAC"). SAC was formed in February 1991, and on May 9, 1991, it
acquired certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The
primary assets acquired were worldwide rights to use the MacGregor name
on sporting, recreational, and fitness products.
INVENTORIES:
Inventories consist of sports, recreational, and fitness
products held for resale, and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method.
FURNITURE, EQUIPMENT, AND DEPRECIATION:
Furniture and equipment are recorded at cost. The assets are
depreciated over their estimated useful lives of five to seven years
using the straight-line method.
TRADEMARKS AND LICENSE AGREEMENTS:
Trademark and license agreements relate to costs incurred in
acquiring use of the MacGregor trademark (the "MacGregor Rights")
(Note 4) and are being amortized using the straight-line method over
25 years.
F-7
<PAGE> 83
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
INTANGIBLE ASSETS (CONTINUED):
The Company periodically evaluates the carrying amount of its
intangible assets. The Company determined that the net realizable
value of the MacGregor license agreements at July 31, 1994 was less
than the carrying amount and the difference of $148,689 was charged to
operations. As further discussed in Note 2, at July 31, 1995, the
Company determined that the carrying value of its intangible assets
should be reduced by an additional $500,000. During the year ended
July 31, 1994, the Company also determined that goodwill related to the
acquisition of Carolina Team Sports, Inc. had been impaired and
$281,710 was charged to operations (Note 8). At July 31, 1995, no
remaining goodwill is included in the financial statements.
DISTRIBUTION AGREEMENT:
Effective October 7, 1993, the Company entered into an
agreement with Roadmaster Corporation ("RMC") whereby RMC acquired the
exclusive rights to distribute MacGregor products, subject to certain
worldwide territorial limitations and restrictions set forth in the
Company's other licensing agreements. The agreement continues for a
period of five years, with an option to renew for an additional five
year term with a minimum annual royalty. The agreement provides that
RMC will pay the Company on a quarterly basis percentage-based
royalties on net revenues generated from sales of the MacGregor
products with minimum cumulative royalties. The agreement pertains
only to distribution of MacGregor products. RMC did not acquire the
MacGregor Rights. The chairman of the Company's Board of Directors, is
also the president and chairman of the board, and indirectly a
controlling shareholder of RMC's parent company. RMC is also a
shareholder of the Company.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for all of the accounts receivable, inventory
and certain equipment with book values of $427,000, $623,000, and
$30,000, respectively, resulting in a $551,000 write off of the
carrying value of the MacGregor license costs (Note 2). The purchase
price included payment of the revolving line of credit in the amount
of $440,000 (note 5), payment in the amount of $276,000 to satisfy
commissions owed to and to settle the exclusive representation
agreement with a company which had been marketing the Company's
products, $186,000 for the reduction of certain notes payable, and
$729,000 for the reduction of certain accounts payable and accrued
expenses.
F-8
<PAGE> 84
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS:
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
and the realization of assets and liquidation of liabilities in the
ordinary course of business. The Company incurred net losses of
approximately $1,145,000 and $1,855,000 for the years ended July 31,
1995 and 1994, respectively. Further, at July 31, 1995, the
Company's current liabilities exceeded its current assets by
approximately $2,167,000. Therefore, the continuity of operations and
realization of assets and liquidation of liabilities is subject to
uncertainty. However, management believes that the going concern basis
is appropriate based on the events and plans described below.
In December 1994, the Company entered into a letter of
potential interest with an affiliate. Under the terms of the letter, as
amended in November 1995, the Company will grant the affiliate an
option to extend the existing distribution agreement (Note 1) for two
additional five-year periods with increased mimimum royalty
requirements. In addition, the Company will grant the affiliate an
option to acquire all of its interests in and to the MacGregor
trademark and other related trademarks and rights (the "MacGregor
Rights") for a cash payment of $675,000 plus a three-year note
representing the then existing present value of the remaining minimum
payments under the distribution agreement, including all extensions.
Management and the affiliate believe that the foregoing structure
recognizes a value for the MacGregor rights at an amount in excess of
$4,200,000. In response to the November 1995 amendment to the letter
of interest, the Company has reduced the carrying amount of its
intangible assets at July 31, 1995 by $500,000. Management intends to
use the proceeds of the distribution agreement and sale, should it
occur, to pay current obligations and investigate mergers, acquisitions
and other potential investment opportunities.
Management believes that the proceeds from the extended royalty
agreement, and sale of the MacGregor Rights, should it occur, when
considered with the curtailment of CTS operations discussed in Note 8
will enable the Company to meet its current obligations and continue
operations. If unanticipated factors arise that would cause the cash
flow of the Company to fall short of needed levels, or if the Company
is unable to complete the sale of the MacGregor Rights under the terms
of the letter of potential interest, management has developed
alternative plans to continue operations. These plans include:
F-9
<PAGE> 85
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS (CONTINUED):
a. Equitex, Inc. (a principal shareholder of the Company) providing
financing, or causing financing to be provided, of any
expenses of the Company. The Company would assign its rights to
future Roadmaster Corporation royalty streams to Equitex,
Inc. (Equitex) to the extent that such expenses were so funded
by Equitex.
b. Investigating merger possibilities.
c. Investigating increases in ownership equity to provide funds to
meet current obligations.
d. Investigating the sale of the MacGregor Rights to other
parties.
Management believes that these plans would be adequate and will enable
the Company to effectively continue its operations.
3. INCOME TAXES:
Effective August 1, 1993, SFAS No. 109, "Accounting for Income
Taxes," was adopted. SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
F-10
<PAGE> 86
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
3. INCOME TAXES (CONTINUED):
The following is a summary of the Company's deferred tax assets at July
31, 1995:
<TABLE>
<S> <C>
Deferred royalties $ 22,000
Operating loss carry forward 1,703,000
Other 10,000
Less valuation allowance (1,735,000)
-----------
$
===========
</TABLE>
At July 31, 1995, the Company has available, operating loss
carryforwards of approximately $5,000,000 which may be utilized to
offset future taxable income through 2010.
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
July 31,
1995 1994
---- ----
<S> <C> <C>
Statutory income tax (benefit) (34%) (34%)
State taxes (4%) (4%)
Non-deductible amortization 12% 5%
Deferred tax benefit not recognized 26% 33%
---- ----
==== ====
</TABLE>
F-11
<PAGE> 87
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
4. MACGREGOR TRADEMARK AND LICENSE AGREEMENTS:
In connection with the acquisition of assets from MSI, the Company acquired
the worldwide rights to the use of the MacGregor name. Conditions for the
continuation of the licenses include MSP maintaining a ratio of current
assets to current liabilities of 1.2 to 1, on a quarterly basis. The
Company was not in compliance with this condition at July 31, 1995, and has
not received a waiver of the noncompliance at July 31, 1995. If necessary
for the continuation of the Company's licenses, Equitex has agreed to
provide or cause to be provided such current assets as may be needed. For
the purpose of computing the ratio, current assets and current liabilities
are calculated so that revolving loan debt secured in whole or in part by
current assets is classified as a current liability. Other conditions
include furnishing the Licensors with financial statements, notifying the
Licensors of changes in ownership or management of the Company, and
attaining certain levels of sales of licensed products.
5. LINES OF CREDIT.
At July 31, 1995, CTS had two lines of credit with maximum borrowing limits
of $225,000 and $175,000. At July 31, 1995, $380,677 was outstanding under
the lines. Interest is at the bank's prime rate plus 0.5 percent (9.75% at
July 31, 1995). In February 1994, the Company issued 344,000 shares of its
common stock to CTS, and CTS pledged these shares to the bank as additional
collateral for the lines. The shares were issued to and held by CTS, who
pledged the shares of stock to the bank for its loan outstanding at that time
of $175,000. The shares were valued at $.50 per share, which was within the
range of the market value of MacGregor shares at that time. In October 1995,
BB&T required the Company to cause 344,000 shares of its common stock to be
purchased by Equitex's designee at $.50 per share. The proceeds of $172,000
reduced the BB&T indebtedness. Also in October, the Company agreed to issue
228,677 shares of its common stock to CTS, and CTS agreed to pledge these
shares to the bank as collateral for its remaining indebtedness.
F-12
<PAGE> 88
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
6. NOTES PAYABLE AND LONG-TERM DEBT:
The Company was indebted to certain shareholders in the amount of $91,306 at
July 31, 1995. The notes are unsecured, bear interest at the prime rate plus
2 percent (10.75% at July 31, 1995) or 10%, and are due on demand.
Notes payable, shareholder, represents promissory notes to Equitex. The
notes are unsecured and bear interest at 2 percent above the prime rate
(10.75% at July 31, 1995). During the year ended July 31, 1995, $1,000,000
of notes were converted into 1,000 shares of the Company's Class C
convertible preferred stock (Note 7). At July 31, 1995, $27,000 of the
notes are due on demand and the balance of $225,020 are due in August 1996.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY:
CLASS A REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In May 1991, the Company issued 610 shares of Class A convertible preferred
stock. The stock has a liquidation preference of $1,000 per share and a
dividend preference of $100 per share per year, payable monthly if and when
dividends are declared, and then accumulate to the extent the Company does
not pay monthly dividends. Each share of Class A preferred stock is
convertible into 272 shares of common stock. To the extent that the Company
has adequate cash flow available, it can redeem the Class A convertible
preferred stock in increments of 25 percent of the number of shares of
Class A convertible preferred shares initially outstanding from time to
time. If the Company completes a public offering of at least $4,000,000,
the Class A convertible preferred stock will be redeemed at a rate of 25
percent per month for four months, commencing with the month that the
public offering is completed. The Company has no current plans to complete
a public offering and has not redeemed any of the Class A convertible
preferred stock.
F-13
<PAGE> 89
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED):
CLASS B REDEEMABLE CONVERTIBLE PREFERRED STOCK:
During the year ended July 31, 1994, the Company's 385,000 shares of $1.00
per share liquidation preference, Class B redeemable convertible preferred
stock were converted to 385,000 shares of the Company's common stock.
CLASS C CONVERTIBLE PREFERRED STOCK:
Equitex, a principal shareholder of the Company, converted $1,000,000 of
indebtedness into 1,000 shares of the Company's Class A convertible
preferred stock during 1995 (Note 6). The Class C convertible preferred
stock is not redeemable and has no voting rights. The Class C convertible
preferred stock has a liquidation preference of $1,000 per share, a dividend
preference of $70 per share per year, if and when declared, and (commencing
May 1, 1996) is convertible into common stock at the lesser of $1.00 per
share or 80% of the average market price for the Company's common stock at
the time of conversion. The Company has the option of paying the dividends
by issuing shares of the Company's common stock at a value equal to 80%
of the average market price.
STOCK OPTION PLAN:
Effective December 2, 1991, the Company established a Stock Option Plan for
employees, directors, and key consultants. The Company reserved 750,000
shares of common stock for issuance under the plan. The plan contains
provisions for both an incentive ("ISOP") as well as a nonstatutory stock
option plan, with options expiring ten years from the date of grant. No more
than one-half of the maximum number of shares authorized under the plan may
be reserved for issuance upon exercise of nonstatutory stock options. The
ISOP provides that options will be granted at an exercise price no less than
the fair market value of the Company's stock on the date of grant. The
aggregate fair market value of the shares subject to exercise for the first
time by any optionee during any calendar year may not exceed $100,000.
Directors and key consultants who are not employees of the Company are not
eligible to participate in the ISOP. As of July 31, 1995, 150,000 options
had been granted under the ISOP.
Prior to August 1, 1993, options to purchase 150,000 shares of common stock
had been granted under the ISOP and are available for exercise. The exercise
price of options to purchase 50,000 shares of common stock is $2.2375 per
share and to purchase 100,000 shares of common stock is $1.00 per share.
During the years ended July 31, 1995 and 1994, no options were granted,
exercised or cancelled under the ISOP. The non-statutory plan provides that
options may be granted at exercise prices no less than 85 percent of the
fair market value of the Company's stock on the date of grant. As of July
31, 1995, no options have been granted under the non-statutory plan.
F-14
<PAGE> 90
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS AND OTHER OPTIONS:
In connection with the asset purchase of May 9, 1991, SAC, a privately owned
company prior to its merger with Vida, issued the financial institution
which provided the Company's revolving and term notes, a warrant
allowing the institution to purchase 237,575 shares of non-voting common
stock at a price of $.0735 per share. The exercise price of the warrant at
the date of issue in 1991 equaled or exceeded fair market value of the
Company's common stock at that date. The warrant expires May 9, 2001. At
July 31, 1995, no warrants had been exercised.
At December 31, 1991, the Company issued warrants to purchase up to 75,000
shares of the Company's common stock at $2.25 per share. The warrants,
issued as compensation for having introduced the management to SAC to the
management of Vida, are fully exercisable on the date of the grant, and
expire on December 29, 1996. At July 31, 1995, no warrants had been
exercised.
As of July 31, 1995, the Company has outstanding for public sale 800,000
warrants, with each warrant entitling the holder thereof the right to
purchase one common share at an exercise price of $1.00 for a period of 24
months through October 31, 1997. The Company may call the warrants for
redemption at a price of $.05 per warrant upon 30 days prior written notice
at any time. At July 31, 1995, no warrants had been exercised.
In connection with a public offering, completed in October 1990, the Company
issued and sold to the underwriter, for $100, warrants to purchase an
aggregate of 120,000 common shares. Underwriters' warrants for 80,000
shares are exercisable through November 18, 1995, at an initial exercise
price of 107 percent of the public offering price per Unit which consisted
of one share of common stock and one redeemable warrant. Underwriters'
warrants for 40,000 shares are exercisable for two years through November
18, 1995, at $6.00 per share. The common shares issued upon exercise of the
underwriter's warrants will not be freely tradeable upon issuance, but may
become tradeable upon registration at the demand of the holders thereof.
F-15
<PAGE> 91
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(CONTINUED):
WARRANTS AND OTHER OPTIONS (CONTINUED):
During 1993 and 1992, the Company entered into note and warrant
purchase agreements, primarily with certain of its shareholders,
whereby the Company received proceeds of $536,000 upon the issuance of
$536,000 of 10 percent promissory notes and 154,800 detachable
warrants. The notes were paid during the years ended July 31, 1995 and
1994. The warrants are exercisable at $2.00 per warrant to acquire one
share of common stock over a five-year period expiring July 1997. The
Company allocated $3,488 of the total proceeds to the warrants. At
July 31, 1995, no warrants had been exercised.
CONVERSION OF ACCOUNTS PAYABLE TO COMMON STOCK:
In September 1994, $191,000 of accounts payable with third parties were
converted at the per share market price to 477,500 shares of the
Company's Common Stock.
OTHER COMMON STOCK ISSUANCES:
In August through October 1995, the Company sold an additional 308,000
shares of its common stock at an average price of $.59 for proceeds of
$181,000. Additionally, a shareholder purchased a $50,000 note with 10%
interest. The proceeds of $231,000 were used to pay certain liabilities
of the Company, as well as the Company's obligation under its license
from Equilink.
8. CAROLINA TEAM SPORTS, INC.:
In 1992, the Company acquired the net assets of CTS. CTS was a regional
sporting goods dealership servicing Georgia, North and South Carolina,
as well as governmental agencies throughout the United States and
Europe.
F-16
<PAGE> 92
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
8. CAROLINA TEAM SPORTS, INC. (CONTINUED):
During the years ended July 31, 1995 and 1994, CTS realized declining gross
profits and incurred operating losses. In response to the losses, during
fiscal 1994, management reorganized the operations of CTS, terminated its
governmental agency contracts and certain other sales contracts that were
unprofitable, and sold certain equipment and inventory to an unrelated
third party for $208,000 resulting in a loss of approximately $22,000.
Management determined that the goodwill of CTS, arising from the
acquisition, was permanently impaired and during the year ended July 31,
1994, operations were charged with approximately $282,000 for the
elimination of the goodwill. During the year ended July 31, 1995, the
Company ceased operations of CTS, its remaining retail sporting goods
dealership was closed, and its furniture and equipment was sold for a loss
of approximately $19,000.
9. TERMINATION OF MARKETING AGREEMENT:
Prior to October 1993, the Company's products were being marketed under an
agreement with a third party. For these services, the Company paid
agreed-upon commissions and agreed to grant, through 1996 based upon the
third party attaining certain sales goals, options to purchase up to 309,400
shares of the Company's common stock. In October 1993, in conjunction with
acquiring the Roadmaster agreement the marketing and option agreements were
terminated in exchange for 185,640, shares of the Company's common stock.
The Company recognized $140,000 of expense upon the issuance of common
stock.
10. RELATED PARTIES:
During the year ended July 31, 1994, the Company incurred approximately
$25,000 of expenses for certain administrative services performed for the
Company by Equitex.
Prior to August 1, 1992, the Company entered into an agreement with Equitex
to pay Equitex an investment banking fee for services provided to the
Company in securing its credit facilities. The total amount due of
$281,500 is payable when the Company has available funds. The Company
entered into a management agreement effective May 9, 1991, with the Company
to pay Equitex a fee of $10,000 per month for a period of twenty-four
months. The management fee will be payable, and $30,000 shall accumulate
or accrue, when the Company achieves net income of $60,000 in any
three-month period. Because the Company has never achieved net income of
$60,000 in any three-month period, no amounts have been accrued under the
agreement.
F-17
<PAGE> 93
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
10. RELATED PARTIES (CONTINUED):
Accrued interest and other payables, related parties, consists of
approximately $314,947 of accrued interest due under the shareholder notes
payable and approximately $64,232 due to Equitex and other related parties
for reimbursement of general and administrative expenses paid by those
parties on behalf of the Company. Expenses incurred by related entities on
behalf of the Company were approximately $56,800 in 1995 and $7,500 in 1994.
11. COMMITMENTS:
OTHER LICENSE AGREEMENTS:
In May 1992, MSP entered into a licensing agreement which granted to the
licensor royalties in consideration of granting MSP the right for the
manufacture, purchase for resale, and distribution of golf gloves and pull
carts under the MacGregor name. Royalty expense of approximately $173,000
was incurred during the year ended July 31, 1994. During 1994, the license
agreement was terminated.
On December 7, 1992, the Company executed a perpetual sublicense agreement
and a marketing agreement through June 30, 1994 with a distributor of a
patented two-wheel drive bicycle. The Company received a non-refundable
royalty prepayment of $200,000 and $100,000 for marketing services through
June 30, 1994. Accordingly, the Company recorded the $300,000 received as a
deferred liability, and amortized the marketing agreement into income.
During 1994, the Company believed the sublicensee committed breaches of the
sublicense which would constitute a termination or grounds for termination
of the sublicense. The sublicensee, to the best of the Company's knowledge,
has ceased attempting to distribute the licensed product and accordingly,
the Company has recorded the balance of the unamortized non-refundable
royalty prepayment and the unamortized portion of the marketing agreement
into income. Revenues of approximately $282,000 were recorded for the year
ended July 31, 1994.
F-18
<PAGE> 94
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994
11. COMMITMENTS (CONTINUED):
OTHER LICENSE AGREEMENTS (CONTINUED):
In June 1994, the Company paid $300,000 to terminate the Company's license
with MacGregor Golf Company in exchange for its releasing the Company from
future minimum royalties of $395,000 and $520,000 for the twelve months
ended February 1995 and 1996, respectively.
OPERATING LEASES:
The Company leases office and warehouse space under an operating lease
expiring May 1998. Total rent expense was approximately $35,352 and $128,700
for the years ended July 31, 1995 and 1994, respectively. Future minimum
rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JULY 31,
-----------
<S> <C>
1996 $ 70,000
1997 70,000
1998 46,667
1999
--------
$186,667
========
</TABLE>
12. MAJOR CUSTOMERS AND EXPORT SALES:
During the years ended July 31, 1995 and 1994, no single customer accounted
for more than 10% of sales, and there were no significant export sales.
13. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Although no dividends have accumulated on the
Class A Preferred Stock during the years ended July 31, 1994 and 1995, net
loss has been adjusted to reflect the dividends as if they had been
accumulated. Outstanding warrants, options and convertible preferred
stock are not considered in the calculations as they would decrease loss
per share.
F-19
<PAGE> 95
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 4,646 $ 2,846
TRADE RECEIVABLES, NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $4,000 AT JULY 31, 1995 1,329
INVENTORIES 6,450
ROYALTY RECEIVABLE, RELATED PARTY 77,190
---------- ----------
TOTAL CURRENT ASSETS 81,836 10,625
---------- ----------
OFFICE FURNITURE AND EQUIPMENT 8,414
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION (6,723)
---------- ----------
1,691
---------- ----------
OTHER ASSETS:
TRADEMARKS AND LICENSE AGREEMENTS
NET OF ACCUMULATED AMORITZATION
($2,439,225, APRIL 30, 1996; $1,099,612
JULY 31, 1995) 2,932,879 4,272,492
---------- ----------
$3,014,715 $4,284,808
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
LINES OF CREDIT $ $ 380,677
NOTES PAYABLE, SHAREHOLDERS 91,306
CURRENT PORTION OF LONG-TERM DEBT,
SHAREHOLDER 27,000
INVESTMENT FEES PAYABLE TO RELATED PARTY 281,500
ACCRUED INTEREST AND OTHER, RELATED PARTY 379,180
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 953,013
DEFERRED ROYALTY REVENUE 64,477
------------ -----------
TOTAL CURRENT LIABILITIES 2,177,153
-----------
LONG-TERM DEBT, SHAREHOLDER 225,020
------------ -----------
CLASS A 10% MANDATORY REDEEMABLE
CONVERTIBLE PREFERRED STOCK, LIQUIDATION
PREFERENCE $610,000 PLUS UNPAID DIVIDENDS, IF
AND WHEN DECLARED; ISSUED AND OUTSTANDING -
0 SHARES AT APRIL 30, 1996 AND 610 SHARES
AT JULY 31, 1995. 610,000
------------ -----------
SHAREHOLDERS' EQUITY:
CLASS C CONVERTIBLE PREFERRED STOCK,
LIQUIDATION PREFERENCE OF $1,000 PLUS
DIVIDEND PREFERENCE OF $70 PER SHARE
PER YEAR, ISSUED AND OUTSTANDING 0 SHARES
AT APRIL 30, 1996 AND 1000 SHARES AT
JULY 31, 1995. 1,000,000
COMMON STOCK, PAR VALUE $.02; AUTHORIZED
25,000,000 SHARES, ISSUED AND OUTSTANDING
11,698,003 SHARES AT APRIL 30, 1996
AND 8,249,423 SHARES AT JULY 31, 1995 233,960 164,988
ADDITIONAL PAID-IN CAPITAL 11,934,013 7,397,429
WARRANTS 1,093,988 3,588
DEFICIT (10,247,246) (7,293,370)
------------ -----------
3,014,715 1,272,635
------------ -----------
$ 3,014,715 $ 4,284,808
============ ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-20
<PAGE> 96
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
-------------- ---------------
<S> <C> <C>
SALES $ $ 129,931
COST OF SALES 111,447
------------ ----------
GROSS PROFIT 18,484
------------ ----------
ROYALTY INCOME:
RELATED PARTY 76,665
------------ ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,422,448 124,715
DEPRECIATION AND AMORTIZATION 36,661 69,521
------------ ----------
1,459,109 194,236
------------ ----------
OPERATING LOSS (1,459,109) (99,087)
------------ ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (6,301) (26,657)
OTHER (3,092) (8,507)
OTHER 81 4,046
------------ ----------
(9,312) (31,118)
------------ ----------
NET LOSS $(1,468,421) $ (130,205)
============ ==========
LOSS PER COMMON SHARE $ (.13) $ (.02)
============ ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 11,599,113 8,249,423
============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-22
<PAGE> 97
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
--------------- --------------
<S> <C> <C>
SALES $ $ 450,450
COST OF SALES 328,239
================ ==================
GROSS PROFIT 122,211
================ ==================
ROYALTY INCOME:
RELATED PARTY 141,667 176,665
================ ==================
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,824,539 355,790
DEPRECIATION AND AMORTIZATION 140,459 219,521
WRITE DOWN OF TRADEMARK COSTS (NOTE 4) 1,200,000
================ ==================
3,164,998 575,311
================ ==================
OPERATING LOSS (3,023,331) (276,435)
================ ==================
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (38,338) (80,952)
OTHER (12,830) (28,149)
OTHER 838 17,020
================ ==================
(50,330) (92,081)
================ ==================
LOSS BEFORE EXTRAORDINARY ITEM (3,073,661) (368,516)
================ ==================
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787
================ ==================
NET LOSS $ (2,953,874) $ (368,516)
================ ==================
LOSS PER COMMON SHARE: BEFORE
EXTRAORDINARY ITEM $ (.32) $ (.05)
================ ==================
LOSS PER COMMON SHARE: $ (.31) $ (.05)
================ ==================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 9,652,274 8,143,312
================ ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-23
<PAGE> 98
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
APRIL 30, 1996 APRIL 31, 1995
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (610,322) $ (1,414)
================== =================
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENTS UNDER REVOLING CREDIT AGREEMENTS (380,677) (13,158)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 992,799
PROCCEDS FROM ISSUANCE OF NOTE PAYABLE, SHAREHOLDER 164,000
PAYMENTS TO NOTES PAYABLE, SHAREHOLDER (164,000)
INCREASE (DECREASE) IN BANK OVERDRAFT (16,153)
================== =================
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 612,122 (29,311)
================== =================
INCREASE (DECREASE) IN CASH 1,800 (27,897)
================== =================
CASH, BEGINNING OF PERIOD 2,846 35,738
================== =================
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,646 $ 7,841
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 42,148 $ 24,535
================== =================
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITY:
DURING THE QUARTER ENDED OCTOBER 31, 1994, $191,000 OF
ACCOUNTS PAYABLE WITH THIRD PARTIES WERE CONVERTED
477,500 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED OCTOBER 31, 1995, THE COMPANY
ISSUED 228,667 SHARES OF COMMON STOCK TO ITS SUBSIDIARY,
CTS, AS ADDITIONAL COLLATERAL TO BE PLEDGED FOR ITS
LINE OF CREDIT ARRANGEMENT.
DURING THE QUARTER ENDED OCTOBER 31, 1995, $42,056 OF
NOTES PAYABLE SHAREHOLDERS WERE CONVERTED TO
42,056 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, 1,000 SHARES
OF CLASS C CONVERTIBLE PREFERRED SHARES, LIQUIDATION
PREFERENCE OF $1,000 PER SHARE WERE CONVERTED TO
1,000,000 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, DIVIDENDS OF
$280,000 WERE DECLARED ON THE CLASS A MANDATORY
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND THE
OUTSTANDING 610 SHARES OF CLASS A PREFERRED STOCK
AND CUMULATIVE DIVIDENDS (TOTAL LIQUIDATION PREFERENCE
OF $890,000) WERE CONVERTED TO 277,920 SHARES OF THE
COMPANY'S COMMON STOCK. THE PREFERRED STOCK WAS
CONVERTED AT THE PRESCRIBED CONVERSION RATE OF 272
SHARES OF COMMON STOCK TO 1 SHARE OF PREFERRED STOCK
RESULTING IN 165,920 SHARES OF COMMON STOCK. THE
CUMULATIVE DIVIDENDS WERE CONVERTED AT AN AGREED
UPON VALUE OF $2.50 PER SHARE OF COMMON STOCK RESULTING
IN 112,000 SHARES OF COMMON STOCK.
DURING THE QUARTER ENDED APRIL 30, 1996, $1,960,699
LIABILITIES WERE CONVERTED TO 1,271,936 SHARES OF
COMMON STOCK (NOTE 8).
DURING THE QUARTER ENDED APRIL 30, 1996 THE COMPANY
ISSUED 200,000 WARRANTS TO ACQUIRE 200,000 SHARES OF
THE COMAPNY'S COMMON STOCK IN RETURN FOR CONSULTING
SERVICES PROVIDED.
DURING THE QUARTER ENDED APRIL 30, 1996 THE COMPANY
ISSUED 395,200 WARRANTS TO PURCHASE 395,200 SHARES
OF THE COMPANY'S COMMON STOCK FOR SERVICES
PROVIDED.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-24
<PAGE> 99
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS C ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ ------ ------ ------ ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1995 1,000 $1,000,000 8,249,423 $164,988 $7,397,429 $ 3,588 $(7,293,370) $1,272,635
Common stock issued as collateral
for line of credit 228,667 4,573 (4,573)
Common stock issued in conversion of
notes payable shareholders 42,056 841 41,215 42,056
Common stock issued in conversion
of Class C convertible
preferred shares (1,000) (1,000,000) 1,000,000 20,000 980,000
Common stock issued in conversion
of Class A redeemable convertible
preferred stock 165,920 3,318 608,682 610,000
Class A dividends declared (280,000) (280,000)
Common stock issued in payment
of accrued Class A dividends 112,000 2,240 277,760 280,000
Common Stock issued in payment
of $1,053,005 of accounts payable and
accrued expenses, $324,924 accrued
interest and other retained parties,
$281,500 investment fees related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,271,936 25,439 1,935,260 1,960,699
Common stock sold at:
200,000 shares at $.50 200,000 4,000 96,000 100,000
126,000 shares at $.75 128,000 2,560 93,440 96,000
200,000 shares at $1.25 200,000 4,000 246,000 250,000
Sale of previously issued common stock
(344,000 shares) 172,000 172,000
(228,667 shares) 274,800 274,800
Common stock issued in exercise
of employee stock option 100,000 2,000 98,000 100,000
Warrants issued in connection
of services provided 1,090,400 1,090,400
Net Loss (2,953,874) (2,953,874)
------ -------- ---------- -------- ----------- ---------- ------------ ----------
Balance, April 30, 1996 0 0 11,698,002 $233,959 $11,934,013 $1,093,988 $(10,247,244) $3,014,715
====== ======== ========== ======== =========== ========== ============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-25
<PAGE> 100
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
APRIL 30, 1996 AND 1995
(UNAUDITED)
1. THE INTERIM FINANCIAL STATEMENTS:
MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Product, Inc. ("MSP")
owns the worldwide rights to the use of the MacGregor name for a
broad range of sports. Roadmaster Corporation (an affiliate of the
Company), through a distribution agreement, markets these recreational
and fitness products. Carolina Team Sports ("CTS") is also a
wholly-owned subsidiary. CTS had no significant operations during the
nine months ended April 30, 1996.
The interim financial statements have been prepared by MSF and, in
the opinion of management, reflect all material adjustments
(including normal recurring adjustments) which are necessary to a fair
statement of results for the interim periods presented. Certain
information and footnote disclosures made in the last annual report on
Form 10-KSB have been condensed or omitted for the interim statements.
It is the Company's opinion that, when the interim statements are read
in conjunction with the July 31, 1995, annual report on Form 10-KSB,
the disclosures are adequate to make the information presented not
misleading.
2. ORGANIZATION
The Company was formed on December 30, 1991 through a merger between
Vida Ventures, LTD. ("VIDA") and Sports Acquisition Company ("SAC").
SAC was formed in February 1991, and on May 9, 1991, it acquired
certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The
primary assets were worldwide rights to use the MacGregor name on
sporting, recreational and fitness products.
F-26
<PAGE> 101
3. AGREEMENT AND PLAN OF THE MERGER:
On January 16, 1996, the Company entered an agreement and plan
of a merger with Technical Publishing Solutions, Inc., a Minnesota
Corporation ("TPSI"). TPSI is a technology company focused on
document-based information management systems. Under the merger
agreement, MSP will be merged with and into TPSI with TPSI as the
surviving corporation and further, with the result that TPSI will
become a wholly-owned subsidiary of MSF. Each of the owners of issued
and outstanding TPSI common stock will be entitled to receive
approximately 1.74 shares of MSF's common stock in exchange and
conversion for each share of TPSI common stock held and each option or
warrant to purchase one share of the common stock of TPSI outstanding
will become an option or warrant to purchase approximately 1.74 shares
of MSF common stock. For accounting purposes, the exchange will be
treated as an acquisition of the Company by TPSI and as a
recapitalization of TPSI. Included under the terms and conditions of
the agreement are:
a. The balance sheet of the Company is to have at least $3 million
of liquid tangible net worth and cash of at least $1.0 million.
b. The Company is to have paid or otherwise satisfied all debt and
all current liabilities, or otherwise removed them from the
Company's balance sheet.
c. The Company may not have more than 12,000,000 million shares of
common stock outstanding. Included in this amount would be any
shares subject to an option or warrant with exercise prices of
less than $1.00 per share. The Company may not have more than
2,200,000 outstanding warrants and options.
d. The Company is to, subject to its shareholder approval, have
completed the sale of substantially all of its assets (Note 4).
e. Certain other requirements including a satisfactory due
diligence and approval by the Company's stockholders.
To meet the above requirements, it is necessary for the Company to
satisfy all of its obligations or otherwise remove those liabilities
from its balance sheet. The Company intends to sell stock or take
other actions as management determines necessary to meet this
requirement.
TPSI will record the transaction as an acquisition and
recapitalization. Accordingly, for accounting purposes, TPSI is
assumed to be the acquirer. Subsequently to the transaction, the
historical financial statements will be those of TPSI.
MacGregor will change its fiscal year end to March 31. Accordingly,
assuming the Merger closes prior to July 31, 1996, the end of the
Company's current fiscal year, MacGregor will not file a year-end
report on Form 10-KSB for the fiscal year ended July 31, 1996, but will
file forms 10-QSB for the fiscal quarters ending June 30, September 30
and December 31 of 1996, and its next year-end annual report for the
year ended March 31, 1997.
F-27
<PAGE> 102
4. AGREEMENT TO SELL LICENSE RIGHTS:
In February 1996, the Company entered an agreement with an affiliate.
Under the terms of the agreement, the Company will sell all of its
interests in and to the MacGregor trademark and other related trademarks
and rights (the "MacGregor Rights") for cash at closing of $1,000,000
plus $1,910,000 to be paid in twelve equal monthly installments. In
response to the agreement, the Company reduced the carrying amount of
its intangible assets at January 31, 1996 by $1,200,000. Previously, the
Company was anticipating realizing approximately $4 million on its sale
of the MacGregor Rights. However, in late 1995, due to the competitive
retail environment that the MacGregor trademarks operate in, Management
believes the $2.9 million sales price stated in the agreement is the
maximum amount a buyer would offer. Management has investigated the sale
of the MacGregor Rights to other parties and believes the proposed
transaction offers the best outcome for the Company and its
shareholders.
5. DISTRIBUTION AGREEMENT:
Effective October 7, 1993, the Company entered an agreement with
Roadmaster Corporation ("RMC") by which RMC acquired the exclusive
rights to distribute MacGregor products, subject to certain worldwide
territorial limitations and restrictions set forth in the Company's
other licensing agreements. The agreement continues for five years, with
an option to renew for an additional five year term with a minimum
annual royalty. The agreement provides that RMC will pay the Company on
a quarterly basis percentage-based royalties on net revenues generated
from sales of the MacGregor products with minimum cumulative royalties.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for accounts receivable with a book value of
$427,000, $623,000 of inventory, and $30,000 of equipment, resulting in
a $551,000 write off the carrying value of the MacGregor license costs.
The purchase price included payment of the revolving line of credit for
$440,000, payment for $276,000 to satisfy commissions owed and to settle
the exclusive representation agreement with a company that had been
marketing the Company's products, $186,000 for the reduction of certain
notes payable, and $729,000 for the reduction of certain accounts
payable and accrued expenses.
Roadmaster markets its products (principally bicycles and fitness
equipment) under the brand names of Roadmaster and Vitamaster.
Roadmaster, through its independent representatives and key account
managers, sells its and MacGregor's products to retail sporting good
stores and large retailers such as discount stores, department stores
and other mass merchant outlets.
F-28
<PAGE> 103
6. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Outstanding warrants, options and
convertible preferred stock are not considered in the calculation as
they would decrease loss per share.
7. EXTRAORDINARY ITEM:
During the nine months ended April 30, 1996, the Company settled
certain trade payables and accrued expenses related to the Company's
former CTS operations and realized a gain on debt extinguishment of
$119,787.
8. During the quarter ended April 30, 1996, the following liabilities
were converted to 1,271,963 shares of common stock.
<TABLE>
<S> <C>
Accounts payable and accrued expenses $1,053,005
Accrued interest and other, related parties 324,924
Investment fees payable to related party 281,500
Long-term debt, shareholder 252,020
Notes payable shareholders 49,250
----------
$1,960,699
==========
</TABLE>
9. SUBSEQUENT EVENT:
During March 1996, the Company finalized an agreement to issue a
consultant warrants to acquire 200,000 shares of the Company's common
stock in return for services provided to the Company. The exercise
price of the warrants was, in the aggregate, $200,000 below the trading
price of the Company's common stock on the date of issue of
approximately $3.00 per share. The warrants expire five years from
the date of issuance. As a result of this transaction, the Company
recognized an expense of $300,000 during the month of March 1996.
During April 1996, the Company finalized an agreement to issue warrants
to acquire 395,200 (250,200 of which were issued to the Chairman of the
Board) shares of the Company's common stock in return for services
provided to the Company. The exercise price of the warrants was, in
the aggregate $790,400 below the trading price of the Company's common
stock on the date of issue of approximately $3.00 per share. As a
result of this transaction, the Company recognized the expense of
$790,400 during the month of April 1996.
F-29
