<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:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
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:
- - --------------------------------------------------------------------------------
(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
May 15, 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 Thursday, June 6,
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
May 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, 1996 and March 31, 1997. 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 AND RATIFIED 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
THURSDAY, JUNE 6, 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 Thursday, June 6, 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, 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 D 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;
<PAGE> 6
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;
6. The ratification and appointment of Lund Koehler Cox & Company,
PLLP as MacGregor's independent auditors for the fiscal years ending
March 31, 1996 and March 31, 1997; 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 May 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: May 15, 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
-2-
<PAGE> 7
SUBSEQUENT TO, AND CONDITIONED UPON, APPROVAL OF EACH OF THE PROPOSALS SET
FORTH ABOVE.
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<PAGE> 8
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, JUNE 6, 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
PROPOSAL 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> 9
<TABLE>
<CAPTION>
<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, 1996 AND MARCH 31, 1997..................................... 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............................................... 58
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
OTHER BUSINESS.................................................................................................. 58
EXPERTS......................................................................................................... 58
CERTAIN LEGAL MATTERS........................................................................................... 59
EXHIBIT INDEX................................................................................................... 60
</TABLE>
(ii)
<PAGE> 10
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
Thursday, June 6, 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 May 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
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.
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, 1996 and
March 31, 1997. 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 are
approved by MacGregor's shareholders.
(iii)
<PAGE> 11
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 (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) months 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."
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
(iv)
<PAGE> 12
shares of MacGregor Common Stock 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. (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> 13
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, 1996 and March 31, 1997.
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, 1996 And March 31, 1997."
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> 14
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, 1996 and March 31, 1997.
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 Fong and
his affiliates 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 May 15, 1996, and is first being mailed on
or about May 15, 1996 to the record holders of MacGregor Common Stock as of May
1, 1996.
(vii)
<PAGE> 15
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> 16
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 Thursday,
June 6, 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 May 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 $100,000
in cash and $1,910,000 in the form of an
unsecured
1
<PAGE> 17
promissory note. MacGregor has
disposed of its 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
2
<PAGE> 18
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 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> 19
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> 20
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 of Articles
of Articles of Incorporation 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 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> 21
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> 22
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.)
7
<PAGE> 23
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.
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
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 2-1/2 1-1/4
2nd Quarter 2 1-1/2
3rd Quarter 1-3/4 7/8
4th Quarter 1-5/8 3/4
</TABLE>
8
<PAGE> 24
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 April
30, 1996, the high ask and low bid price of MacGregor Common Stock on the
NASDAQ composite tape were 3-3/16 and 3 respectively. Based on this price, the
Exchange Ratio would have resulted in TPSI's shareholders receiving
approximately $55,125,000 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>
Technical Publishing Solutions, Inc. MacGregor Sports and Fitness, Inc.
------------------------------------------------------------- --------------------------------------
Twelve months
Year ended Nine months ended ended Year ended Six months ended
March 31, 1995 December 31, 1995 December 31, 1995 July 31, 1995 January 31, 1996
(Historical) (Historical) (pro forma)(1) (Historical) (Historical)
------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Book value per share $0.02 $0.02 $0.10 $0.15 $0.24
Cash dividends
declared per share None None None None None
Income (loss) from
continuing
operations per
share $0.00 $0.00 $0.00 ($0.14) ($0.17)
</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> 25
INTRANET INTEGRATION GROUP, INC. AND SUBSIDIARIES
(f/k/a TECHNICAL PUBLISHING SOLUTIONS, INC)
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
TWELVE MONTH PERIOD
ENDED DECEMBER 31,
1995
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31, PRO FORMA (2)
------------------------------------ ----------------------------------- -----------------------
1994 1995 1994 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $7,531,655 $9,815,361 $12,730,367
Cost of revenues 5,223,914 7,600,690 5,432,078 7,174,950 9,343,562
---------- ----------- ---------- ---------- -----------
Gross profit 2,021,309 2,845,971 2,099,577 2,640,411 3,386,805
Operating expenses 1,830,720 2,612,262 1,873,255 2,547,967 3,286,974
Interest expense 23,143 97,033 48,786 173,682 221,929
---------- ----------- ---------- ---------- -----------
Income (loss)
before income taxes 167,446 136,676 177,536 (81,238) (122,098)
Provision for
(benefit of) income
taxes 64,000 64,553 64,000 (33,000) (33,000)
---------- ----------- ---------- ---------- -----------
Net income (loss) $103,446 $72,123 $113,536 ($48,238) ($89,098)
========== =========== ========== ========== ===========
Net income (loss)
per share $0.01 $0.00 $0.01 $0.00 $0.00
========== =========== ========== ========== ===========
Shares used in per
share calculation 20,000,000 20,467,290 20,415,287 13,888,815 29,762,425
========== =========== ========== ========== ===========
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1995
-------------- --------------------------------
ACTUAL ACTUAL PRO FORMA(1)
-------------- --------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency) ($11,801) ($805,338) $2,002,120
Total assets 3,878,832 5,309,349 8,116,807
Total liabilities 3,471,108 5,131,907 5,131,907
Retained earnings 396,160 177,304 177,304
Shareholders' equity 407,724 177,442 2,984,900
</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
10
<PAGE> 26
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 January 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 January
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, SIX MONTHS ENDED JANUARY 31,
-------------------------------- --------------------------------
1994 1995 1995 1996
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $2,684,933 $765,635 $420,519 $141,667
Cost of revenues 1,872,198 446,471 216,792 0
----------- ----------- --------- -----------
Gross profit 812,735 319,164 203,727 141,667
Operating expenses 2,538,340 1,298,657 381,075 1,705,889
Other expenses 129,662 165,310 60,963 41,018
----------- ----------- --------- -----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (238,311) (1,605,240)
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) ($238,311) ($1,485,453)
=========== =========== ========= ===========
Net (loss) per share, before
extraordinary item -- -- -- ($0.18)
=========== =========== ========= ===========
Net (loss) per share ($0.26) ($0.14) ($0.03) ($0.17)
=========== =========== ========= ===========
Shares used in per share calculation 7,376,483 8,169,622 8,090,256 8,700,957
=========== =========== ========= ===========
<CAPTION>
JULY 31, 1995 JANUARY 31, 1996
------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) ($2,166,528) ($131,169)
Total assets 4,284,808 3,067,296
Total liabilities 3,012,173 228,925
Accumulated deficit (7,293,370) (8,778,823)
Stockholders' equity 1,272,635 2,838,371
</TABLE>
12
<PAGE> 27
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 $2,969,540 as of January 31, 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> 28
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
13
<PAGE> 29
financing 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 an attractive merger
partner to TPSI. Management has investigated the sale of the MacGregor Rights
with four other parties and based on the results of those negotiations,
believes the proposed transaction offers the best outcome 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.
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
14
<PAGE> 30
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 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
15
<PAGE> 31
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> 32
PROPOSAL NUMBER II:
APPROVAL OF THE MERGER AGREEMENT
GENERAL INFORMATION
MACGREGOR SPORTS & 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> 33
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
six months ended January 31, 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, Six Months Ended January 31,
--------------------------------- -------------------------------
1994 1995 1995 1996
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Statement of operations data:
Revenues $ 2,684,933 $ 765,635 $ 420,519 $ 141,667
Cost of revenues 1,872,198 446,471 216,792 0
----------- ----------- --------- ----------
Gross profit 812,735 319,164 203,727 141,667
Operating expenses 2,538,340 1,298,657 381,075 1,705,889
Other expenses 129,662 165,310 60,963 41,018
----------- ----------- --------- ----------
(Loss) before extraordinary item (1,855,267) (1,144,803) (238,311) (1,605,240)
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) ($238,311) ($1,485,453)
=========== =========== ========= ==========
Net (loss) per share, before
extraordinary item -- -- -- ($0.18)
=========== =========== ========= ==========
Net (loss) per share ($0.26) ($0.14) ($0.03) ($0.17)
=========== =========== ========= ==========
Shares used in per share calculation 7,376,483 8,169,622 8,090,256 8,700,957
=========== =========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1995 JANUARY 31, 1996
-------------------- -------------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital (deficiency) ($2,166,528) ($131,169)
Total assets 4,284,808 3,067,296
Total liabilities 3,012,173 228,925
Accumulated deficit (7,293,370) (8,778,823)
Stockholders' equity 1,272,635 2,838,371
</TABLE>
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
18
<PAGE> 34
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 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 ManagerTM ("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 SystemTM ("WBMS"). WBMSTM fills
a void between the repository of business data, and the searching and viewing
needs of Web site users. WBMSTM 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.
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.
19
<PAGE> 35
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
* 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,
and 1995, and the balance sheet data at March 31, 1995, and December 31, 1995,
are derived from, and should be read in conjunction with, the more detailed
consolidated financial statement for TPSI 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
financial statements for the nine months ended December 31, 1994, and 1995,
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>
TWELVE MONTH PERIOD
ENDED DECEMBER 31,
1995
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31, PRO FORMA (2)
----------------------------------- ---------------------------------- --------------------
1994 1995 1994 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues $7,245,223 $10,446,661 $7,531,655 $9,815,361 $12,730,367
Cost of revenues 5,223,914 7,600,690 5,432,078 7,174,950 9,343,562
---------- ----------- ---------- ---------- -----------
Gross profit 2,021,309 2,845,971 2,099,577 2,640,411 3,386,805
Operating expenses 1,830,720 2,612,262 1,873,255 2,547,967 3,286,974
Interest expense 23,143 97,033 48,786 173,682 221,929
---------- ----------- ---------- ---------- -----------
Income (loss)
before income taxes 167,446 136,676 177,536 (81,238) (122,098)
Provision for
(benefit of) income
taxes 64,000 64,553 64,000 (33,000) (33,000)
---------- ----------- ---------- ---------- -----------
Net income (loss) $ 103,446 $ 72,123 $ 113,536 $ (48,238) $ (89,098)
========== =========== ========== ========== ===========
Net income (loss)
per share $0.01 $0.00 $0.01 $0.00 $0.00
========== =========== ========== ========== ===========
Shares used in per
share calculation 20,000,000 20,467,290 20,415,287 13,888,815 29,762,425
========== =========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1995
-------------- ----------------------------------
BALANCE SHEET DATA: ACTUAL ACTUAL PRO FORMA (1)
-------------- ---------- -------------
<S> <C> <C> <C>
Working capital
(deficiency) ($11,801) ($805,338) $2,002,120
Total assets 3,878,832 5,309,349 8,116,807
</TABLE>
21
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Total liabilities 3,471,108 5,131,907 5,131,907
Retained earnings 396,160 177,304 177,304
Shareholders' equity 407,724 177,442 2,984,900
</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.
(2) As pro forma adjusted to reflect the reverse merger
identified in Note 1, above, as if it had occurred on January 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 January
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. To the end of finding
beneficial alternative outcomes, the Directors explored various strategies,
including the investigation of merger partners or other business combinations.
To that end, with the assistance of R.J. Steichen & Co., various acquisition
candidates were evaluated. Ultimately, in September 1995, R.J. Steichen & Co.
introduced MacGregor to TPSI. MacGregor initiated the contact, and discussions
between the parties continued thereafter at their mutual and reciprocal
instigation, until the parties reached terms in a letter of intent, announced
on October 5, 1995 and the Merger Agreement in January of 1996. The
negotiations between the parties 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.
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 $3.0625 of MacGregor Common Stock on
22
<PAGE> 38
the NASDAQ Small Cap Market ("NASDAQ") composite tape on March 15, 1996, the
Exchange Ratio would have resulted in TPSI shareholders receiving approximately
$55,125,000 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.
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.
23
<PAGE> 39
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."
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.
24
<PAGE> 40
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.
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)
25
<PAGE> 41
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).
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").
26
<PAGE> 42
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, 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.
27
<PAGE> 43
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 5,769,457 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."
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) the approval of
the Merger and other transactions contemplated by the Merger Agreement by the
respective shareholders of each of MacGregor and TPSI, (ii) as 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 MarketTM 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 228,627 shares of its
common stock previously pledged to BB&T Bank, for an aggregate price of
$228,627.
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 had 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
28
<PAGE> 44
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
agreed to sell shares to MSP, and Resource Preservation, L.L.C. agreed to
purchase MSP and CTS in return for the payment of $10 and the provision of
liquidation services with respect to the obligations and liabilities. The
transfer of the shares and the closing of the purchase of MSP and CTS by
Resource Preservation, L.L.C. will occur concurrently with the Merger but be
effective as of February 2, 1996.
The consummation of the purchase of MSP and CTS by Resource Preservation,
L.L.C. is conditioned on (1) MSP owning at the Closing all of the shares of
CTS. To meet this condition, MacGregor will make a capital contribution before
the Closing to MSP of the CTS shares MSF owns and as a result, CTS will 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. 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.
The market value (based upon the March 15 closing price) of MacGregor
Common Stock contributed to MSP is $1,205,558 and exceeds the balance sheet
liabilities of CTS and MSP by approximately $655,278. However, MacGregor
believes that the amount of MacGregor Common Stock is reasonable taking into
account the range of accrued and potential liabilities; 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. While Resource Preservation, L.L.C. acquired
MSP and CTS, and indirectly ownership in MacGregor for nominal consideration,
the economic reality is that the value of the MacGregor Common Stock is
approximately equal to the liabilities of MSP and CTS. MSP will own
approximately 3.33% of MacGregor Common Stock before the Merger and 1.3% of
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.
The net book value as of January 31, 1996 of MSP was $475,000 and of CTS
was -$1,057,000. The net book value of MSP does not include the $1.9 million
note received from the Sale of the MacGregor Rights to Hutch as the proceeds of
the Sale of the MacGregor Rights were used to purchase 394,300 shares
of MacGregor Common Stock for $1,206,558 and the remaining proceeds were
distributed to MacGregor, the sole stockholder of MSP.
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.
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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 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
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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
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:
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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.
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
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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 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.
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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
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
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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:
MacGregor Sports & Fitness, Inc. IntraNet Integration Group, Inc.
8100 White Horse Road 5500 Lincoln Drive
Greenville, South Carolina 29611 Suite 110
(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
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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.
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
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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.
SIX MONTHS ENDED JANUARY 31, 1995 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1996
RESULTS OF OPERATIONS. There were no sales revenue for the three and six
months ended January 31, 1996. Revenues from CTS retail operations for the
three and six months ended January 31, 1995 were $162,447 and $320,519,
respectively.
Royalty income increased by $21,667 and $41,667 for the three and six
months ending January 31, 1996 compared with January 31, 1995 as MacGregor
earned a larger minimum royalty under the Roadmaster agreement for the current
quarter compared with the comparable periods in the prior year.
Operating expenses for the quarters ended January 31, 1996 and 1995 were
$1,587,715 and $116,933, respectively. Operating expenses for the six months
ended January 31, 1996 were $1,705,889 compared with $381,075 for the six
months ended January 31, 1995. The main reasons for the increases were as
further described in liquidity and capital resources that MacGregor wrote down
its trademark and license agreement by $1,200,000, accrued certain expenses
related to the sale of the MacGregor Rights and expensed the office rent due
for the remainder of its lease.
Net loss for the quarter ended January 31, 1996 was $1,453,973 compared
with a net loss of $32,994 for the quarter ended January 31, 1995. Net loss
for the six months ended January 31, 1996 was $1,485,453 compared with a net
loss of $238,311 for the six months ended January 31, 1995. The main reasons
for the increase in the losses were the write-down of the trademark costs of
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$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 January 31, 1996, MacGregor's current
liabilities exceeded its current assets by approximately $131,000. 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 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 January, 1996, MacGregor sold 528,000 shares of
its stock at prices from $.50 to $1.25 for proceeds of $446,000, and received
$160,000 from a shareholder in exchange for a 10% note. The total proceeds of
$606,000 were used to repay the $160,000 shareholder note 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 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, and CTS pledged these shares to the bank as
collateral for its remaining indebtedness. In February, 1996, BB&T required
MacGregor to cause the shares to be purchased by Equitex's designee. Proceeds
of $230,786 were used to pay off in full the remaining indebtedness to BB&T.
As disclosed in MacGregor's statement of cash flow for the six months
ended January 31, 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, 1994 COMPARED TO THE YEAR ENDED MARCH 31, 1995
REVENUES. TPSI's revenues are derived from the sale of hardware, software
and services such as development, support, training and on-demand printing.
Revenue from software is recognized at the time of product shipment if no
significant TPSI obligations remain and collection of the resulting sales price
is probable. In instances where significant TPSI obligations remain, revenue
recognition is delayed until the obligation has been satisfied. Revenue from
service and support contracts is generally recognized ratably over the term of
the contract. Revenue from contracts with original duration of one year or
less is recognized at the time of the sale if TPSI does not expect to have any
material future obligations. Revenue from the sale of all other products and
services is recognized at the time of delivery to the customer.
38
<PAGE> 54
Total revenues increased to $10.4 million in 1995 from $7.2 million in
1994, or $3.2 million (44.2%). This increase related to both increases in
hardware integration of $1.5 million ($3.5 million in 1994 compared to $5.0
million in 1995) and software and related services of $1.0 million ($3.7
million in 1994 compared to $4.7 million in 1995). The primary reason for
these increases were the continued expansion of TPSI's presence into the
Fortune 1500 marketplace and additional business from its existing customer
base. In addition, TPSI formed its on-demand printing services subsidiary,
IDG, in August 1994. For the eight months of operations of IDG during the year
ending March 31, 1995, TPSI generated $700,000 in revenues.
COST OF REVENUES. Cost of hardware integration revenues consists
primarily of cost of product purchased from TPSI's vendors and freight charges.
Cost of hardware integration revenues were $3.0 million in 1994 and $4.4
million in 1995. Cost of hardware integration revenues as a percent of
hardware integration revenues was 86.3% in 1994 compared to 86.7% in 1995.
Cost of software, technical services, and support revenues consists of
cost of product purchased from TPSI's vendors, freight charges, and
personnel-related costs incurred in providing support, services and training to
customers. Cost of software, technical services, and support revenues were
$2.2 million in 1994 and $2.9 million in 1995. Cost of software, technical
services, and support revenues as a percent of software, technical services,
and support revenue was 58.9% in 1994 compared to 60.8% in 1995.
Cost of on-demand printing services revenues consists of direct materials,
direct labor, and production equipment depreciation. Cost of on-demand
printing services revenue as a percent of on-demand printing services revenue
was 53.6% for 1995.
OPERATING EXPENSES.
SALES AND MARKETING. Sales and marketing expenses were $1.0 million in
1994 compared to $1.2 million in 1995. Sales and Marketing expenses as a
percent of total revenues were 13.2% in 1994 compared to 11.9% in 1995. Higher
revenue volumes in 1995 helped decrease sales and marketing expenses as a
percent of revenues as more fixed expenses were covered.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$500,000 in 1994 compared to $900,000 in 1995. General and administrative
expenses as a percent of total revenue were 7.2% in 1994 compared to 8.8% in
1995. Total general and administrative expenses increased by $400,000 in 1995
compared to 1994. Increases in general and administrative expenses were
primarily attributable to growth in the business infrastructure including
sales, technical service and accounting management.
RESEARCH AND DEVELOPMENT. Research and development expenses were $300,000
in 1994 and 1995. Research and development expenses as a percent of total
revenue were 4.2% in 1994 and 3.3% in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$50,792 in 1994 compared to $109,274 in 1995. Depreciation and amortization
expense increased by $58,482 in 1995 compared to 1994 primarily due to the
acquisition of office equipment.
39
<PAGE> 55
INTEREST EXPENSE. Interest expense was $23,143 in 1994 compared to
$97,033 in 1995. Interest increased by $73,890 in 1995 compared to 1994
primarily due to increased borrowings on the company's working capital
revolving line of credit.
NINE MONTHS ENDED DECEMBER 31, 1994 COMPARED TO THE NINE MONTHS DECEMBER 31,
1995
REVENUES. Total revenues increased to $9.8 million in 1995 from $7.5
million in 1994, or $2.3 million (30.3%). This increase related primarily to
increases in hardware integration of $1.8 million ($3.6 million in 1994
compared to $5.4 million in 1995) and on-demand printing services $600,000
($400,000 in 1994 and $1.0 million in 1995). TPSI's on-demand printing
subsidiary, IDG, formed in August of 1994, operated for only five months of the
comparable 1994 period. TPSI's software, technical services and support
revenues declined slightly $100,000 ($3.5 million in 1994 compared to $3.4
million in 1995) primarily due to a focus on development of proprietary
software products.
COST OF REVENUES. Cost of hardware integration revenues were $3.1 million
in 1994 and $4.5 million in 1995. Cost of hardware integration revenues as a
percent of hardware integration revenue was 86.8% in 1994 compared to 82.6% in
1995. 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 $2.1
million in 1994 and 1995. Cost of software, technical services, and support
revenues as a percent of software, technical services, and support revenue was
58.8% in 1994 compared to 61.5% in 1995. 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 $200,000 in 1994 compared
to $600,000 in 1995. Cost of on-demand printing services revenues as a percent
of on-demand printing services revenue were 57.2% in 1994 compared to 60.6% in
1995. Lower margins on non-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 $900,000 in 1994
compared to $1,100,000 in 1995. Sales and Marketing expenses as a percent of
total revenues were 12.1% in 1994 compared to 11.5% in 1995. Higher revenue
volumes in 1995 helped decrease sales and marketing expenses as a percent of
revenues as more fixed expenses were covered.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$600,000 in 1994 compared to $900,000 in 1995. General and administrative
expenses as a percent of total revenue were 8.2% in 1994 compared to 9.4% in
1995. Total general and administrative expenses increased by $300,000 in 1995
compared to 1994. Increases in general and administrative expenses were
primarily attributable to growth in the business infrastructure including
sales, technical service and accounting management.
RESEARCH AND DEVELOPMENT. Research and development expenses were $300,000
in 1994 compared to $400,000 in 1995. Research and development expenses as a
percent of
40
<PAGE> 56
total revenue were 35% in 1994 and 3.8% in 1995. Total research and
development expenses increased $100,000 in 1995 compared to 1994 due to a focus
on development of proprietary software products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$82,686 in 1994 compared to $132,399 in 1995. Depreciation and amortization
expense increased by $49,713 in 1995 compared to 1994 primarily due to the
acquisition of office equipment.
INTEREST EXPENSE. Interest expense was $48,786 in 1994 compared to
$173,682 in 1995. Interest increased by $124,896 in 1995 compared to 1994
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 10% unsecured convertible notes to private investors. These
unsecured notes are due on May 31, 1996, and are convertible into TPSI Common
Stock at $1.50 per share. In addition, the purchasers of such notes received
TPSI warrants to purchase an aggregate of 156,750 shares of TPSI Common Stock
at $1.00 per share. Upon consummation of the Merger, such warrants will become
warrants to purchase approximately 272,118 shares of MacGregor Common Stock at
$1.736 per share.
As of December 31, 1995 TPSI had cash and cash equivalents of $2,761. Net
cash provided by operating activities for the year ended March 31, 1994 was
$200,000 compared to net cash used in operations for the year ended March 31,
1995 of $35,426. Net cash used in operations for the nine months ended
December 31, 1994 and 1995 was $400,000 and $200,000, respectively. Capital
expenditures for the years ended March 31, 1994 and 1995, including equipment
financed with capital lease obligations, were $400,000 and $1.1 million,
respectively. Capital expenditures for the year ended March 31, 1995 were
primarily production equipment related to the startup of the on-demand printing
operations and general office and computer equipment. Capital expenditures for
the nine months ended December 31, 1994 and 1995, including equipment financed
with capital lease obligations, were $700,000 and $300,000, respectively.
In July, 1995, TPSI repurchased 50% of the outstanding common stock of
TPSI for $200,000 from a former shareholder and director of TPSI. 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 director and shareholder for $200,000. TPSI has
pledged the shares repurchased by it in this transaction to secure all of its
monetary obligations to this former director and shareholder. TPSI also
acquired certain assets of a division 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 December 31, 1995, TPSI had advances of
$910,832, which are due on demand. At December 31, 1995, TPSI also has a term
loan outstanding in the amount of $233,336. The term loan requires monthly
principal payments of $8,333 plus interest at the bank's base lending rate plus
2.0%. At December 31, 1995 TPSI also has a demand note payable to its sole
shareholder in the amount of $27,500 which accrues interest at a rate of 12%.
TPSI is materially dependent on Sun Microsystems, Inc. and Interleaf, Inc. to
provide the majority of its hardware and new proprietary software products to
its customers.
41
<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 $19,962 and carry interest rates between 13.7% and
15.5%.
TPSI also has a long-term consulting arrangement with a former shareholder
that requires monthly payments of $10,300 through July 2000.
TPSI believes that the net proceeds of approximately $2.8 million, in the
form of cash and short-term receivables, expected to be derived from the
contemplated reverse merger with MacGregor, along with its line of credit, will
meet its immediate anticipated needs for working capital and capital
expenditures through the fourth quarter of 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. TPSI therefore believes that it may require additional
capital. TPSI has no pending or probable acquisition in progress.
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 President and Chief
Executive Officer and Executive Officer,
Director 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>
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 39 Chairman, Chairman,
President, Chief President, Chief
Executive Officer Executive Officer
and Director and Director of
TPSI
Jeffrey J. Sjobeck 36 Chief Financial Chief Financial
Officer, Secretary Officer, Secretary
and Director and Director of
TPSI
</TABLE>
42
<PAGE> 58
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.
David D. Koentopf 52 Director Private Investor and Business
Consultant
</TABLE>
43
<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
All Officers and Directors
as a group (5 and 6
persons respectively) (1) 4,192,717 34.47% 21,056,451 68.16%
</TABLE>
44
<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 shares of 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.
45
<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
46
<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.
47
<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
48
<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)
Name and Other Restricted (1) All Other
Pricipal Annual Stock Options/ LTIP Compen-
Position Year Salary $ Bonus $ Compensation $ Award(s) $ SARs (#) Payouts $ sation ($)
- - -------- ---- -------- ------- -------------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. 1995 None
Casazza, CEO 1994 48,000
1993 134,000
</TABLE>
(1) In October 1995 Barry Hollander, MacGregor's Chief Financial Officer,
was granted an additional 50,000 Stock Options under MacGregor's Employee
Stock Option Plan, and the exercise price of all 100,00 of Mr.
Hollander's options reduced to $1.00.
CERTAIN TRANSACTIONS
As set forth in the foregoing table entitles 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 in, 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 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 MacGregor
Common
49
<PAGE> 65
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
principle in October of 1995, to issue an additional 653,775 shares of Common
Stock. The indebtedness was converted at the rate of $1.40 per share, which
approximated the market price of the MacGregor Common Stock at the time of such
agreement.
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 to MacGregor Common Stock on the same basis as
the conversion of the Equitex indebtedness, resulting in the issuance of
223,861 MacGregor Common Stock.
On April 5, 1996 MacGregor issued Mr. Fong 250,200 warrants for the
purchase of shares of MacGregor Common Stock, at an exercise price of $1.00 per
share.
50
<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:
51
<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
</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 May 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 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.
52
<PAGE> 68
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 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
53
<PAGE> 69
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. 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
54
<PAGE> 70
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.
55
<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, 1996 AND MARCH 31, 1997
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, 1996 and March 31, 1997, 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.
56
<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 January
31 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 for
the two years then ended, 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.
57
<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
58
<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 Balance Sheet of MacGregor F-43
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>
59
<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. 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. Net loss has been adjusted for cumulative unpaid
dividends on the preferred stock. 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
JANUARY 31, 1996 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 20,566 $ 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 97,756 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 AMORTIZATION
($2,402,564, JANUARY 31, 1996; $1,099,612
JULY 31, 1995) 2,969,540 4,272,492
---------- ----------
$3,067,296 $4,284,808
========== ==========
</TABLE>
F-20
<PAGE> 96
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
JANUARY 31, 1996 AND JULY 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
LINES OF CREDIT $ 223,664 $ 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 5,261 953,013
DEFERRED ROYALTY REVENUE 64,477
----------- -----------
TOTAL CURRENT LIABILITIES 228,925 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 JANUARY 31, 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 JANUARY 31, 1996 AND 1000 SHARES AT
JULY 31, 1995. 1,000,000
COMMON STOCK, PAR VALUE $.02; AUTHORIZED
25,000,000 SHARES, ISSUED AND OUTSTANDING
11,762,425 SHARES AT JANUARY 31, 1996
AND 8,249,423 SHARES AT JULY 31, 1995 235,247 164,988
ADDITIONAL PAID-IN CAPITAL 11,378,359 7,397,429
WARRANTS 3,588 3,588
DEFICIT (8,778,823) (7,293,370)
----------- -----------
2,838,371 1,272,635
----------- -----------
$ 3,067,296 $ 4,284,808
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-21
<PAGE> 97
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
----------------- ----------------
<S> <C> <C>
SALES $ $ 162,447
COST OF SALES 90,365
------------ ----------
GROSS PROFIT 72,082
------------ ----------
ROYALTY INCOME:
RELATED PARTY 71,667 50,000
------------ ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 335,816 41,933
DEPRECIATION AND AMORTIZATION 51,899 75,000
WRITE DOWN OF TRADEMARK COSTS
(NOTE 4) 1,200,000
------------ ----------
1,587,715 16,933
------------ ----------
OPERATING INCOME (LOSS) (1,516,048) 5,149
------------ ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (16,031) (29,114)
OTHER (2,833) (9,029)
OTHER (4,295)
------------ ----------
(23,159) (38,143)
------------ ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,539,207) (32,994)
------------ ----------
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 85,234
------------ ----------
NET LOSS $(1,453,973) $ (32,994)
============ ==========
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM $ (.17) $ (.01)
============ ==========
LOSS PER COMMON SHARE $ (.16) $ (.01)
============ ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 8,979,824 8,249,423
============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-22
<PAGE> 98
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
SALES $ $ 320,519
COST OF SALES 216,792
----------- ----------
GROSS PROFIT 103,727
----------- ----------
ROYALTY INCOME:
RELATED PARTY 141,667 100,000
----------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 402,091 231,075
DEPRECIATION AND AMORTIZATION 103,798 150,000
WRITE DOWN OF TRADEMARK COSTS (NOTE 4) 1,200,000
----------- ----------
1,705,889 381,075
----------- ----------
OPERATING INCOME (LOSS) (1,564,222) (177,348)
----------- ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (32,037) (54,295)
OTHER (9,738) (19,642)
OTHER 757 12,974
----------- ----------
(41,018) (60,963)
----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,605,240) (238,311)
----------- ----------
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787
----------- ----------
NET LOSS $(1,485,453) $ (238,311)
=========== ==========
LOSS PER COMMON SHARE: BEFORE
EXTRAORDINARY ITEM $ (.18) $ .03
=========== ==========
LOSS PER COMMON SHARE: $ (.17) $ (.03)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 8,700,957 8,090,256
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-23
<PAGE> 99
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ (443,266) $ (5,978)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENTS UNDER REVOLVING CREDIT AGREEMENTS (157,013) (20,000)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 617,999
PROCEEDS FROM ISSUANCE OF NOTE PAYABLE, SHAREHOLDER 160,000
PAYMENTS TO NOTES PAYABLE, SHAREHOLDER (160,000)
INCREASE (DECREASE) IN BANK OVERDRAFT (3,874)
---------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 460,986 (23,874)
---------- ---------
INCREASE (DECREASE) IN CASH 17,720 (29,852)
---------- ---------
CASH, BEGINNING OF PERIOD 2,846 35,738
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,566 $ 5,886
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 15,026 $ 8,258
CASH PAID DURING THE PERIOD FOR INCOME TAXES 12,500
---------- ---------
$ 15,026 $ 20,758
========== =========
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
$264,634 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
$874,634) WERE CONVERTED TO 342,343 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 $1.50 PER SHARE OF COMMON STOCK RESULTING
IN 261,016 SHARES OF COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, $1,781,134
LIABILITIES WERE CONVERTED TO 1,371,963 SHARES OF
COMMON STOCK (NOTE 8)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-24
<PAGE> 100
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 1996
(Unaudited)
<TABLE>
Class C Additions
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 $5,249,423 $154,380 7,587,429 $3,588 $(7,293,570) 1,272,615
Common stock issues as collateral
for line of credit 228,667 4,573 (4,579) 42,056
Common stock issued in conversion of
notes payable shareholders 42,058 841 41,216 610,000
Common stock issued in conversion
of Class C convertible
preferred stock (1,000) (1,000,000) 1,000,000 20,000 980,000 (264,634)
Common stock issued in conversion
of Class A redeemeble convertible
preferred stock 155,000 3,318 606,682 264,634
Class A dividends declared 265,634
Common stock issued in payment
of accrued Class A dividends 176,423 3,528 261,106
Common Stock issued in payment
of $852,029 of accounts payable and
accrued expenses, $345,535 accrued
interest and other retained parties,
$281,500 investment form related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,371,330 27,439 1,753,654 1,781,153
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 83,440 96,000
200,000 shares at $1.25 200,000 4,000 245,000 250,000
Sale of previously issued common stock
(34,000 shares) 172,000 172,000
Net Loss (1,485,453) (1,485,455)
------ -------- ---------- -------- ----------- --------- ------------ ----------
Balance, January 31, 1996 0 0 11,762,425 $235,247 $11,378,659 $ 3,588 $(8,778,823) $2,838,371
====== ======== ========== ======== =========== ========= ============ ==========
</TABLE>
F-25
<PAGE> 101
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED
JANUARY 31, 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
six months ended January 31, 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> 102
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
2,100,000 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.
F-27
<PAGE> 103
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> 104
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 six months ended January 31, 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 January 31, 1996, the following liabilities
were converted to 1,371,963 shares of common stock at an agreed-upon
value of $1.30 per share:
<TABLE>
<S> <C>
Accounts payable and accrued expenses $ 852,828
Accrued interest and other, related parties 345,535
Investment fees payable to related party 281,500
Long-term debt, shareholder 252,020
Notes payable shareholders 49,250
----------
$1,781,133
==========
</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. As a result of this transaction, the Company
recognized an expense of $200,000 during the month of March 1996.
F-29
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Technical Publishing Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of
Technical Publishing Solutions, Inc. and Subsidiaries as of March 31, 1995, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the two years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 Technical
Publishing Solutions, Inc. and Subsidiaries as of March 31, 1995, and the
results of their operations and their cash flows for the two years then ended
in conformity with generally accepted accounting principles.
LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
January 30, 1996
F-30
<PAGE> 106
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1995
---------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $9,239 $2,761
Accounts receivable, net 2,099,570 2,941,738
Inventories 246,634 287,298
Prepaid expenses and other 87,607 201,763
---------- ------------
Total current assets 2,443,050 3,433,560
PROPERTY AND EQUIPMENT, NET 1,435,782 1,567,454
INTANGIBLE ASSETS, NET 0 308,335
---------- ------------
$3,878,832 $5,309,349
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $233,162 $910,832
Convertible promissory notes 0 550,000
Current portion of long-term debt 154,996 127,496
Current portion of capital lease obligations 121,310 121,310
Current portion of stock redemption payable 0 9,500
---------- ------------
Accounts payable 1,731,295 2,337,117
Sales tax payable 109,296 16,324
Accrued expenses 104,792 166,319
---------- ------------
Total current liabilities 2,454,851 4,238,898
DEFERRED INCOME TAXES 80,000 80,000
STOCK REDEMPTION PAYABLE, NET OF CURRENT PORTION 0 29,408
LONG-TERM DEBT, NET OF CURRENT PORTION 200,004 133,340
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 736,253 650,261
---------- ------------
Total liabilities 3,471,108 5,131,907
---------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000 shares authorized,
20,000,000 and 10,000,000 shares issued and outstanding, respectively 20,000 10,000
Additional paid-in capital 9,343 7,289
Retained earnings 396,160 177,304
Unearned compensation (17,779) (17,151)
---------- ------------
Total stockholders' equity 407,724 177,442
---------- ------------
$3,878,832 $5,309,349
========== ============
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 107
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31, Nine Months Ended December 31,
1994 1995 1994 1995
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Hardware integration $3,489,188 $5,015,758 $3,611,259 $5,431,092
Software, technical services and support 3,756,035 4,738,648 3,547,948 3,367,813
On-demand printing services 0 692,255 372,448 1,016,456
---------- ----------- ---------- -----------
Total revenues 7,245,223 10,446,661 7,531,655 9,815,361
---------- ----------- ---------- -----------
Cost of revenues:
Hardware integration 3,011,789 4,350,199 3,133,063 4,487,939
Software, technical services and support 2,212,125 2,879,454 2,085,872 2,071,077
On-demand printing services 0 371,037 213,143 615,934
---------- ----------- ---------- -----------
Total cost of revenues 5,223,914 7,600,690 5,432,078 7,174,950
---------- ----------- ---------- -----------
Gross profit 2,021,309 2,845,971 2,099,577 2,640,411
---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing 954,444 1,244,995 912,866 1,124,167
General and administrative 524,607 916,253 615,046 917,843
Research and development 300,877 341,740 262,657 373,558
Depreciation and amortization 50,792 109,274 82,686 132,399
---------- ----------- ---------- -----------
Total operating expenses 1,830,720 2,612,262 1,873,255 2,547,967
---------- ----------- ---------- -----------
Income from operations 190,589 233,709 226,322 92,444
Interest expense (23,143) (97,033) (48,786) (173,682)
---------- ----------- ---------- -----------
Income (loss) before income taxes 167,446 136,676 177,536 (81,238)
Provision for (benefit of) income taxes 64,000 64,553 64,000 (33,000)
---------- ----------- ---------- -----------
Net income (loss) $103,446 $72,123 $113,536 ($48,238)
========== =========== ========== ===========
Net income (loss) per common share
and common share equivalents $0.01 $0.00 $0.01 $0.00
========== =========== ========== ===========
Weighted average
common shares outstanding 20,000,000 20,467,290 20,415,287 13,888,815
========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE> 108
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-in Retained Unearned
Shares Amount Capital Earnings Compensation Total
----------- -------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - MARCH 31, 1993 20,000,000 $20,000 ($20,000) $220,591 $ 0 $220,591
Net income - - - - - - 103,446 - - 103,446
----------- -------- -------- --------- ------------- ---------
BALANCE - MARCH 31, 1994 20,000,000 20,000 (20,000) 324,037 0 324,037
Grant of stock options - - - - 29,343 - - (29,343) 0
Stock options compensation
earned - - - - - - - - 11,564 11,564
Net income - - - - - - 72,123 - - 72,123
----------- -------- -------- --------- ------------- ---------
BALANCE - MARCH 31, 1995 20,000,000 20,000 9,343 396,160 (17,779) 407,724
Grant of stock options
(unaudited) - - - - 5,236 - - (5,236) 0
Stock options compensation
earned (unaudited) - - - - - - - - 5,864 5,864
Repurchase of common
stock (unaudited) (10,000,000) (10,000) (7,290) (170,618) - - (187,908)
Net loss (unaudited) - - - - - - (48,238) - - (48,238)
----------- -------- -------- --------- ------------- ---------
BALANCE - DECEMBER 31, 1995
(UNAUDITED) 10,000,000 $10,000 $ 7,289 $177,304 ($17,151) $177,442
=========== ======== ======== ========= ============= =========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 109
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, Nine Months Ended December 31,
1994 1995 1994 1995
--------- ---------- --------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $103,446 $72,123 $113,536 ($48,238)
Adjustments to reconcile net income (loss) to
cash flows from operating activities:
Depreciation and amortization 50,792 158,160 96,046 229,131
Stock option compensation earned 0 11,564 0 5,864
Deferred income taxes 28,000 47,766 0 0
Changes in operating assets and liabilities 46,824 (325,039) (578,509) (421,611)
--------- ---------- --------- ----------
Cash flows from operating activities 229,062 (35,426) (368,927) (234,854)
--------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (317,056) (363,512) (245,353) (344,138)
Acquisition of intangible assets 0 0 0 (325,000)
--------- ---------- --------- ----------
Cash flows from investing activities (317,056) (363,512) (245,353) (669,138)
--------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances on revolving credit facility 120,000 103,162 300,000 677,670
Proceeds from long-term debt 100,000 640,000 340,000 550,000
Payments on long-term debt (55,367) (456,655) (74,295) (94,164)
Payments on capital lease obligations (1,225) (16,074) (62,214) (85,992)
Repurchase of common stock 0 0 0 (150,000)
--------- ---------- --------- ----------
Cash flows from financing activities 163,408 270,433 503,491 897,514
--------- ---------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 75,414 (128,505) (110,789) (6,478)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 62,330 137,744 137,744 9,239
--------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $137,744 $9,239 $26,955 $2,761
========= ========== ========= ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $22,220 $97,768 $49,521 $171,757
Cash paid for income taxes $57,422 $22,387 $22,387 $27,674
NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment acquired with capital lease obligation $116,045 $758,817 $427,630 $0
Common stock redeemed with note payable, net $0 $0 $0 $37,908
DETAIL OF CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable, net ($630,027) ($748,428) ($997,518) ($842,168)
Inventories 151,008 (199,530) (80,297) (40,664)
Prepaid expenses and other (25,142) (75,955) (37,886) (114,156)
Accounts payable 568,695 628,468 480,886 605,822
Sales tax payable 15,023 56,968 28,045 (92,972)
Accrued expenses (32,733) 13,438 28,261 62,527
--------- ---------- --------- ----------
Net changes in operating assets and liabilities $46,824 ($325,039) ($578,509) ($421,611)
========= ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 110
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION - Technical
Publishing Solutions, Inc. ("TPSI" or "the Company") was incorporated in the
State of Minnesota in 1990. The Company is a single source vendor providing
computer hardware, software, development, distribution and related services to
help companies create, manage and distribute unstructured business-critical
information typically found in documents. The Company has offices in
Minneapolis, Milwaukee, Denver and Phoenix and sales affiliates in Boston and
Atlanta. The consolidated financial statements include the accounts of
Technical Publishing Solutions, Inc. and its wholly-owned subsidiaries DocuPro
Services, Inc. and IntraNet Solutions, Inc. All significant intercompany
transactions have been eliminated.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS - The consolidated balance
sheet as of December 31, 1995 and the consolidated statements of operations and
cash flows for the nine months ended December 31, 1994 and 1995 and the
consolidated statement of stockholders' equity for the nine months ended
December 31, 1995 are unaudited. However, in the opinion of management these
interim consolidated financial statements include all adjustments (consisting of
only normal recurring adjustments) that are necessary for the fair presentation
of the results for the interim periods presented. The results of operations for
the unaudited nine months ended December 31, 1995 are not necessarily indicative
of the results which may be expected for the entire 1996 fiscal year.
CASH AND CASH EQUIVALENTS - The Company considers all short-term, highly
liquid investments that are readily convertible into known amounts of cash and
have original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE - Provision for losses on trade accounts receivable is made
in amounts required to maintain an adequate allowance to cover anticipated bad
debts. Accounts receivable are charged against the allowance when it is
determined by the Company that payment will not be received. Any subsequent
receipts are credited to the allowance. Accounts receivable is presented net of
an allowance of $6,600 and $8,000 as of March 31, 1995 and December 31, 1995.
INVENTORIES - Inventories, consisting primarily of computer hardware and
software and publishing supplies, are valued at the lower of cost
(first-in, first-out) or market value.
DEPRECIATION - Property and equipment, including leasehold improvements, are
recorded at cost. Depreciation is provided for using the straight-line
method over the estimated useful lives of the assets, two to ten years, or the
life of the lease, whichever is shorter. Maintenance, repairs and minor
renewals are expensed when incurred.
INTANGIBLE ASSETS - Intangible assets are recorded at cost and presented net of
accumulated amortization of $16,665 at December 31, 1995. Goodwill is amortized
on a straight-line basis over eight years. The Company's two convenants not to
compete are amortized on a straight-line basis over their terms of five
and two years. Management periodically evaluates the value of recorded
intangible assets. At December 31, 1995, management believes all recorded
intangible assets will be realized.
F-35
<PAGE> 111
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
SOFTWARE DEVELOPMENT COSTS - Software development costs generally are expensed
as incurred as development expense. Statement of Financial Accounting
Standards No. 86 requires the capitalization of certain software development
costs once technological feasibility is established. The capitalized cost is
then amortized on a straight-line basis over the estimated product life, or on
the ratio of current revenues to total projected product revenues, whichever is
greater. To date, the period between achieving technological feasibility, that
the Company has defined as the establishment of a working model, and the general
availability of such software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.
REVENUE RECOGNITION - The Company produces its revenues from (i) the sale of
software, (ii) the sale of service and maintenance contracts and (iii) the sale
of a variety of other products and services. Revenue from the sale of software
is recognized in accordance with Statement of Position 91-1 "Software Revenue
Recognition". Accordingly, revenue is recognized at the time of product
shipment if no significant Company obligations remain and collection of the
resulting sale price is probable. In instances where significant Company
obligations remain, revenue recognition is delayed until the obligation has been
satisfied. Revenue from service and maintenance contracts is generally
recognized ratably over the term of the contract. Revenue from contracts with
original durations of one year or less is recognized at the time of sale if the
Company does not expect to have material future obligations to service the
contract. Revenue from the sale of all other products and services is
recognized at the time of delivery to the customer.
INCOME TAXES - The Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", under which deferred income
tax assets and liabilities are recognized for the differences between financial
and income tax reporting bases of assets and liabilities based on currently
enacted rates and laws.
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share is
determined by dividing net income (loss) by the weighted average number
of common share and common share equivalents outstanding during each period.
Common share equivalents include the dilutive effects of options and warrants
which are assumed to be exercised at the beginning of periods using the treasury
stock method and the fair value of the Company's common shares. Common share
equivalents are not included in the calculation if the effect is anti-dilutive.
Primary and fully diluted net income (loss) per share are the same.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-36
<PAGE> 112
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) CONTEMPLATED REVERSE MERGER
On January 16, 1996, TPSI and its sole stockholder entered into an agreement and
plan of merger with MacGregor Sports and Fitness, Inc. (MSF). MSF is a
publicly traded non-operating entity. At closing, TPSI's stockholders will
receive approximately 60% of the then outstanding common stock of MSF in
exchange for their TPSI common stock. TPSI plans to record this transaction as
an acquisition and recapitalization. The following unaudited pro forma
consolidated balance sheet presents the financial position of the Company as if
the aforementioned transaction had occurred as of December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
TPSI MSF PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets $3,434 $98 $2,910 (B) $6,242
(200)(C)
Property and equipment, net 1,567 0 1,567
Intangible assets, net 308 2,969 (2,969)(B) 308
------ ------ ----- ------
$5,309 $3,067 ($259) $8,117
====== ====== ===== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities $4,229 $229 ($229)(A) $4,229
Long-term liabilities 903 0 903
------ ------ ----- ------
5,132 229 ($229) 5,132
Stockholders' equity 177 2,838 229 (A) 2,985
(59)(B)
(200)(C)
------ ------ ----- ------
$5,309 $3,067 ($259) $8,117
====== ====== ===== ======
</TABLE>
Pro forma adjustments to reflect:
(A) Retirement of line of credit by issuing common stock by MSF prior to
the transaction.
(B) Sale of trademark rights by MSF prior to the transaction.
(C) Legal, accounting and banking fees and other costs of the transaction.
F-37
<PAGE> 113
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) ACQUISITION OF ASSETS
On December 14, 1995, the Company acquired the assets of a division of a
printing business in Denver, Colorado for $200,000. The Company has
recorded the acquisition using purchase accounting and allocated the purchase
price $75,000 to inventory and equipment, $40,000 to a convenant not to
compete (amortized over two years) and $85,000 to goodwill (amortized over
eight years). In addition to the purchase price, the Company agreed to
sublease certain equipment from the seller. The operations of this business
are included in the Company's consolidated financial statements from the date
of acquisition. Due to the small nature of the business acquired and the date
of acquisition, the operations did not materially impact the Company's results
of operations for the nine months ended December 31, 1995.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1995
---------- ------------
<S> <C> <C>
Equipment and furniture $1,497,724 $1,840,064
Vehicles 147,861 147,861
Leasehold improvements 8,210 10,008
---------- ----------
Total property and equipment 1,653,795 1,997,933
Less: accumulated depreciation 218,013 430,479
---------- ----------
Total property and equipment, net $1,435,782 $1,567,454
========== ==========
</TABLE>
Property and equipment includes items under capital leases of $851,309
and $763,355, net of accumulated depreciation of $55,369 and $143,323, as of
March 31 and December 31, 1995.
(5) SHORT-TERM DEBT
REVOLVING CREDIT FACILITY - The Company has a revolving credit agreement that
provides for borrowings of up to $1,500,000 based on available collateral.
Advances of $233,162 and $910,832 were outstanding as of March 31 and December
31, 1995. Advances are due on demand and accrue interest at the bank's base
lending rate plus 2.5% (the effective rate of interest was 11.5% and 11% as of
March 31 and December 31, 1995, respectively). The agreement is secured by
substantially all Company assets, personally guaranteed by a stockholder and
requires the Company to meet various covenants including maintenance of minimum
levels of tangible net worth.
CONVERTIBLE PROMISSORY NOTES - In December 1995, the Company issued $550,000 of
10% unsecured convertible promissory notes. The notes are due the earlier of
May 31, 1996 or the closing of the contemplated transaction described in
Note 2. The notes are convertible into common stock of the Company at the
option of the holder at $1.50 per share or potentially lower amounts if certain
conditions apply. In connection with the notes, the Company issued 156,750
warrants to acquire shares of its common stock at an exercise price of $1.00 per
share (a price greater than the fair market value at the date of issuance).
F-38
<PAGE> 114
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) LONG-TERM DEBT AND CAPITAL LEASES
LONG-TERM DEBT -
<TABLE>
<CAPTION>
March 31, December 31,
1995 1995
---------- ------------
<S> <C> <C>
Note payable - bank, monthly installments
of $8,333 plus interest at prime rate plus
2% (effective rates of 11.5% and 11% at
March 31 and December 31, 1995,
respectively), due March 1998, secured by
substantially all Company assets and
guaranteed by a stockholder. $300,000 $233,336
Notes payable - stockholders, due on
demand, interest at 12%, unsecured and
subordinated to bank indebtedness. 55,000 27,500
-------- --------
Total long-term debt 355,000 260,836
Less: current maturities 154,996 127,496
-------- --------
Long-term debt, net $200,004 $133,340
======== ========
</TABLE>
Future maturities of long-term debt are $154,996, $100,000 and $100,004
for the years ending March 31, 1996, 1997 and 1998.
CAPITAL LEASE OBLIGATIONS - The Company has certain assets under capital lease
obligations. The leases require total monthly payments of $19,962 and carry
interest rates between 13.7% and 15.5%. The minimum lease payments required
under the capital leases together with the present value of the minimum lease
payments are as follows:
<TABLE>
<CAPTION>
For the years ending March 31,:
<S> <C>
1996 $239,546
1997 239,546
1998 239,546
1999 297,208
2000 167,444
Thereafter 32,006
----------
Total 1,215,296
Less: amount representing interest 357,733
----------
Present value of future minimum lease payments 857,563
Less: current portion 121,310
----------
Long-term portion $736,253
==========
</TABLE>
F-39
<PAGE> 115
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) STOCKHOLDERS' EQUITY
STOCK REDEMPTION - During July 1995, the Company entered into a stock
redemption agreement to acquire 50% of its outstanding common stock from a
single stockholder for $200,000. The Company paid $150,000 at closing with the
remaining $50,000 due in $10,000 annual installments without interest. The
Company has recorded the remaining payment obligation at its net present value.
STOCK SPLITS - On June 2, 1995, the Company declared a 900-for-1 stock
split and on November 6, 1995, the Company declared a 21.22-for-1 stock split.
The stock splits have been retroactively reflected in the accompanying
consolidated financial statements.
STOCK OPTIONS - On January 6, 1996, the Board of Directors approved the
1994-1997 Stock Option Plan (the Plan), pursuant to which options and other
awards to acquire an aggregate of 10,000,000 shares of the Company's common
stock may be granted. The Company integrated all previous granted options into
the Plan. The Plan is administered by the Board of Directors, which has the
discretion to determine the number and purchase price of shares subject to
stock options (which may be below the fair market value of the common stock on
the date thereof), the term of each option, and the time or times during the
term when the options become exercisable.
The following summarizes stock options activity through December 31, 1995:
<TABLE>
<CAPTION>
Number of Exercise
Options Prices
------------- ----------------
<S> <C> <C>
Outstanding as of April 1, 1994 0
Options granted 1,152,648 $0.03 - $0.05
-------------
Outstanding as of March 31, 1995 1,152,648
Options granted 1,912,352 $0.08 - $0.70
-------------
Outstanding as of December 31, 1995 3,065,000
=============
</TABLE>
Certain options granted above have exercise prices less than the fair
market value of the Company's common stock on the date of grant. The Company
recognizes the compensation element of these grants over the vesting period of
the related options. The options generally vest over periods of one to five
years. As of March 31 and December 31, 1995, 338,193 and 793,192 options were
exercisable. The options expire at various dates through January 2006.
(8) RETIREMENT SAVINGS PLAN
The Company maintains a pre-tax salary reduction/profit sharing plan
under the provisions of Section 401(k) of the Internal Revenue Code. The Plan
covers substantially all full-time employees who have reached the age of 21.
Profit sharing contributions by the Company are completely discretionary.
Contributions for the years ended March 31, 1994 and 1995 were $52,000 and
$48,162.
F-40
<PAGE> 116
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) INCOME TAXES
Provision for income taxes consisted of the following components for the years
ended March 31,:
<TABLE>
<CAPTION>
1994 1995
-------- ---------
<S> <C> <C>
Current:
Federal $25,000 $12,787
State 11,000 4,000
-------- ---------
Total 36,000 16,787
-------- ---------
Deferred:
Federal 23,000 34,766
State 5,000 13,000
-------- ---------
Total 28,000 47,766
-------- ---------
Total provision $64,000 $64,553
======== =========
</TABLE>
The net deferred tax liabilities consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1995
--------- ------------
<S> <C> <C>
Deferred tax liabilities $80,000 $80,000
Deferred tax assets 0 0
Deferred tax valuation allowance 0 0
--------- ------------
Net deferred tax liabilities $80,000 $80,000
========= ============
</TABLE>
Deferred tax liabilities and deferred tax assets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. The long-term deferred income tax liability consists primarily of
temporary differences related to the accelerated depreciation of property and
equipment for income tax purposes.
(10) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company has entered into certain noncancelable
operating lease agreements related to office/warehouse space, equipment and
vehicles. Total rent expense under operating leases was $115,204 and $220,020
for the years ended March 31, 1994 and 1995. Minimum remaining rental
commitments under operating leases are as follows:
<TABLE>
<CAPTION>
For the years ending March 31,:
<S> <C>
1996 $254,461
1997 176,886
1998 106,248
1999 73,200
--------
Total $610,795
========
</TABLE>
F-41
<PAGE> 117
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
SOFTWARE ROYALTIES - The Company has acquired a suite of software
products complimentary with its own software development through a royalty
agreement. Prepaid royalties of up to $60,000 are payable upon delivery and
acceptance of source code, documentation, and certain upgrades. Future
royalties of up to $250,000 (including prepaid royalties) are due based on 20%
of product sales from January 1 to March 31, 1996 and 15% thereafter. At
December 31, 1995, the Company had prepaid $20,000 of royalties. No royalties
have been earned in any period.
CONSULTING AGREEMENT - The Company has a consulting agreement with a
former stockholder that requires monthly payments of $10,300 through July 2000.
(11) MAJOR SUPPLIERS AND CUSTOMERS
MAJOR SUPPLIERS - The Company utilizes a single supplier to provide the
majority of its computer hardware sales. Purchases from this supplier were
approximately 39% and 54% of total product purchases during the years ended
March 31, 1994 and 1995. The Company has a supply and resale agreement with
this supplier that expires June 30, 1996 and is annually renewable. Purchases
from this supplier during the nine months ended December 31, 1995 continue to
represent a significant portion of these purchases.
The Company utilizes a single supplier to provide the majority of its
software and maintenance services. Purchases from this supplier were
approximately 24% of total software and maintenance purchases during the years
ended March 31, 1994 and 1995. The Company has a supply and resale agreement
with this supplier that expires January 1, 1998. Purchases from this supplier
during the nine months ended December 31, 1995 continue to represent a
significant portion of these purchases.
MAJOR CUSTOMERS - The Company had two customers that accounted for
approximately 22.5% (Customer A accounted for approximately 11.6% and Customer B
approximately 10.9%) of total revenues for the nine months ended December 31,
1995. During the fiscal years ended March 31, 1994 and 1995, no customer
accounted for greater than 10% of the period's gross revenues.
(12) RECENTLY ANNOUNCED ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(Statement No. 121), issued in March 1995 and effective for fiscal years
beginning after December 15, 1995, establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of.
Management believes the adoption of Statement No. 121 will not have a material
impact on the Company's financial position or results of operations.
F-42
<PAGE> 118
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), but requires
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The Company expects to adopt
Statement No. 123 in 1996. While the Company is still evaluating Statement No.
123, its currently expects to elect to continue to measure compensation cost
under APB No. 25 and comply with the pro forma disclosure requirements. If the
Company makes this election, this statement will have no impact on the Company's
results of operations or financial position because the Company's plans are
fixed stock option plans which have no intrinsic value at the grant date under
APB No. 25.
F-43
<PAGE> 119
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
On January 16, 1996, Technical Publishing Solutions, Inc. (TPSI or the Company)
and its sole stockholder entered into an agreement and plan of merger with
MacGregor Sports and Fitness, Inc. (MSF or MacGregor). MacGregor is a publicly
traded non-operating entity. At closing, TPSI's stockholders will receive
approximately 60% of the then outstanding common stock (approximately
18,000,000 shares) of MSF in exchange for their TPSI common stock. The Company
plans to record this transaction as an acquisition and recapitalization. The
following unaudited pro forma condensed statement of operations for the twelve
month period ended December 31, 1995 gives effect to the transaction as if it
had occurred effective January 1, 1995. The following unaudited condensed
balance sheet as of December 31, 1995 gives effect to the transaction as if it
had occurred on December 31, 1995.
These financial statements do not purport to present results which would
actually have been obtained if the transaction had been in effect during the
period covered or any future results which may in fact be realized. These
financial statements should be read in conjunction with the accompanying notes
and the separate historical financial statements and notes thereto of MacGregor
Sports and Fitness, Inc. and Technical Publishing Solutions, Inc.
F-44
<PAGE> 120
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MacGregor Sports Pre-merger MacGregor Sports
and Fitness, Inc. adjustments and Fitness, Inc.
(Historical - Note 2) (Note 4) (As adjusted)
-------------------- ----------- -----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,566 ($298)(A) $ 1,097,458
1,000,000 (B)
77,190 (C)
Accounts receivable, net 0 0
Royalty receivable - related party 77,190 (77,190)(C) 0
Note receivable 0 1,910,000 (B) 1,910,000
Inventories 0 0
Prepaid expenses and other 0 0
-------------------- ----------- -----------------
Total current assets 97,756 2,909,702 3,007,458
PROPERTY AND EQUIPMENT, NET 0 0
INTANGIBLE ASSETS, NET 2,969,540 (2,969,540)(B) 0
-------------------- ----------- -----------------
$ 3,067,296 ($59,838) $ 3,007,458
==================== =========== =================
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 223,664 ($223,664)(A) $ 0
Convertible promissory notes 0 0
Current portion of long-term debt 0 0
Current portion of capital lease obligations 0 0
Accrued interest payable 5,261 (5,261)(A) 0
Accounts payable and other 0 0
-------------------- ----------- -----------------
Total current liabilities 228,925 (228,925) 0
LONG-TERM LIABILITIES 0 0
-------------------- ----------- -----------------
Total liabilities 228,925 (228,925) 0
-------------------- ----------- -----------------
STOCKHOLDERS' EQUITY:
Common stock, at par 235,247 235,247
Additional paid-in capital 11,378,359 228,627 (A) 11,606,986
WARRANTS 3,588 3,588
Retained earnings (deficit) (8,778,823) (59,540)(B) (8,838,363)
Unearned compensation 0 0
-------------------- ----------- -----------------
Total stockholders' equity 2,838,371 169,087 3,007,458
-------------------- ----------- -----------------
$ 3,067,296 ($59,838) $ 3,007,458
==================== =========== =================
Shares of MSF common stock outstanding 11,762,425
=================
<CAPTION>
Technical
Publishing Pro forma
Solutions, Inc. adjustments
ASSETS (Historical) (Note 5) Pro forma
--------------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,761 (200,000)(E) $ 900,219
Accounts receivable, net 2,941,738 2,941,738
Royalty receivable - related party 0 0
Note receivable 0 1,910,000
Inventories 287,298 287,298
Prepaid expenses and other 201,763 201,763
--------------- ----------- -----------
Total current assets 3,433,560 (200,000) 6,241,018
PROPERTY AND EQUIPMENT, NET 1,567,454 1,567,454
INTANGIBLE ASSETS, NET 308,335 308,335
--------------- ----------- -----------
$5,309,349 ($200,000) $ 8,116,807
=============== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 910,832 $ 910,832
Convertible promissory notes 550,000 550,000
Current portion of long-term debt 127,496 127,496
Current portion of capital lease obligations 121,310 121,310
Accrued interest payable 0 0
Accounts payable and other 2,529,260 2,529,260
--------------- ----------- -----------
Total current liabilities 4,238,898 0 4,238,898
LONG-TERM LIABILITIES 893,009 893,009
--------------- ----------- -----------
Total liabilities 0 0 0
--------------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, at par 10,000 52,377 (D) 297,624
Additional paid-in capital 7,289 (8,887,152)(D) 2,527,123
(200,000)(E)
WARRANTS 0 (3,588)(D)
Retained earnings (deficit) 177,304 8,838,363 (D) 177,304
Unearned compensation (17,151) (17,151)
--------------- ----------- -----------
Total stockholders' equity 177,442 (200,000) 2,984,900
$ 177,442 ($200,000) $ 2,984,900
--------------- ----------- -----------
$5,309,349 (200,000) $ 8,116,807
=============== =========== ===========
Shares of MSF common stock outstanding 18,000,000 29,762,425
=========== ===========
</TABLE>
See notes to condensed pro forma financial statements.
F-45
<PAGE> 121
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 (Note 3)
<TABLE>
<CAPTION>
Technical
MacGregor Sports Publishing Pro forma
and Fitness, Inc. Solutions, Inc. adjustments
(Historical) (Historical) (Note 5) Pro forma
----------------- --------------- ------------ -----------
<S> <C> <C> <C>
REVENUES $486,784 $ 12,730,367 ($486,784)(F) $12,730,367
COST OF REVENUES 229,678 9,343,562 (229,678)(F) 9,343,562
----------------- --------------- ---------- -----------
Gross profit 257,106 3,386,805 (257,106) 3,386,805
OPERATING EXPENSES 923,473 3,286,974 (923,473)(F) 3,286,974
----------------- --------------- ---------- -----------
Income (loss) from operations (666,367) 99,831 666,367 99,831
OTHER INCOME (EXPENSE) (1,845,365) (221,929) 1,845,365 (F) (221,929)
----------------- --------------- ---------- -----------
Income (loss) before extraordinary item (2,511,732) (122,098) 2,511,732 (122,098)
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787 0 (119,787)(F) 0
----------------- --------------- ---------- -----------
Income (loss) before income taxes (2,391,945) (122,098) 2,391,945 (122,098)
PROVISION FOR (BENEFIT OF) INCOME TAXES 0 (33,000) (33,000)
----------------- --------------- ---------- -----------
NET LOSS ($2,391,945) ($89,098) $2,391,945 ($89,098)
================= ================ ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,471,545 29,762,425
================= ===========
LOSS PER SHARE BEFORE EXTRAORDINARY ITEM ($0.30) $--
================= ===========
LOSS PER SHARE ($0.28) $--
================= ===========
</TABLE>
F-46
<PAGE> 122
TECHNICAL PUBLISHING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) DESCRIPTION OF THE TRANSACTION
On January 16, 1996, Technical Publishing Solutions, Inc. (TPSI or the Company)
and its sole stockholder entered into an agreement and plan of merger with
MacGregor Sports and Fitness, Inc. (MSF or MacGregor). MacGregor is a publicly
traded non-operating entity. At closing, TPSI's stockholders will receive
approximately 60% of the then outstanding common stock of MSF (approximately
18,000,000 shares) in exchange for their TPSI common stock. The Company plans
to record this transaction as an acquisition and recapitalization. The
following unaudited pro forma condensed statement of operations for the twelve
month period ended December 31, 1995 gives effect to the transaction as if it
had occurred effective January 1, 1995. The unaudited condensed balance sheet
as of December 31, 1995 gives effect to the transaction as if it had occurred
on December 31, 1995.
(2) MACGREGOR SPORTS AND FITNESS PERIOD OF PRESENTATION
The MacGregor Sports and Fitness, Inc. balance sheet is as of January 31, 1996,
the end of its second fiscal quarter. MacGregor believes presentation of its
January 31, 1996 balance sheet does not materially change the pro forma
presentation since it approximates its financial position at December 31, 1995.
(3) PRO FORMA CONDENSED STATEMENT OF OPERATIONS PERIOD OF PRESENTATION
MacGregor Sports and Fitness, Inc. has a July 31 fiscal year end. Technical
Publishing Solutions, Inc. has a March 31 fiscal year end. For purposes of the
pro forma condensed statement of operations, a twelve month period beginning
January 1, 1995 and ending December 31, 1995 has been used for each company.
(4) DESCRIPTION OF PRE-MERGER ADJUSTMENTS
MacGregor contemplates completing the following transactions in advance of the
merger transaction:
(A) To record retirement of line of credit by issuing common stock.
(B) To record the sale of trademark rights.
(C) To record the collection of royalties receivable.
(5) DESCRIPTION OF PRO FORMA ADJUSTMENTS
(D) To record the transaction as a reverse merger.
(E) To record legal, accounting and banking fees and other costs of
the transaction.
(F) To reflect the reverse merger as if it had occurred on
January 1, 1995. Since MSF will be a non operating 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
January 1, 1995. Accordingly, the adjustment reflects the removal of
these revenue and expense items.
F-47
<PAGE> 123
INTRANET SOLUTIONS, INC.
1994-1997 STOCK OPTION AND
COMPENSATION PLAN
1. Purpose. The purpose of this 1994-1997 Stock Option and Compensation
Plan (the "Plan") of IntraNet Solutions, Inc. (the "Company") is to increase
stockholder value and to advance the interests of the Company by furnishing a
variety of economic incentives ("Incentives") designed to attract, retain and
motivate employees and certain key consultants. Incentives may consist of
opportunities to purchase or receive shares of Common Stock, $.01 par value,
of the Company ("Common Stock"), monetary payments, or both on terms determined
under this Plan.
2. Administration. The Plan shall be administered by the Stock Option
Committee (the "Committee") of the Board of Directors of the Company, or the
entire Board of Directors, until such time as a stock option committee is
formed. The Committee shall consist of not less than two directors of the
Company and shall be appointed from time to time by the Board of Directors of
the Company. Each member of the Committee shall be a "disinterested person"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, and
the regulations promulgated thereunder (the "1934 Act"). The Board of
Directors of the Company may from time to time appoint members of the Committee
in substitution for, or in addition to, members previously appointed, and may
fill vacancies, however caused, in the Committee. The Committee shall select
one of its members as its chairman and shall hold its meetings at such times
and places as it shall deem advisable. A majority of the Committee's members
shall constitute a quorum. All action of the Committee shall be taken by the
majority of its members. Any action may be taken by a written instrument
signed by majority of the members and any action so taken shall be fully
effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary, shall keep minutes of its
meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable. The Committee shall have complete
authority to award Incentives under the Plan, to interpret the Plan, and to
make any other determination which it believes necessary and advisable for the
proper administration of the Plan. The Committee's decisions and matters
relating to the Plan shall be final and conclusive on the Company and its
participants.
3. Eligible Participants. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation of officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers' participation must be approved by the Committee. Participation by
others and any performance objectives relating to others may be approved by
groups or categories (for example, by pay grade) and authority to designate
participants who are not officers and to set or modify such targets may be
delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8);
(e) performance shares (section 9); and (f) cash awards (section 10).
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<PAGE> 124
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 10,000,000 shares of $.01 par value Common Stock.
5.2. Cancellation. To the extent that cash in lieu of shares of
Common Stock is delivered upon the exercise of a SAR pursuant to Section
7.4, the Company shall be deemed, for purposes of applying the limitation
on the number of shares, to have issued the greater of the number of
shares of Common Stock which it was entitled to issue upon such exercise
or on the exercise of any related option. In the event that a stock
option or SAR granted hereunder expires or is terminated or canceled
unexercised as to any shares of Common Stock, such shares may again be
issued under the Plan either pursuant to stock options, SARs or
otherwise. In the event that shares of Common Stock are issued as
restricted stock or pursuant to a stock award and thereafter are
forfeited or reacquired by the Company pursuant to rights reserved upon
issuance thereof, such forfeited and reacquired shares may again be
issued under the Plan, either as restricted stock, pursuant to stock
awards or otherwise. The Committee may also determine to cancel, and
agree to the cancellation of, stock options in order to make a
participant eligible for the grant of a stock option at a lower price
than the option to be canceled.
5.3. Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARS, performance shares, restricted stock
or stock awards may be in the form of authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option granted by the Committee under this
Plan shall be subject to the following terms and conditions:
6.1. Price. The option price per share shall be determined by the
Committee subject to adjustment under Section 11.6.
6.2. Number. The number of shares of Common Stock subject to the
option shall be determined by the Committee, subject to adjustment as
provided in Section 11.6. The number of shares of Common Stock subject
to a stock option shall be reduced in the same proportion that the holder
thereof exercises a SAR if any SAR is granted in conjunction with or
related to the stock option.
6.3. Duration and Time for Exercise. Subject to earlier termination
as provided in Section 11.4. the term of each stock option shall be
determined by the Committee but shall not exceed ten years and one day
from the date of grant. Each stock option shall become exercisable at
such time or times during its term as shall be determined by the
Committee at the time of grant. The Committee may accelerate the
exercisability of any stock option. Subject to the foregoing and with
the approval of the Committee, all or any part of the shares of Common
Stock with respect to which the right to purchase has accrued may be
purchased by the Company at the time of such accrual or at any time or
times thereafter during the term of the option.
E-2
<PAGE> 125
6.4. Manner of Exercise. A stock option may be exercised, in whole
or in part, by giving written notice to the Company, specifying the
number of shares of Common Stock to be purchased and accompanied by the
full purchase price for such shares. The option price shall be payable
in United States dollars upon exercise of the option and may be paid by
cash; uncertified or certified check; bank draft; by delivery of shares
of Common Stock in payment of all or any part of the option price, which
shares shall be valued for this purpose at the Fair Market Value on
the date such option is exercised; by instructing the Company to withhold
from the shares of Common Stock issuable upon exercise of the stock
option shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value or in such other manner as may be authorized from time to time by
the Committee. Prior to the issuance of shares of Common Stock upon the
exercise of a stock option, a participant shall have no rights as a
stockholder.
6.5. Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, the following additional provisions shall apply to the
grant of stock options which are intended to qualify as Incentive Stock
Options (as such term is defined in Section 422A of the Internal Revenue
Code of 1986, as amended):
(a) The aggregate Fair Market Value (determined as of the time
the option is granted) of the shares of Common Stock with respect
to which Incentive Stock Options are exercisable for the first time
by any participant during any calendar year (under all of the
Company's plans) shall not exceed $100,000;
(b) Any Incentive Stock Option certificate authorized under
the Plan shall contain such other provisions as the Committee shall
deem advisable, but shall in all events be consistent with and
contain all provisions required in order to qualify the options as
Incentive Stock Options.
(c) All Incentive Stock Options must be granted within ten
years from the earlier of the date on which this Plan was adopted
by the Board of Directors or the date this Plan was approved by the
stockholders.
(d) Unless sooner exercised, all Incentive Stock Options shall
expire no later than 10 years after the date of grant.
(e) The option price for Incentive Stock Options shall be not
less than the Fair Market Value of the Common Stock subject to the
option on the date of grant.
(f) No Incentive Stock Options shall be granted to any
participant who, at the time such option is granted, would own
(within the meaning of Section 422A of the Code) stock possessing
more than 10% of the total combined voting power of all classes of
stock of the employer corporation or of its parent or subsidiary
corporation.
7. Stock Appreciation. A SAR is a right to receive, without payment to
the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with
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<PAGE> 126
respect to any stock option granted under this Plan, either concurrently with
the grant of such stock option or at such later time as determined by the
Committee (as to all or any portion of the shares of Common Stock subject to
the stock option), or (b) alone, without reference to any related stock option.
Each SAR granted by the Committee under this Plan shall be subject to the
following terms and conditions:
7.1. Number. Each SAR granted to any participant shall relate to
such number of shares of Common Stock as shall be determined by the
Committee, subject to adjustment as provided in Section 11.6. In the
case of a SAR granted with respect to a stock option, the number of
shares of Common Stock to which the SAR pertains shall be reduced in the
same proportion that the holder of the option exercises the related stock
option.
7.2. Duration. Subject to earlier termination as provided in
Section 11.4, the term of each SAR shall be determined by the Committee
but shall not exceed ten years and one day from the date of grant.
Unless otherwise provided by the Committee, each SAR shall become
exercisable at such time or times, to such extent and upon such
conditions as the stock option, if any, to which it relates is
exercisable. The Committee may in its discretion accelerate the
exercisability of any SAR.
7.3. Exercise. A SAR may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of SARs which
the holder wishes to exercise. Upon receipt of such written notice, the
Company shall, within 90 days thereafter, deliver to the exercising
holder certificates for the shares of Common Stock or cash or both, as
determined by the Committee, to which the holder is entitled pursuant to
Section 7.4.
7.4. Payment. Subject to the right of the Committee to deliver cash
in lieu of shares of Common Stock (which, as it pertains to officers and
directors of the Company, shall comply with all requirements of the 1934
Act), the number of shares of Common Stock which shall be issuable upon
the exercise of a SAR shall be determined by dividing:
(a) the number of shares of Common Stock as to which the SAR
is exercised multiplied by the amount of the appreciation in such
shares (for this purpose, the "appreciation" shall be the amount by
which the Fair Market Value of the shares of Common Stock subject
to the SAR on the exercise date exceeds (1) in the case of a SAR
related to a stock option, the purchase price of the shares of
Common Stock under the stock option or (2) in the case of a SAR
granted alone, without reference to a related stock option, an
amount which shall be determined by the Committee at the time of
grant, subject to adjustment under Section 11.6); by
(b) the Fair Market Value of a share of Common Stock on the
exercise date.
In lieu of issuing shares of Common Stock upon the exercise of a
SAR, the Committee may elect to pay the holder of the SAR cash equal to
the Fair Market Value on the exercise date of any or all of the shares
which would otherwise be issuable. No fractional shares of Common Stock
shall be issued upon the exercise of a SAR; instead, the holder of the
SAR shall be entitled to receive a cash adjustment equal to the same
fraction
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<PAGE> 127
of the Fair Market Value of a share of Common Stock on the
exercise date or to purchase the portion necessary to make a whole share
at its Fair Market Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold
or transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer
of Common Stock pursuant to stock awards and the transfer and sale of
restricted stock shall be subject to the following terms and conditions:
8.1. Number of Shares. The number of shares to be transferred or
sold by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.
8.2. Sale Price. The Committee shall determine the price, if any,
at which shares of restricted stock shall be sold to a participant, which
may vary from time to time and among participants and which may be below
the Fair Market Value of such shares of Common Stock at the date of sale.
8.3. Restrictions. All shares of restricted stock transferred or
sold hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to
lapse at such time or times as the Committee shall determine
(whether in annual or more frequent installments, at the time of
the death, disability or retirement of the holder of such shares,
or otherwise);
(b) a requirement that the holder of shares of restricted
stock forfeit, or (in the case of shares sold to a participant)
resell back to the Company at his or her cost, all or a part of
such shares in the event of termination of his or her employment or
consulting engagement during any period in which such shares are
subject to restrictions;
(c) such other conditions or restrictions as the Committee may
deem advisable.
8.4. Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to Section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. Shares of restricted stock shall be registered
in the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
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<PAGE> 128
"The transferability of this certificate and the shares of Common
Stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1994-1997 Stock
Option and Compensation Plan of IntraNet Solutions, Inc. (the "Company"),
and an agreement entered into between the registered owner and the
Company. A copy of the Plan and the agreement is on file in the office
of the secretary of the Company."
8.5. End of Restrictions. Subject to Section 11.5, at the end of
any time period during which the shares of restricted stock are subject
to forfeiture and restrictions on transfer, such shares will be delivered
free of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
8.6. Stockholder. Subject to the terms and conditions of the Plan,
each participant receiving restricted stock shall have all the rights of
a stockholder with respect to shares of stock during any period in which
such shares are subject to forfeiture and restrictions on transfer,
including without limitation, the right to vote such shares. Dividends
paid in cash or property other than Common Stock with respect to shares
of restricted stock shall be paid to the participant currently.
9. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the
Committee deems appropriate, including the following:
9.1. Performance Objectives. Each performance share will be subject
to performance objectives for the Company or one of its operating units
to be achieved by the end of a specified period. The number of
performance shares granted shall be determined by the Committee and may
be subject to such terms and conditions, as the Committee shall
determine. If the performance objectives are achieved, each participant
will be paid in shares of Common Stock or cash. If such objectives are
not met, each grant of performance shares may provide for lesser payments
in accordance with formulae established in the award.
9.2. Not Stockholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
stockholder of the Company, until the payment of shares of Common Stock
with respect to an award.
9.3. No Adjustments. No adjustment shall be made in performance
shares granted on account of cash dividends which may be paid or other
rights which may be issued to the holders of Common Stock prior to the
end of any period for which performance objectives were established.
9.4. Expiration of Performance Share. If any participant's
employment or consulting engagement with the Company is terminated for
any reason other than normal retirement, death or disability prior to the
achievement of the participant's stated performance objectives, all the
participant's rights on the performance shares shall expire and terminate
unless otherwise determined by the Committee. In the event of
termination by reason of death, disability, or normal retirement, the
Committee, in its own discretion, may determine what portions, if any, of
the performance shares should be paid to the participant.
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<PAGE> 129
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee deems appropriate.
11. General.
11.1. Effective Date. The Plan will become effective upon its
approval by a majority of the outstanding shares of Common Stock of
the Company at a meeting of stockholders duly called and held. Unless
approved within one year after the date of the Plan's adoption by the
Committee or by the Board of Directors, the Plan shall not be effective
for any purpose.
11.2. Duration. The Plan shall remain in effect until all
Incentives granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Incentives may be granted under the Plan after the tenth
anniversary of the date the Plan is approved by the stockholders of the
Company.
11.3. Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's
death, by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue
Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and the Company shall not be
required to recognize any attempted assignment of such rights by any
participant. During a participant's lifetime, an Incentive may be
exercised only by him or her or by his or her guardian or legal
representative.
11.4. Effect of Termination or Death. In the event that a
participant ceases to be an employee of or consultant to the Company for
any reason, including death, any Incentives may be exercised or shall
expire at such times as may be determined by the Committee.
11.5. Additional Condition. Notwithstanding anything in this Plan
to the contrary:
(a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or
the issuance of any shares of Common Stock pursuant to any
Incentive, require the recipient of the Incentive, as a condition
to the receipt thereof or to the receipt of shares of Common Stock
issued pursuant thereto, to deliver to the Company a written
representation of present intention to acquire the Incentive or the
shares of Common Stock issued pursuant thereto for his or her own
account for investment and not for distribution; and (b) if at any
time the Company further determines, in its sole discretion, that
the listing, registration or qualification (or any updating of any
such document) of any Incentive or the shares of Common Stock
issuable pursuant thereto is necessary on any securities exchange
or under any federal or state securities or blue sky law,
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or that the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection with
the award of any Incentive, the issuance of shares of Common
Stock pursuant thereto, or the removal of any restrictions imposed
on such shares, such Incentive shall not be awarded or such shares
of Common Stock shall not be issued or such restrictions shall not
be removed, as the case may be, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to
the Company.
11.6. Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options,
or achievement of performance share objectives, the number and kind of
shares of stock or other securities to which the holders of the shares of
Common Stock will be entitled pursuant to the transaction. In the event
of any recapitalization, stock dividend, stock split, combination of
shares or other change in the Common Stock, the number of shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options or achievements of performance shares, shall be
adjusted in proportion to the change in outstanding shares of Common
Stock. In the event of any such adjustments, the purchase price of any
option, the performance objectives of any Incentive, and the shares of
Common Stock issuable pursuant to any Incentive shall be adjusted as and
to the extent appropriate, in the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.
11.7. Incentive Plans and Agreements. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a
plan or agreement approved by the Committee. The Committee 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 stock options and in order to
eliminate SARs with respect to all or part of such options and any other
previously issued options.
11.8. Withholding.
(a) The Company shall have the right to withhold from any
payments made under the Plan or to collect as a condition of
payment, any taxes required by law to be withheld. At any time when
a participant is required to pay to the Company an amount required
to be withheld under applicable income tax laws in connection with a
distribution of Common Stock or upon exercise of an option or SAR,
the participant may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold from the
distribution shares of Common Stock having a value up to the amount
required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value of the Common Stock on the
date that the amount of tax to be withheld shall be determined ("Tax
Date").
(b) Each Election must be made prior to the Tax Date. The
Committee may disapprove of any Election, may suspend or terminate
the right to make Elections, or may provide with respect to any
Incentive that the right to make Elections shall not apply to such
Incentive. An Election is irrevocable.
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(c) If a participant is an officer or director of the Company
within the meaning of Section 16 of the 1934 Act, then an Election
must comply with all of the requirements of the 1934 Act.
11.9. No Continued Employment, Engagement or Right to Corporate
Assets. No participant under the Plan shall have any right, because of
his or her participation, to continue in the employ of, or to continue
his or her consulting engagement for, the Company for any period of time
or to any right to continue his or her present or any other rate of
compensation. Nothing contained in the Plan shall be construed as giving
an employee, a consultant, such persons' beneficiaries or any other
person any equity or interests of any kind in the assets of the Company
or creating a trust of any kind or a fiduciary relationship of any kind
between the Company and any such person.
11.10. Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11. Amendment of the Plan. The Committee or the Board of
Directors may amend or discontinue the Plan at any time.
However, no such amendment or discontinuance shall, subject to adjustment
under Section 11.6: (a) change or impair, without the consent of the
recipient, an Incentive previously granted; (b) materially increase the
maximum number of shares of Common Stock which may be issued to all
participants under the Plan; (c) materially increase the benefits
which may be granted under the Plan; (d) materially modify the
requirements as to eligibility for participation in the Plan; or (e)
materially increase the benefits accruing to participants under the Plan.
11.12. Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary: (1) the
restrictions on all shares of restricted stock shall lapse immediately;
(2) all outstanding options and SARs will become exercisable immediately;
and (3) all performance shares shall be deemed to be met and payment made
immediately, if subsequent to the date that the Plan is approved by the
Committee or the Board of Directors of the Company, any of the following
events occur unless otherwise determined by the Board of Directors and a
majority of the Continuing Directors (as defined below):
(1) any person or group of persons becomes the beneficial
owner of 30% or more of any equity security of the Company entitled
to vote for the election of directors;
(2) a majority of the members of the Board of Directors of the
Company is replaced within the period of less than two years by
directors not nominated and approved by the Board of Directors; or
(3) the stockholders of the Company approve an agreement to
merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all
of the Company's assets (including a plan of liquidation).
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<PAGE> 132
For purposes of this Section 11.12, beneficial ownership by a person
or group of persons shall be determined in accordance with Regulation 13D
(or any similar successor regulation) promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act. Beneficial ownership of
more than 30% of an equity security may be established by any reasonable
method, but shall be presumed conclusively as to any person who files a
Schedule 13D report with the Securities and Exchange Commission reporting
such ownership. If the restrictions and forfeitability periods are
eliminated by reason of the provision in (1) above the limitations of
this Plan shall not become applicable again should the person cease to
own 30% or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are
directors: (a) who were in office prior to the time that any of the
provisions in (1), (2) or (3) above occurred or any person who has
publicly announced an intention to acquire 20% or more of any equity
security of the Company; (b) directors in office for a period of more
than two years; and (c) directors nominated and approved by the existing
Continuing Directors.
11.13. Definition of Fair Market Value. Whenever "Fair Market
Value" of Common Stock shall be determined for purposes of this Plan, it
shall be determined by reference to the last sale price of a share of
Common Stock on the principal United States Securities Exchange
registered under the 1934 Act on which the Common Stock is listed (the
"Exchange"), or, on the National Association of Securities Dealers, Inc.
Automatic Quotation System (including the National Market system)
("NASDAQ") on the applicable date, or if the Company's Common Stock has
not yet been listed on the Exchange, the Board of Directors may determine
an alternate methodology to determine "Fair Market Value." If the
Exchange or NASDAQ is closed for trading on such date, or if the Common
Stock does not trade on such date, then the last sale price used shall be
the one on the date the Common Stock last traded on the Exchange or
NASDAQ.
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<PAGE> 133
PROXY
MACGREGOR SPORTS & FITNESS, INC.
SPECIAL MEETING OF STOCKHOLDERS, MAY 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Henry Fong and Michael S. Casazza and each of them, as proxies, with
full power of substitution in each of them, are hereby authorized to represent
and to vote, as designated below and on the reverse side, on all proposals and
in the discretion of the proxies on such other matters as may properly come
before the special meeting of stockholders of MacGregor Sports & Fitness, Inc.,
to be held on May 15, 1996, or any adjournment(s), postponement(s), or other
delay(s) thereof (the "Special Meeting"), all shares of stock of MacGregor
Sports & Fitness, Inc., which the undersigned is entitled to vote at the
Special Meeting.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS
1, 2, 3, 4, 5 AND 6 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3, 4, 5 AND 6.
(1) A proposal to sell the rights to use the MacGregor trademark and various
related trademarks held by MacGregor Sports Products, Inc., a wholly owned
subsidiary of MacGregor Sports & Fitness, Inc., to Hutch Sports USA, Inc.
/ / FOR / / AGAINST / / ABSTAIN
(2) A proposal to approve and ratify the Agreement and of Plan Merger, as
amended, attached to the Proxy Statement (the "Proxy Statement") of
MacGregor Sports & Fitness, Inc., dated April 19, 1996, as Exhibit D, and
to approve the Merger of MG Acquisition Subsidiary, Inc., a wholly owned
subsidiary of MacGregor Sports & Fitness, Inc., with and into IntraNet
Integration Group, Inc., as a result of which the current stockholders of
IntraNet Integration Group, Inc., will receive approximately 18,000,000
shares of the common stock of MacGregor Sports & Fitness, Inc.
/ / FOR / / AGAINST / / ABSTAIN
(3) A proposal to amend and restate the Articles of Incorporation of MacGregor
Sports & Fitness, Inc., the result of which will be to (i) change the
Corporation's name from "MacGregor Sports & Fitness, Inc.," to "IntraNet
Solutions, Inc."; (ii) revoke the right of MacGregor Sports & Fitness,
Inc., to issue any class of capital stock other than common stock, and
(iii) to change the par value of the common stock from $0.02 to $0.01 per
share.
/ / FOR / / AGAINST / / ABSTAIN
(4) A proposal to elect the following nominees as Directors to serve in such
capacities until their successors are duly elected and qualified:
Robert F. Olson
Henry Fong
Jeffrey J. Sjobeck
Ronald E. Eibensteiner
David D. Koentopf
<PAGE> 134
(Authority to vote for any nominee(s) may be withheld by lining through the
name(s) of any such nominee(s)).
/ / FOR / / WITHHOLD AUTHORITY FOR ALL
(5) A proposal to approve and ratify a new 1994-1997 Stock Option Plan for
MacGregor Sports & Fitness, Inc., in the form attached to the Proxy
Statement as Exhibit H.
/ / FOR / / AGAINST / / ABSTAIN
(6) A proposal to ratify the selection of Lund Koehler Cox & Company PLLP to
audit the consolidated financial statements of the Corporation for the
fiscal years ending March 31, 1996, and March 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as the name
of the stockholder appears on the
stock certificate, date and
return. If shares are held by
joint tenants, both should sign.
When signing as attorney,
executor, administrator, trustees
or guardian, please give full
title as such. If a corporation
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Date: __________________________
Sign Here:______________________
________________________________
Signature (if held jointly)
________________________________
Capacity (Title of Authority,
i.e., Executor, Trustee)
PLEASE SIGN, DATE AND MAIL YOUR
PROXY TODAY
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